Oskar Morgenstern, “The Compressibility of Economic Systems and the Problem of Economic Constants” (1966)

Morgenstern’s essay gives economics a vocabulary for systems that are neither perfectly integrated wholes nor loose collections of separable parts. Its concern is the layered structure of economies and organizations: essential cores, redundant margins, substitutes, repair mechanisms, and thresholds beyond which loss becomes collapse. Part I defines “compressibility,” the selective reduction of a system while preserving some defining function; Part II links this idea to the search for economic constants, arguing that beneath prices and institutions lie firmer physiological and technological bounds.

The main purpose is to provide some suitable language for the discussion of such phenomena and to give examples that will illustrate the character, and also the difficulties, of the situations encountered.

Morgenstern begins by resisting the image of total connectedness implicit in some formal economic models, especially input-output schemes read as if every part were indispensable to every other. Such a system would be catastrophically fragile, since any loss would destroy the whole. Actual economies, armies, bureaucracies, and technical systems are usually more complex: they can shed activities, reorganize functions, or tolerate deprivation before losing their identity.

A system will be said to be totally connected if the destruction of any of its parts destroys the whole system, i. e., deprives it of all of its functions.

The contrary concept is the kernel, the minimum configuration without which a system no longer remains the same kind of system. Compression strips away outer layers in order to discover, or preserve, that core. Yet the kernel is often invisible in ordinary conditions, because abundance, routine, and redundancy conceal what is strictly necessary. It appears most clearly under pressure—war, scarcity, damage, or mobilization—when further reductions no longer merely lower performance but transform the system itself.

A kernel begins to appear if further compression in the same direction brings about a discontinuous contraction of the performance of the remaining part of the system.

This discontinuity is the essay’s central analytic marker. Morgenstern is not describing any decline whatsoever, but the point at which a military division ceases to be a division, a communication system ceases to communicate intelligibly, or an economy loses the functions by which it is defined. He therefore distinguishes compression from contraction. Compression is selective and function-preserving; contraction is disorderly shrinkage, capable of destroying essentials while leaving nonessentials intact.

The examples—speech, military units, organisms, offices, automobiles, ships, and repair systems—show that compressibility depends on the function under consideration. A car reduced toward a jeep, a bureaucracy stripped of ceremonial procedures, or a wartime fleet kept operating through repair rather than replacement all raise the same question: what can be removed before the object changes kind? The answer is not singular, because kernels may be multiple, temporary, activity-specific, and technologically variable. Compression in one direction may also create a compensating bulge elsewhere, as when reduced production increases the importance of maintenance and repair.

Morgenstern’s methodological claim is that the most binding constraints are technological before they are monetary. Prices may allocate scarcity, and state authority may impose priorities, but neither alone reveals what is indispensable. To identify a kernel one must know the physical and organizational relations of production, communication, maintenance, substitution, and human survival.

In economic activity we can at least observe certain bounds, which are given by physiological and technological facts.

Part II broadens this claim into the problem of economic constants. Morgenstern denies that economics possesses constants in the physicist’s strict sense, but he insists that it contains semi-constants and bounds: caloric requirements, biological reproduction, expansion times, minimum consumption, and technical ratios governing the materials and intervals needed to enlarge productive capacity. These limits are not mere conventions. They arise because economic activity is carried by bodies, machines, infrastructures, and organizations with determinate requirements.