Einstein — The Physics Giant and the Economics Dwarf

When it came to science and theoretical physics, Einstein was no dummy. Indeed Einstein’s contribution to science is unparalleled. Many of the technological tools we routinely depend on would not exist without Einstein’s theories of relativity. Examples abound: cellular telecommunications, GPS, space travel.

Without doubt Einstein was a smart cookie. With reference to him, the year 1905 is called Annus Mirabilis  (in English “miracle year”, in German Wunderjahr). That year, he published four papers in the Annalen der Physik scientific journal on the photoelectric effect, Brownian motion, Special relativity, and Mass-energy equivalence. They dramatically changed our understanding of space, time, mass and energy, thus building one of the pillars of modern physics (the other pillar being quantum mechanics built by Planck, Schrödinger, Heisenberg, Born, et al.) The Nobel Prize in Physics in 1921 was awarded to Albert Einstein “for his services to Theoretical Physics, and especially for his discovery of the law of the photoelectric effect.” (Fun fact:  The 1921 Physics prize was actually awarded a year later in 1922.)

Einstein was clever. But when it comes to understanding how that great big enterprise we call society operates in terms of production, distribution, exchange and consumption, Einstein was evidently clueless. His basic instincts of compassion, generosity, and altruism combined with his ignorance of economics, political economy, and economic history led him to fundamentally flawed conclusions about capitalism and socialism. It appears that he perhaps read a bit of Marx — just enough to get the wrong ideas. The kind of ideas that instinctively appeal to bleeding-heart teenagers, but which with some maturity, are discarded with a “I can’t believe that I actually believed in that pile of horse manure. Was I stupid or what?”

Instead of Marx, Einstein should have read the Austrians — specifically Mises and Hayek. In fact, Einstein could have read some of their works in his mother tongue. But he didn’t and therefore ended up with at least two terrible ideas. He thought that socialism was a good idea, and that a world government was a good idea. Both are horrible ideas.

In the first issue of “Monthly Review – An Independent Socialist Magazine” Einstein wrote an article “Why Socialism” in May 1949. (The essay is appended at the bottom of this post.)

Einstein begins his essay by asking whether it is advisable for someone who is not an expert on economic and social issues to talk about socialism, and answers that it is. I think that while it is fine for ordinary people to express themselves on topics that they are generally ignorant about, the same freedom is denied to someone who is popularly considered a giant intellect. Einstein was an intellectual giant in physics. But he was an intellectual pygmy in the domain of economics.

If the average person makes some clearly idiotic statement, it really doesn’t do much harm. But if some celebrity does it, it can cause of lot of harm because people tend to believe them. Mind you, I am not only talking of movie stars or rich dudes or politicians or sports heroes; celebrated scientists and authors are included in the set of celebrities. If I say something stupid, nobody notices and therefore it does not really matter. But if Trump says something stupid (and does he ever), millions of his minions could get mislead and disastrous things could happen.

Einstein should have been very careful in expressing his opinion on how bad capitalism is and how desirable socialism is. His views on socialism is frequently used by socialists to “prove” that socialism is a brilliant idea. Every educated person has heard of Einstein and nearly all of them (with the possible exception of the ardent followers of The Religion of Peace) consider him to be an extraordinarily great man, and therefore someone whose opinions matter. If Einstein is wrong about capitalism and socialism, he has given a lot of people wrong ideas about those two systems. That causes a lot of needless damage.

Einstein did not know economics and he should have resisted the temptation to hold forth on economics. I like to quote the formidable Rothbard. “It is no crime to be ignorant of economics, which is, after all, a specialized discipline … But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”

Granted that Einstein’s opinion on economics is not very widely known but still I would like to stress the principle that great men and women should stick to their domains, and disclaim all knowledge of subjects outside those limited domains.

One of the great foundational ideas of economics is “the division of labor.” It allows the great increases in productivity we enjoy. Every one of us more or less specialize and therefore become very good at doing some particular thing (writing code, or cooking or playing chess), and we focus on that alone, and then we exchange the stuff we produce for other stuff we need but which are produced by other specialists.

The fact that it takes time to specialize and become a top performer in some domain necessarily means that one can’t simultaneously be a top performer in other domains. Einstein was a Nobel prize-winning physicist; that means he was unlikely to have been a champion basketball player or a great economist.

Furthermore, expertise in one area does not bleed into other areas. Einstein’s great insight into relativistic physics does not in any way illuminate his understanding of how markets work. Besides the division of labor that’s central to a modern economy, there is a “division of knowledge.” Einstein worked hard at physics and therefore had a great deal of knowledge about physics but that meant that he could not think about matters economics, just the same way that a Friedrich Hayek did not think about relativity. Hayek was brilliant in economics but I am sure that he was completely out of his depth in matters of theoretical physics. The world is too complex for any single mind to comprehend more than even a small bit of it. We have to choose which part of this great big elephant we have the time to investigate.

So for now, let me highlight only those bits of Einstein’s essay in which he praises socialism. (I have appended the entire essay at the end of this post.) Here’s one:

The economic anarchy of capitalist society as it exists today is, in my opinion, the real source of the evil.

Anarchy of capitalism? I bet that we have wildly differing definitions of “anarchy” and “capitalism.” Dear old Albert used words that he didn’t bother to define for his readers. The assumption was that those words are as easily understood as the words for dogs and cats. In truth, both those words mean entirely different things to different people. Anarchy, for instance, does not mean chaos; it means the absence of a state. And capitalism does not mean some kind of dog-eat-dog world but a system which is characterized by private property and voluntary exchange.

Einstein wrote:

In relatively densely settled populations with the goods which are indispensable to their continued existence, an extreme division of labor and a highly-centralized productive apparatus are absolutely necessary.

Highly-centralized productive apparatus. Top-down control, central planning and direction is implied. Great big bureaucracies that issue orders for the production of the hundreds of millions of final goods, and another tens of millions of intermediate goods. You can imagine people filling in huge spreadsheets — 100 million columns and 100 million rows — with input/output numbers. Then proper adjustments need to be conveyed to producers to reduce or increase their output.

“Order to ScrewProducer#54. Tomorrow you produce 12,433 screws of type #A165432. Ship 2,970 of them to the company GadgetsMaker#723 using ShippingFirm#2975.”

“Order to GadgetsMaker#723 Make 40,000 gadgets and ship them to Store#8745.”

Einstein apparently did not know about the idea of spontaneous order. Spontaneous order is order that emerges from the interaction of a large number of independent agents following a set of rules (often very few in number) without the need for a centralized authority that controls and directs the agents. That is order arising without orders. Orders from the top can of course create order — as in armies or in corporations. But societies don’t need centralized, top-down orders. This is counter-intuitive. Societies don’t need designing. Not just that, attempts at designing societies fail spectacularly.

Societies and the institutions that comprise them are not “designed”. They evolve through trial and error. Humans acting as free individuals and voluntarily composed groups, pursuing their own chosen ends, create the order that emerges. This was recognized by Adam Ferguson (1723-1816), a leading figure of the Scottish Enlightenment. In his An Essay on the History of Civil Society (1767) he wrote:

Every step and every movement of the multitude, even in what is termed enlightened ages, are made with equal blindness to the future; and nations stumble upon establishments [institutions], which are indeed the result of human action, but not the execution of any human design.

Result of human action but not human design. That’s the key point — not everything needs a designer. Specifically, systems that evolve inherently don’t admit any attempts at design.

Einstein essay is not very long but it will take a long essay to fully expose his errors. It’s a shining example of how stepping out of one’s area of competency, one can end up doing foolish things. His essay follows:

Why Socialism

By Albert Einstein       May 1949

Is it advisable for one who is not an expert on economic and social issues to express views on the subject of socialism? I believe for a number of reasons that it is.

Let us first consider the question from the point of view of scientific knowledge. It might appear that there are no essential methodological differences between astronomy and economics: scientists in both fields attempt to discover laws of general acceptability for a circumscribed group of phenomena in order to make the interconnection of these phenomena as clearly understandable as possible. But in reality such methodological differences do exist. The discovery of general laws in the field of economics is made difficult by the circumstance that observed economic phenomena are often affected by many factors which are very hard to evaluate separately. In addition, the experience which has accumulated since the beginning of the so-called civilized period of human history has—as is well known—been largely influenced and limited by causes which are by no means exclusively economic in nature. For example, most of the major states of history owed their existence to conquest. The conquering peoples established themselves, legally and economically, as the privileged class of the conquered country. They seized for themselves a monopoly of the land ownership and appointed a priesthood from among their own ranks. The priests, in control of education, made the class division of society into a permanent institution and created a system of values by which the people were thenceforth, to a large extent unconsciously, guided in their social behavior.

But historic tradition is, so to speak, of yesterday; nowhere have we really overcome what Thorstein Veblen called “the predatory phase” of human development. The observable economic facts belong to that phase and even such laws as we can derive from them are not applicable to other phases. Since the real purpose of socialism is precisely to overcome and advance beyond the predatory phase of human development, economic science in its present state can throw little light on the socialist society of the future.

Second, socialism is directed towards a social-ethical end. Science, however, cannot create ends and, even less, instill them in human beings; science, at most, can supply the means by which to attain certain ends. But the ends themselves are conceived by personalities with lofty ethical ideals and—if these ends are not stillborn, but vital and vigorous—are adopted and carried forward by those many human beings who, half unconsciously, determine the slow evolution of society.

For these reasons, we should be on our guard not to overestimate science and scientific methods when it is a question of human problems; and we should not assume that experts are the only ones who have a right to express themselves on questions affecting the organization of society.

Innumerable voices have been asserting for some time now that human society is passing through a crisis, that its stability has been gravely shattered. It is characteristic of such a situation that individuals feel indifferent or even hostile toward the group, small or large, to which they belong. In order to illustrate my meaning, let me record here a personal experience. I recently discussed with an intelligent and well-disposed man the threat of another war, which in my opinion would seriously endanger the existence of mankind, and I remarked that only a supra-national organization would offer protection from that danger. Thereupon my visitor, very calmly and coolly, said to me: “Why are you so deeply opposed to the disappearance of the human race?”

I am sure that as little as a century ago no one would have so lightly made a statement of this kind. It is the statement of a man who has striven in vain to attain an equilibrium within himself and has more or less lost hope of succeeding. It is the expression of a painful solitude and isolation from which so many people are suffering in these days. What is the cause? Is there a way out?

It is easy to raise such questions, but difficult to answer them with any degree of assurance. I must try, however, as best I can, although I am very conscious of the fact that our feelings and strivings are often contradictory and obscure and that they cannot be expressed in easy and simple formulas.

Man is, at one and the same time, a solitary being and a social being. As a solitary being, he attempts to protect his own existence and that of those who are closest to him, to satisfy his personal desires, and to develop his innate abilities. As a social being, he seeks to gain the recognition and affection of his fellow human beings, to share in their pleasures, to comfort them in their sorrows, and to improve their conditions of life. Only the existence of these varied, frequently conflicting, strivings accounts for the special character of a man, and their specific combination determines the extent to which an individual can achieve an inner equilibrium and can contribute to the well-being of society. It is quite possible that the relative strength of these two drives is, in the main, fixed by inheritance. But the personality that finally emerges is largely formed by the environment in which a man happens to find himself during his development, by the structure of the society in which he grows up, by the tradition of that society, and by its appraisal of particular types of behavior. The abstract concept “society” means to the individual human being the sum total of his direct and indirect relations to his contemporaries and to all the people of earlier generations. The individual is able to think, feel, strive, and work by himself; but he depends so much upon society—in his physical, intellectual, and emotional existence—that it is impossible to think of him, or to understand him, outside the framework of society. It is “society” which provides man with food, clothing, a home, the tools of work, language, the forms of thought, and most of the content of thought; his life is made possible through the labor and the accomplishments of the many millions past and present who are all hidden behind the small word “society.”

It is evident, therefore, that the dependence of the individual upon society is a fact of nature which cannot be abolished—just as in the case of ants and bees. However, while the whole life process of ants and bees is fixed down to the smallest detail by rigid, hereditary instincts, the social pattern and interrelationships of human beings are very variable and susceptible to change. Memory, the capacity to make new combinations, the gift of oral communication have made possible developments among human being which are not dictated by biological necessities. Such developments manifest themselves in traditions, institutions, and organizations; in literature; in scientific and engineering accomplishments; in works of art. This explains how it happens that, in a certain sense, man can influence his life through his own conduct, and that in this process conscious thinking and wanting can play a part.

Man acquires at birth, through heredity, a biological constitution which we must consider fixed and unalterable, including the natural urges which are characteristic of the human species. In addition, during his lifetime, he acquires a cultural constitution which he adopts from society through communication and through many other types of influences. It is this cultural constitution which, with the passage of time, is subject to change and which determines to a very large extent the relationship between the individual and society. Modern anthropology has taught us, through comparative investigation of so-called primitive cultures, that the social behavior of human beings may differ greatly, depending upon prevailing cultural patterns and the types of organization which predominate in society. It is on this that those who are striving to improve the lot of man may ground their hopes: human beings are not condemned, because of their biological constitution, to annihilate each other or to be at the mercy of a cruel, self-inflicted fate.

If we ask ourselves how the structure of society and the cultural attitude of man should be changed in order to make human life as satisfying as possible, we should constantly be conscious of the fact that there are certain conditions which we are unable to modify. As mentioned before, the biological nature of man is, for all practical purposes, not subject to change. Furthermore, technological and demographic developments of the last few centuries have created conditions which are here to stay. In relatively densely settled populations with the goods which are indispensable to their continued existence, an extreme division of labor and a highly-centralized productive apparatus are absolutely necessary. The time—which, looking back, seems so idyllic—is gone forever when individuals or relatively small groups could be completely self-sufficient. It is only a slight exaggeration to say that mankind constitutes even now a planetary community of production and consumption.

I have now reached the point where I may indicate briefly what to me constitutes the essence of the crisis of our time. It concerns the relationship of the individual to society. The individual has become more conscious than ever of his dependence upon society. But he does not experience this dependence as a positive asset, as an organic tie, as a protective force, but rather as a threat to his natural rights, or even to his economic existence. Moreover, his position in society is such that the egotistical drives of his make-up are constantly being accentuated, while his social drives, which are by nature weaker, progressively deteriorate. All human beings, whatever their position in society, are suffering from this process of deterioration. Unknowingly prisoners of their own egotism, they feel insecure, lonely, and deprived of the naive, simple, and unsophisticated enjoyment of life. Man can find meaning in life, short and perilous as it is, only through devoting himself to society.

The economic anarchy of capitalist society as it exists today is, in my opinion, the real source of the evil. We see before us a huge community of producers the members of which are unceasingly striving to deprive each other of the fruits of their collective labor—not by force, but on the whole in faithful compliance with legally established rules. In this respect, it is important to realize that the means of production—that is to say, the entire productive capacity that is needed for producing consumer goods as well as additional capital goods—may legally be, and for the most part are, the private property of individuals.

For the sake of simplicity, in the discussion that follows I shall call “workers” all those who do not share in the ownership of the means of production—although this does not quite correspond to the customary use of the term. The owner of the means of production is in a position to purchase the labor power of the worker. By using the means of production, the worker produces new goods which become the property of the capitalist. The essential point about this process is the relation between what the worker produces and what he is paid, both measured in terms of real value. Insofar as the labor contract is “free,” what the worker receives is determined not by the real value of the goods he produces, but by his minimum needs and by the capitalists’ requirements for labor power in relation to the number of workers competing for jobs. It is important to understand that even in theory the payment of the worker is not determined by the value of his product.

Private capital tends to become concentrated in few hands, partly because of competition among the capitalists, and partly because technological development and the increasing division of labor encourage the formation of larger units of production at the expense of smaller ones. The result of these developments is an oligarchy of private capital the enormous power of which cannot be effectively checked even by a democratically organized political society. This is true since the members of legislative bodies are selected by political parties, largely financed or otherwise influenced by private capitalists who, for all practical purposes, separate the electorate from the legislature. The consequence is that the representatives of the people do not in fact sufficiently protect the interests of the underprivileged sections of the population. Moreover, under existing conditions, private capitalists inevitably control, directly or indirectly, the main sources of information (press, radio, education). It is thus extremely difficult, and indeed in most cases quite impossible, for the individual citizen to come to objective conclusions and to make intelligent use of his political rights.

The situation prevailing in an economy based on the private ownership of capital is thus characterized by two main principles: first, means of production (capital) are privately owned and the owners dispose of them as they see fit; second, the labor contract is free. Of course, there is no such thing as a pure capitalist society in this sense. In particular, it should be noted that the workers, through long and bitter political struggles, have succeeded in securing a somewhat improved form of the “free labor contract” for certain categories of workers. But taken as a whole, the present day economy does not differ much from “pure” capitalism.

Production is carried on for profit, not for use. There is no provision that all those able and willing to work will always be in a position to find employment; an “army of unemployed” almost always exists. The worker is constantly in fear of losing his job. Since unemployed and poorly paid workers do not provide a profitable market, the production of consumers’ goods is restricted, and great hardship is the consequence. Technological progress frequently results in more unemployment rather than in an easing of the burden of work for all. The profit motive, in conjunction with competition among capitalists, is responsible for an instability in the accumulation and utilization of capital which leads to increasingly severe depressions. Unlimited competition leads to a huge waste of labor, and to that crippling of the social consciousness of individuals which I mentioned before.

This crippling of individuals I consider the worst evil of capitalism. Our whole educational system suffers from this evil. An exaggerated competitive attitude is inculcated into the student, who is trained to worship acquisitive success as a preparation for his future career.

I am convinced there is only one way to eliminate these grave evils, namely through the establishment of a socialist economy, accompanied by an educational system which would be oriented toward social goals. In such an economy, the means of production are owned by society itself and are utilized in a planned fashion. A planned economy, which adjusts production to the needs of the community, would distribute the work to be done among all those able to work and would guarantee a livelihood to every man, woman, and child. The education of the individual, in addition to promoting his own innate abilities, would attempt to develop in him a sense of responsibility for his fellow men in place of the glorification of power and success in our present society.

Nevertheless, it is necessary to remember that a planned economy is not yet socialism. A planned economy as such may be accompanied by the complete enslavement of the individual. The achievement of socialism requires the solution of some extremely difficult socio-political problems: how is it possible, in view of the far-reaching centralization of political and economic power, to prevent bureaucracy from becoming all-powerful and overweening? How can the rights of the individual be protected and therewith a democratic counterweight to the power of bureaucracy be assured?

Clarity about the aims and problems of socialism is of greatest significance in our age of transition. Since, under present circumstances, free and unhindered discussion of these problems has come under a powerful taboo, I consider the foundation of this magazine to be an important public service.

Author: Atanu Dey


8 thoughts on “Einstein — The Physics Giant and the Economics Dwarf”

  1. A more recent example of the argument to authority (when the person concerned isn’t even one) is Stephen Hawking fearmongering about AI getting out of control when it is definitely not his field of expertise.


  2. “Societies don’t need centralized, top-down orders” — Between India and China, which one has more centralized control? Which order would you prefer?


    1. Jay, India has more centralized, top-down control compared to China. At the local levels in China, people have more control and greater economic freedom. I would not want any control but forced to choose between the two — India or China — I would prefer China.


      1. Do you have any good books or blog posts that explain the success of China? This genuinely tends to confuse me, my father for one strongly believes that China’s strong state and central planning in a particular direction is responsible for its success. I’m more libertarian but I don’t have any strong arguments against that strain of thought.


        1. China has a strong state. That’s part of the explanation of China’s success. But not just a strong state — the leaders are not retards, unlike the retards in India. Deng Xiaoping was the first non-retard leader of China. He realized that socialism is a recipe for disaster. So he undertook pro-market policies. Intelligence, strong state, and pro-market created the China spectacle.

          See this article in the Economist Is China’s growth model a threat to free-market economics? June 2018. Quote:

          But it is critical to bear in mind that most of China’s economic policies during the past decades have been pro-market and pro-efficiency. If anything, China’s economic reforms have demonstrated the vitality of free-market liberalism. There is a growing body of research confirming that a pro-market environment at the local level has been instrumental in delivering economic growth, as well as in boosting the efficiency of companies, promoting consumption and reducing the risk of asset bubbles.


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