The magical thinking of economists is a pathology of thought with deep historical roots.
To apply the term “magical” to modern economic thought is to suggest that, despite the extensive formalization of the discipline, above all, its use of econometric models to analyze its data, there remains within it an unassimilated and unexamined residue of irrational thought. Moreover, the irrationality is most evident in its basic assumptions: not only the assumptions about human action, but even more about what is increasingly acknowledged to be the theoretical Achilles heel of economics since its inception in the eighteenth century, the concept of the market itself. It is here that the term “magical,” which allowed us to see the irrationality that is reproduced rather than eliminated by its formal apparatus, may, if we’re not careful, prevent us from seeing how the magical thinking of economists is not simply a pathology of thought, but is historically determined in ways that are so profoundly embedded in economic theory that they have proven to be remarkably resistant to analysis.
The theological underpinnings of economic theory are becoming increasingly obvious.
The physiocrats saw the market as a “second providence,” an extension of God’s design (with or without God) through the unintended consequences of human activity. As Martijn Konings has noted, later critics of this idea saw it as a kind of idolatry: the market could be granted autonomous agency and knowledge only on the basis of a forgetting and a repression of the fact that it was a product of and dependent on human activity. Mary Shelley’s Frankenstein explores the fear that such an idol inspires: the idea that a mute and unmoving Golden Calf could become a Golem, that is, come alive, free itself from human control, and destroy its creator.