V. The Economic Failures
The Enlightenment extended its confidence to the economic realm. Just as reason could discern the laws of nature and the principles of just government, so too could it uncover the mechanisms by which wealth is created and distributed. The result was classical economics, with its promise of prosperity through rational organization of production and exchange.
Adam Smith’s Wealth of Nations, published in 1776, became the founding text of this enterprise. At its heart lay the law of supply and demand: the elegant mechanism by which prices adjust to balance what producers offer and what consumers desire. Let the market operate freely, Smith argued, and an invisible hand would guide individual self-interest toward collective prosperity. The baker bakes not from benevolence but from self-love, and yet we all have bread.
The law of supply and demand became the bedrock of economic reasoning. It appeared in every textbook, was taught in every university, and informed the policy of every nation that aspired to modernity. For two centuries, it seemed as solid as Newton’s laws.
It was an illusion. In 1953, the economist William Gorman demonstrated mathematically that individual demand curves cannot be aggregated into a coherent market demand curve under the conditions that actually obtain in real economies. The proof is technical, but its implications are devastating: the supply and demand curves that generations of economists drew on their chalkboards, the intersecting lines that determined equilibrium prices, do not correspond to anything that exists in actual markets. The law of supply and demand, as commonly understood, is not a law at all. It is a pedagogical simplification that fails precisely when applied to the phenomena it was meant to explain.
This was not a minor qualification or a boundary case. It was a falsification of the foundational model. Yet the economics profession continued teaching supply and demand as though Gorman had never written. Decades later, Steve Keen brought Gorman’s work to wider attention and documented the discipline’s remarkable capacity to ignore what it could not answer. The emperor had been shown to be naked in 1953, even though in 2025, the textbooks still describe his magnificent robes that supposedly improve things for everyone.
David Ricardo’s theory of comparative advantage suffered a similar fate. Published in 1817, the theory purported to demonstrate that free trade benefits all parties, even when one nation is more efficient at producing everything. Each nation should specialize in what it produces relatively best, trade for the rest, and all will prosper. This elegant argument became the intellectual foundation of free trade policy for two centuries.
The argument contains a fatal assumption: that the factors of production, and especially labor, do not move between nations. Ricardo’s proof works only if English cloth-workers cannot become Portuguese wine-makers, and vice versa. In the early nineteenth century, this assumption was approximately true. In the twenty-first century, it is obviously false. Cheap transportation and communication have made labor mobility a defining feature of the global economy. The assumption upon which the entire edifice rests no longer obtains, and with it falls the conclusion.
Ian Fletcher systematically demolished the theoretical foundations of comparative advantage. The assumptions required for the theory to hold—not only labor immobility but perfect competition, no economies of scale, no externalities, no strategic behavior—describe no economy that has ever existed. More recently, Steve Keen has identified the amphiboly that rendered the proof invalid from the start. Comparative advantage is not a law of nature; it is a fictional fantasy describing a hypothetical world, and our world is not that world.
The empirical verdict has been equally damning. After three decades of trade agreements, including NAFTA, the EEA, and the WTO, the prosperity that was promised by free trade has proven highly selective. The nations that preached free trade most fervently have watched their manufacturing bases erode, their working classes immiserated, their trade deficits balloon. The nations that practiced strategic protectionism have prospered at the expense of those who didn’t. The correlation between free trade ideology and the flourishing of a nation runs precisely opposite to what the theory predicts.
No one who has watched the hollowing-out of the American industrial heartland, the stagnation of Western wages, the rise of the Chinese export machine, can believe that free trade has delivered on its promises. The economists who assured the public that the gains would be shared, that the dislocations would be temporary, that retraining would absorb the displaced, these economists were not necessarily all lying. But they were reasoning from simplified models that did not describe reality and mistook the coherent elegance of their mathematics for the truth.
And finally, for three hundred years, we have been assured by the economists that debt did not matter. They even omitted it from their most complicated equations and declared that it did not matter if Peter owed Paul or Paul owed Peter, that debt was just a variable on both sides of the equation that cancelled itself out. Now the entire Western world awash in debts it cannot pay and institutional investors now own 20 million private homes, 15 percent of the total housing stock in the United States.
This, too, is a consequence of the Enlightenment’s successful war on the laws that once prevented people from falling into debt servitude. Now debts are increasingly noncancelable even by bankruptcy, the total U.S. debt is $106 trillion, and each and every native-born U.S. citizen’s share of that debt is $365,500. Instead of making everyone wealthy as was promised, the economics of the Enlightenment have turned a once-free people into a collection of debt slaves.