Efficiency is the virtue of economics. By definition, in efficient markets resources are optimally allocated to satisfy expressed individual preferences; free competition and the price mechanism ensure the absence of waste in a persistent general equilibrium. But any such notional economy is frozen outside of time, either locked into a once-and-for-all Arrow–Debreu general equilibrium, where all the infinity of possible transactions have been already enacted, or alternatively replicating itself endlessly in an imaginary steady state. In either case, innovation is banned by hypothesis. Forty years ago, I left academic economics because I was unable to internalize and propagate the notion of an efficient general equilibrium as a plausible representation of economic reality.

Of course, economic inefficiency is not itself virtuous. And, of course, economists have long been aware of market failures. The literature on external economies and diseconomies and on imperfect competition induced by increasing returns to scale has evolved for generations. More recently, Nobel Prizes have been awarded to the theorists who have analyzed the consequences of asymmetrical information between market participants and those who have evaluated psychological biases previously excluded from the discipline’s domain. The recognition of strategic behavior by market players operating under conditions of incomplete information has become widespread, nowhere more so than in financial economics, where there is a great blossoming of work on markets populated by heterogeneous agents whose expectations are ever imperfect and whose ability to stand against the market is limited in time and extent. Yet the cultural center of gravity in consideration of markets in financial assets and in real goods and services remains drawn to the promise of waste-free, efficient outcomes.