The Public Interest is a small-circulation journal that stands halfway between academia and government policy, and its current issue sheds great light on the mentality of the economic profession these days. Its title: "The Crisis in Economic Theory."

Anyone with a small mean streak, or simply a sense of just desserts, ought to feel gratified to find economists indulging in prolific self-criticism.

Only a decade ago, economists were among the smuggest of guilds, basking in the glory of having tamed the historic turbulence of the production process. Now, this feat reveals itself a fraud. So let them stew in their failure.

But wait. To see this new mood as contrition is to mistake self-examination for humility. Perish the thought. Though chastened by failure, many economists still cherish the notion that they will discover a central idea that will serve as a suitable lamplight for government policy.

It's an understandable, but probably futile, quest. In the 1960s, the sense of discovered truth elevated economists from a small band of scholars into high priests of social progress. Most are now loath to admit they lack the knack to set things right. But recent history simply won't abide this conceit; events of the past two decades emphasize the limitations of conventional economics.

At home, the market mechanism has eroded -- not in the sense most people think (the existence of monopolistic firms or unions) but in the growth of goods and services (such as health care and environmental protection) for which true markets don't exist and probably can't exist.

Much maligned, the market is a marvel because it automatically allows for change. When people don't want something, its price falls and producers disappear. When something is scarce, its price rises, consumers conserve and additional suppliers come forth. But this presumes a multitude of buyers and sellers with choice. Patients don't fit that requirement, and individuals can't buy environmental protection. d

Abroad, the growth of international economic interdependence has confounded the relevance of traditional economics because states have become the principal economic actors. There are some economists who believe that most nations -- the oil producers, for example -- behave like profit-maximizing firms, but this seems preposterous.

Political and economic motives can and do differ. Even if a government acts as a profit maximizer today, it may simply disappear tomorrow and its replacement may change radically. Witness Iran.

Finally, many deep-seated problems of Western societies now seem beyond economics. Does anyone believe that the persistence of staggeringly high unemployment rates among black Americans is simply an economic problem?

The truth is that Western economies in the past 30 years have been remarkably successful in building widely based prosperity. Residual problems and new problems -- groups excluded from affluence, dissatisfaction with work, family breakups -- now seem curiously immune to prosperity. Indeed, they often result from prosperity.

None of this means that economics is irrelevant. It's just less relevant than most economists believe.

Increasing economic interdependence among unfriendly or dissimilar nations raises basic questions of national security and sovereignty that transcend traditional economic analysis. The growing demand for collective goods, including government protection against the market's impersonal whims, leads to clumsy, collective decisions that are inherently inefficient.

Economics is a prisoner of these developments. As sociologist Daniel Bell points out in the The Public Interest essays, "What ultimately provides direction for the economy . . . is not the price system but the value system of the culture in which the economy is embedded."

This is the basic insight that economists do not yet seem to have grasped. They retain the central arrogance and delusion of the 1960s, which is that they know enough to run the economy above politics.

Details, of course, have changed. The fall guy in much of the current debate is John Maynard Keynes, the British economist whose theories attempted to explain how the world got into the Depression -- and how it might get out. The political virtue of Keynesian economics, as put into practice, was that it seemed painless: With the right technicians in charge, government would keep demand high enough to assure full employment but not so high as to produce inflation.

In retrospect, no one should have been surprised that this scheme developed an acute inflationary bias. Real-life political pressures inevitably distorted its operation. Any attempt to limit demand as an anti-inflationary measure was almost certain to raise unemployment before it lowered prices. Consequently, pressure to reverse policies developed quickly. Economists not only underestimated inflation but, politically, simply assumed it away.

No economic policy today can succeed unless it makes peace with politics and culture. The situation now is vastly different from the 1930s, when people genuinely didn't understand the pervasive economic collapse. Now, most economists understand the basic inflationary process but don't agree how to get out.

The schools of economic management roughly divide between monetarists and price controllers, with a lot of gradations in between. The monetarists believe that only by reducing money supply growth can inflation be reduced and that wage-price controls (and their variations) are bound to be cumbersome and ultimately ineffective. The wage-price controllers think that a rigid money squeeze can cut inflation only at the cost of prolonged unemployment.

In a sense, both may be right. The quest for perfectionism in theory is bound to be self-defeating. No policy can work without a political consensus behind it; with a strong consensus, many policies can probably succeed. The crisis is less one of theory than of politics.