Einstein Was the Greatest Physicist but Was Economically Illiterate

Known as a “symbol of human wisdom,” Albert Einstein is undoubtedly one of the greatest physicists of the 20th century, he gained fame not only for his scientific achievements but also for his call for peace, freedom, and justice. Humility, kindness, and compassionate humanity all added much to his personal charm. However, no one is perfect, and Einstein was no exception.

Einstein often expressed his views on economic, political, human peace, and other social issues, but unfortunately, he made many elementary mistakes in economic issues. Although these mistakes had nothing to do with Einstein’s greatness, why—as a representative of the top scientific knowledge—he repeatedly made mistakes in economic issues is a very interesting question.

One of the reasons is that Einstein had deep and extensive reading and thinking in physics, but his views on social problems seemed only to remain in the realm of thinking, lacking some necessary readings. This can be seen from his collection of papers. Einstein had a great deal of knowledge about the theories of different physicists, but when he expressed his views on social problems, he rarely mentioned any economist, let alone his contemporaries such as Mises and Hayek of the Austrian school.

Because of this, Einstein made the mistake that many physicists tend to make—scientism. This is exactly what Austrian economist Hayek pointed out in his speech entitled “The Pretense of Knowledge” after he won the Nobel Prize in economics in 1974: “some of the gravest errors of recent economic policy are a direct consequence of this scientistic error.”

Hayek systematically expounded his epistemology of economics and made a profound and detailed criticism of the pretense of knowledge caused when economics was compared to natural science. These criticisms by Hayek are fully applicable to the errors of Einstein. Unfortunately, Einstein—who died in 1955—had little or no knowledge of Mises, Hayek, and other Austrian economists, so he never realized his mistakes in economics.

From a concrete point of view, Einstein’s mistakes, in fact, only require a little economic knowledge, which the average person can see. For example, in his article “Production and Purchasing Power” (November 7, 1931), he called for legislation to reduce working hours in order to solve the problem of unemployment and for a minimum wage to ensure that the purchasing power of the masses was in line with the quantity of goods supplied. In the article “Thoughts on the World Economic Crisis,” he argued that,

Only a fraction of the available human labour in the world is needed for the production of the total amount of consumption-goods necessary to life. Under a completely free economic system this fact is bound to lead to unemployment.

He firmly believed:

…this same technical progress which, in itself, might relieve mankind of a great part of the labour necessary to its subsistence, is the main cause of our present troubles….

The logically simplest but also most daring method of achieving this is a completely planned economy, in which consumption-goods are produced and distributed by the community. That, in essentials, is what is being attempted in Russia today.

From the time span of the article, Einstein’s views had not changed for more than ten years, and finally, in 1949, they were summarized and subsumed into the article “Why Socialism?” In it, he argued that,

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.

At the same time, he sincerely offered his own solution:

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.

First, on a methodological level, as a successful physicist, Einstein was keenly aware of the commonalities and differences between physics and economics.

He wrote in his article “Why Socialism?”:

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.

However, in the analysis of specific economic problems, Einstein seemed to forget this difference, or directly transferred the thinking mode of physics to the analysis of social problems such as economics, mistakenly believing that the problems arising in the market can be left to the state to take care of. At the same time, he believed throughout his life that peace could be achieved by establishing a “world government.”

Secondly, Einstein’s understanding of freedom was also biased. The freedom he meant was that human beings should not have to work in order to obtain the necessary means of subsistence, so that they have neither the time nor the strength to engage in the activities of personal interest. He further argued that technological progress would make it possible to achieve this kind of freedom if the division of labor could be properly solved. It is obvious that the division of labor and cooperation is one of the essential characteristics of the market economy, and the market itself can solve the problem of division of labor. Unfortunately, Einstein did not realize this, and what he said here was that these functions ought to be left to the state to solve. Obviously, this is the opposite of true freedom.

Third, Einstein’s view of wealth is also distorted. He had a great disdain for money and wealth, and for those who pursued it. He wrote clearly in his essay “Of Wealth”:

I am absolutely convinced that no wealth in the world can help humanity forward, even in the hands of the most devoted worker in this cause. The example of great and pure characters is the only thing that can produce fine ideas and noble deeds. Money only appeals to selfishness and always tempts its owners irresistibly to abuse it.

Can anyone imagine Moses, Jesus, or Gandhi armed with the moneybags of Carnegie?

In fact, many entrepreneurs today have not only revolutionized the way we live, but also greatly improved people’s incomes and living standards. Steve Jobs and Bill Gates, for example—from an economic point of view—have contributed more and have had a wider impact than Mother Teresa. They have accumulated their wealth because tens of thousands of consumers recognize the value offered by them with their money, therefore, there is nothing to be said against it.

In “The World As I See It,” he wrote, “The ordinary objects of human endeavour—property, outward success, luxury—have always seemed to me contemptible.” It is clear here that Einstein was projecting his personal preferences onto his understanding of how he thought the world ought to be. This understanding was biased and unfair. Why did he believe this? Einstein was honest, as he confessed:

My passionate sense of social justice and social responsibility has always contrasted oddly with my pronounced freedom from the need for direct contact with other human beings and human communities.

It is this contrast that made this great human make such elementary mistakes in economics. In his brief banquet speech, Hayek also said, “Yet I must confess that if I had been consulted whether to establish a Nobel Prize in economics, I should have decidedly advised against it.” Why did Hayek argue against a Nobel Prize in economy? “It is that the Nobel Prize confers on an individual an authority which in economics no man ought to possess.”

In “Why Socialism?” Einstein said,

…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.

Fortunately, Einstein became an authority in physics, not economics.

Finally, it is important to remember the Austrian school emphasis that actions reveal true preferences. That is, what you say is not economically important, but how you choose and act is more important. Einstein was always a proponent of planned economy and socialism but, in the end, he chose to live out his life not in the socialist Soviet Union, but in the capitalist United States, and maybe that’s what he really thought.

By supporting minimum wages, believing that laissez-faire economics would lead to unemployment, and trying to use socialist planning to solve the problem, it is clear that Einstein’s mistakes were not because he was unintelligent. On the contrary, it was precisely because he was so clever that he mistakenly believed that economics would be as simple to him as physics, thus ignoring the complexity of human action and society.

Many people today are no smarter than Einstein. They may have achieved some success in their field, but they are prone to make the same mistakes when faced with economic problems. Once people easily believe their views in economics because of their achievements in their professional fields, this will inevitably lead to what Hayek called “the pretense of knowledge.” The only way to stop this from happening is to popularize the right economics.

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