Class, History, and the Concept of a Path-Dependent Equilibrium

Chapter 15 of The Information Class

This is chapter 15 of a book that I’m publishing serially, entitled The Information Class. To get up to speed, read the intro, chapter 1, chapter 2, chapter 3, chapter 4, chapter 5, chapter 6, chapter 7, chapter 8, chapter 9, chapter 10, chapter 11, chapter 12, chapter 13, and chapter 14. And sign up to get future chapters in your inbox.

Now at this point, I must throw in an important concept which will at first seem almost vacuously trivial. A class has a history.

Doesn't everything have a history? All matter exists in time. Things that are in the world either were in the world before, or they weren't. Either way, they have a history, either of what they did before or how they were made.

But as an example of a thing that does not have a history in the sense I mean here, consider a pool of water sitting in a basin of rock. It actually has a history, but its history does not affect its form.

Maybe it got there from rain, or from a little stream. But the process that made it has been erased. However the water got there, its shape is determined by an equilibrium of present forces, by the way gravity pulls it down and rock blocks its descent, and not by anything about how the water came to be there. At some point in the past, when the rain was falling or the stream was flowing, the form of the water bore witness to where it came from. But then it settled into an equilibrium which is not shaped by its history.

In contrast with this, consider a fossil. It has been in the rock for 100 million years. But its shape remains, and still tells the story of some organism in the unimaginably distant past. The preservation of the shape owes nothing to the functionality of the shape. It was functional once, in a way that a human paleontologist will still be able to understand if the fossil is ever brought to light. But its preservation now is entirely a function of the stable immutability of the rock. All around it are patterns which are merely random and insignificant, yet they too are preserved, and bear witness to some history, some ripple in the solidifying lava perhaps, though the history is of no interest. In the pool of water, history is nothing. In the fossil, it is everything.

Economists tend to represent the economy by means of models that are atemporal and have no history, and in which the predictions come from a mere balance of forces called equilibrium. Casual narratives about equilibration processes might be provided, but the details of equilibration don't affect the outcome. This method, which is somewhat counterintuitive, yields a lot of insight. A price may stay the same for fifty years, without any help from tradition. It's all about supply, demand, and market equilibrium. Like the pool of water in the basin of rock, a price might be held steady by an equilibrium of forces, with supply and demand, cost and competition persisting in a balance of pressures that result in a peculiar dynamic stasis, or near-stasis. More likely, the price does move a little, but its movements are held to a central tendency by the cross-pressures of supply and demand.

While market equilibrium is a counterintuitive truth that the world is indebted to economists for opening its eyes to, economists’ enthusiasm for the idea tends to make them exaggerate its reach. Often, history does matter. Often, an industry is explained as much by the particular histories of certain companies as by the underlying forces of cost and technology and supply and demand. A product’s availability, or not, often depends not on market equilibrium but on the uncompelled decision of a company official. Often, competition is imperfect, and depends in any case on the maintenance of certain protocols and standards as well as relationships of trust among certain parties.

The word “institutions” has an interesting history in economics which is somewhat connected to economists’ intermittent recognition that trade and productivity aren't merely spontaneous equilibria, but require more historically rooted structure than that, more protocols and standards and conventions and long-standing relationships and corporate cultures, which often originate less in accident and spontaneous order than in intentional solutions to coordination problems, and which are often fragile and vulnerable to disruption from which no mere spontaneous equilibration process will ensure recovery. But economists have never really tamed this idea or integrated it into mainstream theory, and the word “institutions,” meandering through economics over the years, began to capture thinking of great subtlety in Oliver Williamson, then less in Douglas North, and finally, in Acemoglu, was degraded merely into the false idea that economic development depends on democracy. So I'll need to start from scratch.

The best concrete example where history matters in economics is cities. Why are cities where they are? In one sense, it's an equilibrium. People want to be where other people are, and that keeps them concentrated in the same places. They don't care where, they just want to be where the people are. Many cities are located at sites that have no particular advantage, or only an obsolete advantage, for serving as a city site. Markets continually confirm and reconfirm the value of the city and keep it in the same place. But you would search in vain for reasons why the site is optimal, and it would be a mistake to assume the site must be optimal because revealed preference proves that it is. It could have been elsewhere, but once it's established, it stays put. It's a path-dependent equilibrium, in which the usual equilibration forces sustain not an outcome that is inherently optimal, but an outcome that is the product of some history.

Technology specifications and educational standards can have a similar character as the sticky solution to a coordination problem. The QWERTY keyboard is another good example: we all use it, though arguably it's inefficiently designed, and in any case it's certainly arbitrary, but that's what we've learned, and to switch would be too much of a coordination problem between equipment makers and typists. Facebook, likewise, holds its own because of its network.

The metaphor of “liquidity” is sometimes invoked to describe situations where free movement of things tends to continually erase the past, standing vaguely in contrast with “path dependency” and “institutions.” “Liquidity” is usually regarded as good in finance, signifying flexibility and options, and helping to lubricate the economy, to facilitate transactions, and to prevent frictions and bankruptcies. Yet there can be too much liquidity, fueling volatility and bubbles. In contrast with liquidity, parts of the economy have a solid and structured character. Again, I tend to be wary of “institutional economics,” much of which is vague, tendentious, and lacking in rigorous concepts. But I value the way the word “institutions” suggests something solid, stable, and hierarchical. It captures the need for structure as well as liquidity in the economy. And here's where we glimpse a point that is excruciatingly subtle but ever so important. By the way, the word “tradition” is not at all fashionable in economics, but it stands ready, if invoked, to do similar important work.

Now for that key point: life requires both liquid and solid, fluidity and institutions, resiliency and stability, equilibrium and tradition.

The water in the rock basin is not alive. It's a mere equilibrium. The fossil is also not alive. It's merely fixed. Life requires both solid and liquid, both fixity and structure and fluidity and the dynamic stasis of equilibrium. The liquid component, blood in the veins or sap in the trunk, makes life dynamic and adaptable. The solid component, the bones and muscles and stems and seeds, is also necessary to make life-forms coherent and persistent. The forms of life are never so simple that they would spontaneously re-emerge if completely destroyed, though they have some resiliency. Like cities and the QWERTY keyboard, they can persist through flux and change, and also grow, capturing ambient matter and energy into their system. Life is a path-dependent equilibrium.

Real, practical capitalism has this same living character, both solid and liquid, mingling institutional structure with competitive fluidity. Its solid and structured aspect consists of companies and institutions and laws and even of mere consumer habits and brand awareness. Its liquid aspect consists of money flowing and prices being shaped by competition, of workers continually churning in and out of companies, of consumers seeking novelty. Its health depends on the right balance of the institutional and competitive elements.

The novelist William Faulkner famously wrote that “the past is never dead. It isn't even past.” The statement has often been accounted wise, yet prima facie it's nonsensical, p equals not-p. But I think we can see the meaning, and the wisdom, of Faulkner's phrase in the phenomena of life, and in capitalism, and cities, and all path-dependent equilibria. In these phenomena, the past isn't past. What happened long ago is with us still, an essential component of living reality. All sorts of questions about what happens and what people do can be answered only with reference to the past.

Note that this idea that the past isn't past doesn't apply to the pool of water, or the fossil. The pool formed somehow, but that's in the past. It doesn't matter now. The past has been erased. The fossil’s past, by contrast, does matter. The whole interest of the fossil lies in the past to which it bears witness. But that past is decidedly dead. Its essence has been lost, and we can only guess what the living creature was like. It's in life, in particular, and in tradition, that the past isn't past, and a form that is the product of its history in certain ways maintains and renews itself. What it was, what it became through its experiences, it still is now.

Turning to class, do classes have a history, in a sense that matters? Is there path dependency in the phenomenon of class? Are classes adequately understood as equilibria, deriving their stability from some balance of forces? Or must they be understood in light of their history? Is class a mere equilibrium, or is it that special kind of path-dependent equilibrium that occurs in the phenomena of life?

One can imagine a class free of significant history, class as a mere equilibrium. The exercise is rather instructive.

Consider a society that is mostly settled, and has farming, but has no domestic beasts, so it gets its meat by hunting in the wild. A substantial minority of the males make their livings by hunting. If there are too many hunters, the price of meat falls, and some hunters get jobs on the farms instead. If there are not enough hunters, meat gets expensive, and some men take to hunting for the pay. The number of hunters is stable, and they are drawn mostly from the children of hunters, for mere convenience, but no one is keeping track. A certain limited ethos emerges naturally from the mere camaraderie of cooperating hunters, but there are no traditions. If they were all somehow wiped out, the demand for meat would cause more hunters to appear, and they would soon adopt lifestyles almost indistinguishable from the current hunters.

The hunters in this example are a class without relevant history. They are like the pool of water in the rocky basin, a mere equilibrium of forces, rootless and memoryless and without plans for the future. There is no path dependency, no past that isn't past because it is still an essential part of lived reality.

But real classes are rarely if ever like that.

For one thing, real classes usually have, at least to some extent, a past that they remember and treasure. Memory is intentional, and they care about genealogy. Yet such intentional memory, though natural and normal, is not quite essential, and too much of it is a sign of decadence.

What matters most in defining a class are the habits and traditions that are learned and at the same time practical. The office job can supply many examples. Though fading, the suit and tie is an obviously arbitrary custom that helps define office professionals and enables them to recognize each other. The 40-hour, 5-day work week isn't random but reflects a historic judgement about proper work-life balance, but it presumably isn't optimal for every individual and every office-based organization, and its persistence reflects a coordination equilibrium, whereby it's advantageous for everyone to work when everyone else is working. The 4-year college degree, likewise, is a fairly arbitrary convention, whose stickiness presumably comes partly from the history of curricula, partly from the need for degrees to be legible as a labor market currency, and partly from how people like to stay and graduate with their friends. There are subtle conventions about what it's appropriate to talk about in the office. And it's definitely against the norm to make threats of force or to offer or take bribes. All these habits and traditions are practical: they help a certain class of people to recognize each other and collaborate.

The traditions that do most to constitute a non-decadent, flourishing class, a class in its heyday, at the zenith of its impact, may be too habitual to be conscious, yet they facilitate mutual recognition and collaboration, and thereby help the class to cohere and perform. Classes should be intentional about raising their young, but they may not consciously aim to preserve the class or even to make their children members of the class. What matters, rather, is that habits of education contribute to the persistent character, solidarity and effectiveness of the class. The parents, in governing their children's education, may not realize that the traditions are sustaining a class, much less understand why. They may do it just to fit in, or because it doesn't occur to them not to, or in the individual interests of their own children, or because it's fun. Probably, for most parents, the collective flourishing of the larger class isn't an important reason to pass on tradition. But it contributes to that end as well, as if by an invisible hand. For what might be called evolutionary reasons, the shared traditions of a successful class can usually be relied upon to facilitate both endogamy and performance.

A class without traditions would be a little like a city without a site. One can imagine such a city, an agglomeration of tents with lots of coming and going, which often unconsciously migrates a little to the north, south, east or west, but which always stays more or less intact because people need a place to trade their goods. But it's very improbable, and it would be a poor city. It takes stability to invest in the structures that make a city comfortable, productive and beautiful. Likewise, the social, cultural and moral wealth of a class is built up within a framework of traditions, like Christmas and Thanksgiving and prom and taking the SAT and choosing a college major and walking down the aisle and interviewing for a job. Traditions naturally arise all over the place, especially when routine work is being done and/or children are being raised, and when people live by a trade or a set of trades intergenerationally, the traditions that emerge among them will be colored by that experience.

One reason that traditions are so important is that while prosperity can foster virtue in some ways, it tends to erode it in other ways. A class that has become prosperous, and which needs to remain prosperous in order to keep doing the good that it does, loses some opportunities to gain the wholesome lessons of adversity. Its best way to preserve that knowledge is to remember its ancestors and sustain their traditions. Sometimes elite classes maintain ties with humbler origins through some sort of apprenticeship. Medieval knights begin their careers as pages, boys doing menial work for grown-up knights, such as watering horses. Many in the information class had teenage summer jobs, often in fast food, glimpsing the lifestyles they would hopefully leave behind by going to college.

A class has a history. And this matters for the information class in two ways.

First, to understand the information class, you need to know where it comes from. Like living organisms and cities, the information class is a path-dependent equilibrium, a product of its history which bears the marks of that history, growing and changing but stubbornly retaining certain habits and values.

But second, the information class doesn't have enough history to be as strong, capable, resilient and beneficent a class as it should be. The mere recency of its emergence makes it an uphill battle, but it could tap into its own history much more than it does, and in another way, it could acquire some additional historical backstory through emulation.

But those are large topics for later in the argument. In the meantime, we can try out the historical approach to understanding class on another case study: the medieval knights.