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sanity,
humanity and science
post-autistic economics
review
Issue no. 19; April 2, 2003 back issues at www.paecon.net
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Special
all-student issue:
- Autisme-Économie Reaches
Harvard
- The Harvard Student Petition
- Daniel Gay
Politics Versus Economics: Keeping It Real
- Asatar Bair
Form and Content in Neoclassical Theory
- Nathaniel Chamberland
Of Textbooks: In Search of Method
- James Bondio
4 New Assumptions for a New Economics
- Jared Ferrie
Toward a Holistic Economics
-
Goutam U. Jois
Consumer Sovereignty
Re-examined
- The Crisis in Economics
Autisme-Économie
Reaches Harvard
The student rebellion against unreality and dogmatism in
economics that began in France in June 2000, spreading to Cambridge UK and
reverberating around the world, has now erupted at Harvard. In recent weeks over 700 Harvard
students and alumni have signed a petition addressed to the Harvard Economics
Department asking it to approve a new introductory economics course proposed
by Professor Stephen Marglin that would cover “a broader spectrum of views”,
“examine the assumptions of economics”, and “challenge students to think
critically”.
“The point,” said Marglin to the New York Times (4 March 2003), “is
not to substitute one set of biases for another. It’s to provide a more balanced approach.” The Boston Globe (9 March)
reported that Marglin’s course would “encourage the critique of mainstream
economists’ assumptions” and that Marglin and Samuel Bowles, now at Amherst,
first proposed a similar course at Harvard almost 30 years ago. Students, said Bowles to the Globe,
would “benefit from knowing that economics, like most sciences, is not a
settled doctrine, but a lively and much-debated set of hypotheses.”
Daniel DiMaggio, one of the student leaders of the Harvard reform movement,
says that Harvard’s existing introductory course “is fairly ideological, if
not completely ideological.
We’ve been leafleting it with articles that have a different
perspective, but we’ve been hoping that something like this [Marglin’s
proposed course] would come along.
We’ve had a pretty amazing level of response so far. I’ve been pretty excited about the
number of people who have signed [the petition].”
Michael Y. Lee, the petition’s author, says that “there is a strong student
demand for an alternative intro economics course. The free market principles that economists worship should
also apply to these courses to a certain degree, and right now Ec 10 holds a
monopoly on intro courses.”
Benjamin B. Collins, another student, says that his main complaint is not the
ideological spin, but rather the apathy. “Students just copy down what’s on the board”, he
said. “What excites me about
this new class is that Prof. Marglin seems to be really interested in
building and teaching a new course that will force students to learn
actively. If he succeeds in
getting students engaged and thinking critically about not only mainstream
economic theory itself, but about the philosophy and history of economics,
the problem of bias will fix itself, because students will be forced to think
for themselves about economics.”
The Harvard Crimson reports (17 March) that the
university’s Undergraduate Council has postponed until April a debate
on the proposal for Marglin’s post-autistic introductory course.
Meanwhile the Harvard students have issued a “mission statement”. It includes the following passage,
highly reminiscent of the initial petition from the French students.
We believe that the field
of economics plays a critical role in shaping the basic organizational
structure of society and informing policies (both domestic and international)
that strongly affect individual welfare. Because of the practical impact of economics, we believe
economics education has important human consequences. Economic models are lenses through
which students are taught to view how society should function. We believe that Harvard, by only
providing one model of economics, fails to provide critical perspectives or
alternative models for analyzing the economy and its social
consequences. Without providing
a true marketplace for economic ideas, Harvard fails to prepare students to
be critical thinkers and engaged citizens. We believe that the values and political convictions
inherent within the standard economic models taught at Harvard inevitably
influence the values and political convictions of Harvard students and even
the career choices that they make.
Finally, by falsely presenting economics as a positive science devoid
of ethical values, we believe Harvard strips students of their intellectual
agency and prevents them from being able to make up their own minds.
The Harvard students’ full manifesto is available here. Students at other universities
wishing to launch similar PAE initiatives would do well to consult this
document, as well as the French Students’ Open Letter,
the Cambridge Students’ Proposal
and the international Kansas City Proposal.
The Harvard Student Petition
To: The Faculty Members of the
Harvard Economics Department
We, the undersigned, believe that Harvard has a responsibility to provide its
eight hundred introductory economics students with a more balanced
perspective than is currently offered in Social Analysis 10: Principles of
Economics, commonly known as Ec 10.
We are therefore delighted that Stephen Marglin, the Walter S. Barker
Professor of Economics, has proposed to teach a one-semester alternative
introductory microeconomics class. This proposed class will cover the same
material as the first semester of Ec 10 and use the same text as Ec 10 does,
but it will attempt a better balance and coverage of a broader spectrum of
views in the Readings/Workbook. It will also examine the assumptions of
economics critically, so that students can assess the limits as well as the
strengths of economics. Taken with the second semester of Ec 10, we believe
that students would receive a solid introduction to the principles of
economics.
We believe that a liberal arts education should not only teach students the
accepted modes of thinking, but also challenge students to think critically
and deeply about conventional truths. In the spirit of a liberal-arts
education, we urge the esteemed members of the Harvard Economics Department
to approve Professor Marglin's proposed course.
Sincerely,
The Undersigned
Politics Versus Economics: Keeping It
Real
Daniel Gay (PhD student at the University of Stirling, UK)
For someone who previously thought of duality as part of
the Kama Sutra and the business cycle as an environmentally-friendly way of getting
to work, the last year has been a struggle. A struggle not foremost in
understanding complicated mathematical techniques and learning theory
(although these tasks were far from easy), but a battle to understand why
otherwise clever people devoted so much time to limiting their horizons.
Following my British undergraduate education in politics, philosophy and
economics I completed a mainstream masters degree in political theory. After
a few years as a journalist trying to decode the pronouncements of the dismal
science, I returned to university to study a masters in economics. But if I
hoped for a clearer understanding of how real people share out scarce
resources, I was maximising the wrong function. If I thought I would gain a
better understanding of real economies, I was sorely mistaken. If I believed
I would at last hear the God Oikonomos,
I was surely beyond redemption.
Here, I would like to compare my experiences of learning politics and
economics as a postgraduate. I found that three features of mainstream
economics teaching made it less helpful for understanding real life than
political theory: its shortage of rigour, the dogmatic way it uses concepts
and its lack of usefulness.
Rigour not figures
Rigour, according to the latest edition of the Oxford
English Dictionary, means “the quality of being extremely thorough,
exhaustive or accurate”. Usually someone is considered rigorous if they have
delved into an issue and thought about every angle, arriving at a conclusion
that attempts to tie up loose ends.
Mainstream economics, as is well known, prides itself on its rigour. Applying
a general equilibrium approach requires showing with numbers how demand and
supply interact simultaneously in several markets to produce prices for all
goods. The practitioners of mainstream economics castigate those in other
social sciences for “hand waving” and failing to quantify variables.
Political theory, like sociology, is particularly vulnerable since many
strands of the discipline openly dispute the idea of measuring society. For
instance much of Marxism denies the possibility of reducing human society to
individuals that can be added or subtracted.
But if political theorists are idle gesticulators, then mainstream economists
are invisible hand-wavers. Their version of economics is, in fact, unrigorous
because it leaves out so many possibilities. It is not thorough because it
mostly analyses only things it can measure. It isn’t exhaustive because it is
implicitly bound by an uncritically positivist and strictly utilitarian
worldview that precludes uncertainty. It is inaccurate; economists themselves
endlessly repeat the mantra that they are no good at forecasting levels –
only directions – and often even these are wrong.
And if accuracy is judged by explanation rather than prediction, then many
important parts of economics only appear rigorous insofar as they assume
their results. For example that jewel in the crown of the new classical
tradition – real (surreal?) business cycle theory – simply assumes a close
approximation of real economic fluctuations and therefore produces similar
predictable output movements to the data. Nelson and Plosser’s well-known
test disputing predictable trends in GDP over time might be one part of the
argument against government intervention but it surely shouldn’t be
considered a conclusive piece of evidence when teaching the theory of
economic fluctuations.
If I had handed in a politics essay containing within its argument only the
blind empiricism of econometrics, it would have been graded a ‘D’. In
politics, years are spent drumming in the need to combine facts, theory and
values in the correct combination to achieve a compelling syllogism. Simply
pointing out a historical relation between several variables, however complicated
the maths, is considered insufficient to prove a case. True rigour is
achieved only through a combination of argumentative forms and evidence;
empirical, theoretical, epistemological, ontological. To misquote Paul
Krugman: a half-hearted cheer for formalism, and reserve the other two for
broad-mindedness.
Creative concepts
The analytical pretensions of economics derive in large
part from the dogmatic way it uses concepts. Where politics frequently strays
into the never-never land of creativity, economics steadfastly sticks to its
tried and badly-tested tools. In political theory we read the creative
writing of Hilaire Belloc and GK Chesterton for their espousal of community
values, or the novels of Jean-Paul Sartre for their subjectivist approach to
existentialism, concepts that couldn’t be communicated through standard
philosophical works. But in economics we paced the well-worn treadmill of
Samuelson, Solow and Sargent – geniuses no doubt, but hardly the
free-thinkers of their generation.
Economics sticks to prefabricated concepts because it thinks it is gradually
improving its grip on the world. But what it fails to recognise is that the
real world is dynamic and elusive, and that understanding it requires an
ever-changing and nuanced approach. A variety of human activities that can be
described as economic cannot be understood by strictly analytical tools. Does
it clarify matters to label the Indonesian exchange rate between 1997 and
2000 – a period during which it swung between 2,500 and 15,000 to the US
dollar and back again – by an ageing metaphor borrowed from physics? Or would
it make more sense to question and redefine the concept of equilibrium in
crisis situations?
Because economics builds up an edifice of analytics, it is simply hard to
understand. That is why so many undergraduates drop out early on and take up
more intuitive subjects. It is easier to grasp subjects that obviously relate
to changing, everyday life. Most of the physical sciences change their views
of the world around us, as do the humanities and social sciences. Economics
is almost alone in the way it clings so tightly to past ideas. If it was open
to wholesale re-evaluation – like physics accepted the quantum revolution –
it would be much easier to understand and more popular.
Most students can see straight through the attempts of economists to present
the subject as a seamless whole. I remember countless post-lecture whinges:
about how if Akerlof and co. say that information is distributed
asymmetrically then why does general equilibrium theory assume that it isn’t?
Or about why many Brander-Spencer type arguments for strategic trade think
that assumptions should be realistic, while the rest of macroeconomics argues
precisely the opposite.
Not that there’s anything wrong with contradiction. Reality is contradictory.
The point is that economics would be much more honest explicitly to admit its
points of difference, and would arrive at better conclusions if it was
creative in its use of concepts. The only compulsory course on my political
theory MSc was entitled: “Methods and Controversies in the History of
Political Thought.” Method, controversies and history are all practices
studiously avoided by conventional economic thought. But arguing about and
redefining concepts is part of good science.
Useful or toothless?
A lack of rigour and rigid use of concepts might be excusable if economics
was useful. It isn’t. Even though many students study economics to
postgraduate level instrumentally – usually to gain a career in finance –
they rarely use the tools they learn. Nobody would become an investment
analyst if the strong form of the efficient markets hypothesis were true.
Many financial professionals carry at the back of their minds a vague
intuition that supply and demand are supposed to equilibriate, and so on, but
much more useful is a practical understanding of how real exchange rates
move, and of how stock and bond markets work in different countries.
Even some students academically interested in economics grumble about its
uselessness. It is an oft-heard refrain that microeconomics is a cosy
exercise easily performed in an exam, but trying to pin it down in research
is much harder because reality starts to intrude. For me, microeconomics
asserted a kind of Stockholm syndrome – in the end I grudgingly indulged my
imprisoner. But it was less useful than the techniques learnt in politics.
You might think that political theory was about as abstract as it is possible
to be. How can a discipline whose sole intent is – by definition – theory,
have anything to offer everyday life? But because political theory is
self-critical and pluralistic, it offers tools that are much more useful.
Economics may purport to get down to the nitty-gritty details, but because of
its rigidity it remains hopelessly stuck in its own nether world of axioms,
lemmas and symbols.
Reading the business pages of a newspaper becomes a lot more informative if
you have studied Marx’s theory of ideology, whereas much of academic
financial economics is irrelevant. Michel Foucault’s definition of power
relations says more about the behaviour of actors within the capitalist firm
than does microeconomics. The Weberian theory of legitimacy offers a broad
and adaptable understanding of
the political state because it doesn’t depend on unusual assumptions
and can therefore be applied in a variety of situations. As a number of
authors have shown, using unrealistic assumptions as an heuristic device
often robs economic concepts of real world validity. Students often accuse
academics of being out of touch, but it is university economics above all
that refuses to engage with the ordinary world.
Conclusions
Of course a lot of economics is realistic. As I have suggested, applying some
models from the new trade theory requires realism of assumptions. John
Maynard Keynes gives a nod to real people by making uncertainty central to
the general theory; the more uncertain agents are, the more likely they are
to hold money and the higher the interest rate. Critical realists identify
the existence of a deeper level of economic reality of which we can gain
open-ended knowledge.
Political theory is only more realistic than economics because of certain
features common to all broad-minded sciences – including pluralism and
disagreement over certain basic issues. It has no inherent superiority. Parts
of political theory can be woolly, distant and difficult to use. It is
plainly harder to apply the knowledge of a diverse discipline. The so-called
analytical thinking of economics at
least has the merit of being able to supply answers, albeit in a
limited sense.
But therein lies the problem: reality is messy and difficult to grasp.
Usefully comprehending messiness and difficulty requires intuition, an open
mind and common sense. And just because a discipline is hard to apply, it
doesn’t mean we shouldn’t try. What are we doing, if not trying to understand
real life? Are our ivory-tower proclamations aimed at constructing a cosy
scheme that holds internal consistency, or are we highlighting and explaining
useful features of real life with a view to changing them?
Rigour, flexibility and usefulness are linked. A discipline must at least
show willingness to comprehensively rethink its use of terms if it is to
remain objective and rigorous. If it doesn’t, it is not as useful as it could
be. If it can’t incorporate a number of different tools then it is neither
fully rigorous nor useful. If it isn’t useful, it should surely think again
about the concepts it uses. Avoiding rigour, dogmatically adhering to old
concepts and forgetting that knowledge must be useful, all ultimately deny
realism.
Economics could easily rise from the status of idiot, to idiot savant of the
social sciences. And elucidating economics could be at least as rewarding as
pontificating about politics. But only when economists remove their blinkers.
Bibliography
Akerlof, G. (1970) ‘The Market for Lemons: Quality
Uncertainty and the Market Mechanism’, The Quarterly
Journal of
Economics, 84: 488-500
Brander, J. and B. Spencer (1985) ‘Export Subsidies and International Market
Share Rivalry’, Journal of
International
Economics, no. 18: 83-100
Foucault, M. (1980) Power/Knowledge (London, Harvester Wheatsheaf)
(Ed. Colin Gordon)
Keynes, J. M. (1936) The General Theory
of Employment, Interest and Money (London, Macmillan)
Krugman, P. (1998) ’Two Cheers for Formalism’, The Economic Journal,
108 (Autumn): 1829-1836
Lawson, T (1997) Economics and Reality (London, Routledge)
Samuelson, P. (1947) Foundations of Economic Analysis (Cambridge,
Harvard University Press)
Sargent, T. (1987) Macroeconomic Theory (Boston, Academic Press)
Solow, R. (1956) ’A Contribution to the Theory of Economic Growth’, The
Quarterly Journal of Economics,
vol.70,
Issue 1 (February): 65-94
______________________________
SUGGESTED CITATION:
Daniel Gay, “Politics Versus Economics: Keeping It Real“, post-autistic
economics review, issue no. 2 April 2003, article 1, http://www.btinternet.com/~pae_news/review/issue19.htm
Form and Content in Neoclassical
Theory
Asatar Bair (Doctoral
Candidate, University of Massachusetts at Amherst, USA)
I find it fascinating that those
of us who are critical, in one way or another, of neoclassical economics
would accept uncritically a defense of the theory offered by one of its most
famous modern proponents. I
refer to Milton Friedman’s essay on methodology, where he basically argues
that the theory should not be judged on the basis of whether or not its
assumptions are realistic, but whether it is practical.
This is sort of like saying, since supply and demand analysis explains
prices, we can forget about the excesses that are so easy to find in the
stringent assumptions necessary to obtain perfect competition and general
equilibrium. For example, the
omniscient Auctioneer who oversees the exchange of commodities in the general
equilibrium model of Arrow and Debreu.
If we accept the terms of this argument, it becomes very simple for the
proponents of neoclassical theory to defend it, such as Deirdre McCloskey’s
defense of the criticisms of Bernard Guerrien in Post-Autistic Economics
Review, Issue No. 15:
It just won't do, therefore, to say as Guerrien does that
price theory (as we Chicago types prefer to call it) "obviously
contradicts almost everything that we observe around us."
Huh? When OPEC (viz., Saudi Arabia) cut the supply of oil in 1973,
didn't the relative price of oil rise, just as a simple supply-and-demand
model would suggest?
Isn’t this is a bit like saying “Supply and demand works, so the theory must
be correct”? (By the way, I am
not attributing this position to McCloskey, a sophisticated and original
thinker, who, although committed to the small-s
science of microeconomics, is also in her own way one of its most ardent
critics. This is evinced by her
writing not just in the PAE Review, but many other places, including
the recent volume Postmodernism,
Economics & Knowledge, edited by Cullenberg, Amariglio, and
Ruccio. It is not against the
McCloskeys of the world that we must primarily debate, for I believe that if
she had her way, the terms of the debate would in fact be much more open.) The point is, there are so many ways
to criticize neoclassical theory – why use the criticisms that are the
easiest to brush off, simply by reference to already existing arguments?
The issue is not whether supply and demand analysis can be used to explain
the movement of prices. Even
Marx uses supply and demand analysis to make certain points about the
movement of prices. (See, for
example his 1865 work Value, Price and
Profit).
The issue is, what are the assumptions that form the basis of the theory and
what are its conclusions? This
is deeper than merely criticizing the form of the theory, for neoclassical
theory can be formulated without math – see The Economist or The Wall
Street Journal – or with a lot of math – see any graduate program in
economics or The American Economic
Review. To me, the debate in
these pages and elsewhere about formalism only scratches the surface. Sure, it’s a problem that
neoclassical economics tends to be dry as dust because it relies on abstract,
formal mathematical proofs, and indeed, sometimes the emphasis on technical
minutiae means that even its advanced practitioners can’t communicate (or
maybe even don’t fully grasp themselves) the big philosophical ideas of
neoclassical economics. These
are the ideas that have been around for a long time. Such as, how can a society maximize
its wealth? What is the
relationship between economic categories of production, consumption and distribution
and the fulfillment of human happiness and human potential? How should we produce things? Does capitalism involve
exploitation? And perhaps, the
newer question: is there only one correct answer to each of these questions? I will go out on a limb and label
these as interesting questions.
Unfortunately, they are not often discussed in economics, despite the
appearance of some of them on page 2 of most introductory textbooks. Could this absence have something to
do with many students’ hatred of economics? The proofs and formulae of modern neoclassical theory have
not made the questions go away, merely elaborated one position out of many
that are possible.
What about pluralism? Is
neoclassical economics the truth, and the other theories false? This would be the only position that
justifies the exclusion of other theories from economic discourse, but as so
many have pointed out, including McCloskey in The Rhetoric of Economics or Wolff and Resnick in Economics: Marxian versus Neoclassical,
such a position is untenable.
There simply is no external standard by which to judge the veracity of
contending theories.
Instead of looking at the form of the theory, we should look at its
content. Any theory can be
formalized. Take for example,
one of my favorites: Marxian theory.
This approach to economics is sometimes formulated in terms of proofs
and theorems. What is produced
is merely a mathematized version of Marxism. Of course there are many kinds of Marxism, sharing some
points of agreement and differing on other points. But despite being formal in the mathematical sense (which
may make it rather dry, for those not mathematically inclined), it will still
be quite different in its content from neoclassical theory.
My sense is that debates over form and content have been collapsed because
many students find both the form and content of neoclassical economics to be
objectionable. For example,
let’s consider one of the central assumptions of the theory: human beings
behave in their own narrow self interest. Many of my own students find this idea repellant as a
separate matter from their dislike of indifference curves. I happen to agree. There is no reason to assume that
there is such a thing as human nature that exists independently of one’s culture,
language, politics, economic circumstances, etc. Is it not remotely possible that if people seem to often
act selfishly it is at least partly due to our societal elevation of greed to
a virtue? Isn’t it a kind of
debasement of human beings to assume the worst of ourselves – indeed, to argue
that whenever a human being seems to be acting unselfishly, sacrificing
herself for the sake of another, this is really just the same old greed in
disguise, charmingly called by microeconomists ‘warm-glow altruism’?
Of course, the amusing thing about this assumption – if we accept Friedman’s
formulation that we should overlook the realism and look at its predictive
value – is that it turns out to have very limited value when it comes to
actually predicting human behavior.
It seems that people are actually quite concerned with the welfare of
others, even when it conflicts with their own pecuniary interest, as
experimental results have demonstrated.
By now these results are well known - perhaps the simplest evidence
comes from the Ultimatum Game, in which one experimental subject is given a
sum of money, to be divided between himself and the other player, who has the
ability to veto the division, in which case both get nothing. Self interest would dictate that the
second player accept any offer, because something is better than nothing, and
you don’t care what the other player gets, because his utility has no effect
on your own. Would you pick up a
dollar on the street? Then you
also wouldn’t turn down an offer of a dollar, even if it meant the other
player got $999. Well, it turns
out people do care, and are willing to give up substantial sums of money to
punish the other player’s greed.
This experiment is very simple.
For God’s sake, why wasn’t it done in the 1880’s instead of the
1980’s? Could it be that the
assumption of self interest was adopted in part to obtain the grand
conclusion of neoclassical economics, elaborated by Adam Smith? Namely: if individuals are free to
act in their own self interest and society has established private property and
competitive markets, then that society will be guided as if by an invisible
hand, to the maximum wealth it can attain.
Forget whether or not this is true or realistic: this is a powerful
idea. We want this idea to be
true. We want it to be okay to
be selfish, to pursue our own goals, and to have it work out that instead of
this being inimical to the social good, it ends up being the very same thing
as working for the good of society.
So this is my first suggestion: in teaching economics, we should really
discuss the meaning of the assumption of self-interest, including its appeal
and its limitations, rather than merely adopting it unquestioningly.
My second suggestion is that we should think about and talk about theories of
distribution. The neoclassical
theory of distribution says that each productive input, for example, labor,
land and capital, receives a reward that is equal to its marginal
productivity: wages, rent and profits respectively. We should discuss this with our students in a serious way. What does it mean? The implications are clear: provided
that markets are competitive, workers, landlords, and capitalists deserve
exactly what they get. Each
receives a reward perfectly commensurate with his or her contribution to
production. You can’t get
anything more fair than this.
Any suggestion that capitalists or landlords exploit or somehow take
unfair advantage of their workers or tenants is expunged.
It sure looks good on paper. But
it seems to go wrong somehow when applied. Say we are considering the situation of the landholders of
European descent in Zimbabwe.
They represent 10% of the population, and they own 90% of the
land. Do they deserve the rents
and profits they obtain, which in neoclassical theory came from the land and
capital they contributed to production?
How did they come to own this land anyway? Pretty much the same way property rights in land were
established everywhere at various times in history: theft accompanied by
force.
What about the capitalists? Do
they deserve to live off the profits, as my conservative students sometimes
tell me, because they take risks, are responsible for workers, work hard
themselves, and contribute to the economy? Or more in line with neoclassical economics, because they
make the capital that they own available for production, and thus the capital
receives a reward equal to its marginal product of capital? This makes sense. I guess the machines, tools, and raw
materials that make up the capital really should get a reward. Throw some cash on the lumber
pile! Open up the back of the
machine and throw in a handful of coins! There you go – and thanks! Or do capitalists receive profits not from the
productivity of the capital they own, but because of the unpaid surplus labor
they unjustly steal from their workers?
This brings me to my third suggestion, that we discuss and take seriously
theories of class. I admit that
I am particularly interested in the Marxian notion of class defined as an
individual’s relationship to the surplus labor performed at a given
productive site. This is fertile
ground for exploring how production and the class processes therein affect
individual development, social and political dynamics, economic fluctuations,
and so forth – and how each of these realms in turn shapes the class
processes. Not only can class
help to illuminate society and the economy in new ways, most of these
insights have been excluded from mainstream economics.
The issue – as McCloskey and others have pointed out – is not whether or not
the theory is true, so much as does it persuade. Neoclassical economics prefers to
hide its excesses in math, where people are less likely to understand the
role of the assumptions being used.
Is it embarrassment?
The dull, stifling formalism of neoclassical economics persuaded many people
in its heyday, when more people believed that math equals truth. People are less apt to believe that
now, so there can be no more retreating into the safety of proofs with
unquestioned assumptions.
Perhaps this means we will go back to debating substantive ideas
rather than muddling through endless comparative statics. I hope so.
If we want economics to fulfill its promise, to be a serious scholarly field
of inquiry that considers all points of view rather than excluding certain
theories and approaches on ideological grounds, we must begin in the
classroom, at the introductory level.
To me, the post-autistic economics movement has made this clear in the
most basic way: students have dramatically shown that they are not persuaded
by mainstream economics.
References
Cullenberg, Stephen, Jack Amariglio, and David Ruccio (2001) Postmodernism, Economics, and Knowledge.
New York:
Routledge.
McCloskey, Deirdre. (2002) "Yes, There is Something Worth Keeping in
Microeconomics", post-autistic
economics review,
issue no. 15, September 4, 2002, article 1.
http://www.btinternet.com/~pae_news/review/issue15.htm
McCloskey, Deirdre. (1985) The
Rhetoric of Economics.
Madison: University of Wisconsin Press.
Wolff, Richard D. and Stephen A. Resnick. (1986) Economics: Marxian versus Neoclassical. Baltimore: Johns
Hopkins
Press.
______________________________
SUGGESTED CITATION:
Asatar Bair, “Form and Content in Neoclassical Theory“, post-autistic
economics review, issue no. 2 April 2003, article 2, http://www.btinternet.com/~pae_news/review/issue19.htm
Of Textbooks: In Search
of Method
Nathaniel N. Chamberland (graduated
2002 from Trinity College, USA)
Interestingly, within the social sciences there are hierarchical views
regarding the efficacy or usefulness of certain disciplines. Economics is not only much more
predictive than, say, sociology, but more useful. The more scientific a discipline, the more valued it
apparently is. The view of
science as technology thus underpins not only the relative valuation of
science versus social science, but also of the disciplines within the social
sciences. It is an interesting
view of the world: one that values the means (science) over the ends
(society).
—Henrietta More from the Summer 2002 edition of Anthropological Quarterly
With four drafts already in the trash can, Henrietta More’s (2002) article
came to pinpoint (by its ambiguity) a question that sat with me throughout my
undergraduate experience as a student: how
does economics relate to other academic disciplines while assessing and
influencing the economy?
According to the quote from More above, economics seems to be a popular,
means driven, predictive science that takes its object of study to be
different than sociology, but is nonetheless termed a social science by
course catalogs. Economics is
also, we are told, popularly valued for its predictive technology. Quite simply, economics is often
identified as a set of tools devoted to determining price (that is, price
knows a unit of measure to which all aspects of life are reducible). So why then keep up the charade of
broad inquiry and explanation implied by the umbrella of ‘social
science’? Why not discard the
chaff, that is, everything that has little to do with finance? So long as the economy is portrayed
as an incredibly broad, although shallow, entity, economics, as an academic
discipline, remains relatively simplistic. The mindset of financial study is
maintained as a methodology (call it ‘mainstream economic theory’) and
Xeroxed across a burgeoning academic and political territory.
For example, recall the opening pages of any undergraduate textbook. Faced with the task of describing
economics, the author(s) relapse into an ahistorical account of price theory. Images of swapping apples for
oranges, choosing between the production of pizza and robots, instill in the
student the belief that they can derive the evolution of both society and
economics from that of exchange.
Exchange, here, is a pristine term. It knows no history, politics, bloodshed, or lie; exchange
is marked simply by numbers and graphs, preferences and supplies. In so doing, economics lacks any kind
of deep, causal realism in its account of the economy. Shirking this sort of analysis, the
discipline has come to muddle its base terminology (economy and economic). An economics that reaches for more
than financial accounting cannot proceed without reading its own history,
accessing it method of inquiry, and articulating its object of study.
Undergraduates certainly do not read books, and rarely an article. Although students and professors
alike may confide in these mediums, the thing that drives departments across
the USA and made a fixture of every economics course on the way to a
Bachelors degree is, of course, the textbook. Where other social sciences have a timeline, economics has simply a table of contents. The concepts annunciated in chapters
two and seventeen are of diverse origin and intention, but synthesized;
historically anachronistic, but timeless; the result of numerous debates
between authors and varying fields of study, but codified and distilled into
problem sets. The titles of
textbooks are simple, saying little more than Economics even though the most popular versions are in constant
revision and flux: economics is presented as a science of grand architecture
and vast consistency. It is not
that dissenting pages have not been authored or that thought has gone stale
across the globe, but rather that economics constructs its place within the
college and within politics by institutionalizing a kind of economics that
makes no home for debate.
Now, this paper is written not to implicate ranks of teachers and cow their
students, but rather to motion toward the divide between a teachers’ own
research and seminars with colleagues or small groups of students and the
classes required by the department.
Caught up in a ‘non-profit’ institution driven by the market and
pride, departments and professors alike reserve endowed chairs and research
monies for socioeconomically conservative and conciliatory personages and
projects. And perhaps more importantly,
the jump from academia to politics is of varying length: that is, one page
devoted to the mainstream economic project is not equalized by another
directed toward critical realism or institutionalism or what-have-you. Liberalism and critical thought is
cast as entertainment, a fantasy kept to one side of reality: Michael More
tops book lists and box office ratings, and Martin Sheen plays a president
from the left on the smash television program, The West Wing.
It seems to me that these inequalities are propagated by the discipline’s
ineffectual articulation of the economy
and the economic—the facet of life
that has (and has had) to do with production and exchange and the thing which
comes to both observe and participate in its unfolding. The ‘mainstream’ economic project
retains its title by restraining the political and educative salience of
ideologies (as well as techniques) that impugn the discipline’s ‘science
envy’ and, secondarily, a neoconservative allegiance. Simply put, the economic textbook has
its finger on the pulse of the community and workplace, all else is academic,
peace-nic fluff.
Now, when an undergraduate reads an article from The Economist or The New
York Times as an assignment for an economics course, he or she gleans in
a particular way. The graphs,
equations, vocabulary, and explanations found in the supported textbook are
to be conjured from the article at hand—if nothing else, they are there.
First of all, the situation depicted is but an excerpt. The institutions, politics, and
histories brought to the fore are
relevant only in so far as they can be drawn into a quantifiable relationship
with a particular monetary or material variable. The narrative of the article is
rewritten or read as immediately explicable by a concurrently assigned lesson
from the economics textbook.
Thus, economics visits the economy. Imagine an economics student reading a report detailing
Ortega and Associates, an Arthur Anderson subsidiary, undervaluing the
Dominican Republic’s power facilities by 907M dollars prior to the industries
privatization (Enron, et cetera) (Vallette and Whysham 2002). What hope is
there for an economics textbook or free-market ideology here? Are we to allow a generation of
budding economists to familiarize themselves with the price theory in such a
light? No. Of course not. For here, the economy is contrary, a rogue, and as a field of study, miscast by
economics. At once, the motive for profit is
depicted as coming unlatched from governmental and market regulations while subsisting only in their assistance:
Enron could not have conquered (and fallen) without a number of national and
international organizations.
This line of argumentation is not defeated by the evidence of the
criminalization of the white-collar crimes committed herein, but is rather
vanquished by the solution which has arisen in the aftermath. As with the IMF and World Bank
debacles, economics suggests measures devoted toward improved transparency.
But what is it that we have come to see? Harvey Pitt steps down, but can the Securities and
Exchange Commission institutionalize real change?
An economics that seriously attempts to relate to and progressively impact on
the economy, cannot take shape simply by compiling written and jocular support
against mainstream economics.
There has always been debate within the discipline. That debate must be heard and
harnessed. What if
undergraduates read a book like Geoffrey Hodgson’s How Economics Forgot History: The Problem of Historical Specificity in
Social Science (2001) or Paul Downward’s Pricing Theory in Post Keynesian Economics: A Realist Approach
(1999)? What if undergraduates
engaged with the community, both social and economic, that surrounds their
school? Again, it is not that
high school, college, or graduate-school teachers necessarily lack the
interest or education, but rather the classroom. Courage must be garnered to push toward institutionalizing
community or academically heterodox orientations that already exist in
students and teachers alike. As
economists, we must know both humility and potency; mainstream economics and
a neoconservative economy survives this article, yet instigates it and others like it; teachers and students have
long been involved progressively and critically in the economy and in
academia, yet examples of those lives and thoughts seem horribly new. The economics textbook, both as a
medium and by its generally accepted contents, lacks a grasp of the economy that
could be afforded by broad readings and community participation.
Works Cited or Influential
Bhaskar,
Roy. 1993. Dialectic:
The Pulse of Freedom.
London: Verso.
Downward, Paul. 1999. Pricing
Theory in Post Keynesian Economics: A Realist Approach. Cheltenham:
Edward Elgar.
Fleetwood, Steve. 2001. “Conceptualizing Unemployment
in a Period of Atypical Employment: A
Critical Realist Perspective.”
Review of Social Economy,
vol. 59, no. 1. Pages 45-69.
Kuhn, Thomas S. 1996. The
Structure of Scientific Revolutions [1962]. 3rd edition. Chicago: Chicago UP.
Lawson, Tony. Economics & Reality. London: Routledge.
Mirowski, Philip. 1991. “The
philosophical bases of institutional economics.” Lavoie, Don ed.
Economics and Hermeneutics. Pages 76-112. London: Routledge.
____ 2002. Machine Dreams: Economics
Becomes a Cyborg Science.
Cambridge: Cambridge UP.
Moore, Henrietta L. 2002. “The Business of Funding: Science,
Social Science and Wealth in the
United Kingdom.” Anthropological
Quarterly vol. 75, no. 3.
Pages 527-535.
Setterfield, Mark. 2000. “Expectations, Endogenous Money, and
the Business Cycle: An Exercise in
Open Systems Modeling.” Journal of Post-Keynesian Economics,
vol. 23, no. 1. Pages 77-105.
____ 2002. “Critical Realism and
Formal Modeling: Incompatible Bedfellows?” Unpublished manuscript
first presented at the Workshop on Realism and Economics at the
University of Cambridge in May 1999.
Vallette, Jim and Whysham, Daphne.
2002. “Enron’s Pawns: How
Public Institutions Bankrolled
Enron'’ Globalization Game.”
Unpublished report for the Institute for Policy Studies.
Wolfram, Stephen. 2002. A New Kind of Science. Champaign, IL: Wolfram Media.
______________________________
SUGGESTED CITATION:
Nathaniel Chamberland, “Of Textbooks: In Search of Method“, post-autistic
economics review, issue no. 2 April 2003, article 3, http://www.btinternet.com/~pae_news/review/issue19.htm
4 New Assumptions for a New Economics
James Bondio (undergraduate at
University of Queensland, Australia)
I hope to add to the kindling that has been laid to ignite a new
economics. The ideas in this paper
are not original but their combination as an economic theory came to me while
I was waiting in various airports recently. I have reached this point of view through combining
studies in philosophy and history of economic thought, behaviourism, social
psychology, sociology, theology, and the beautiful people around me.
I am not an expert at economics and know less of writing theories, but it is
my opinion that economics has a noble greater purpose, making people happy,
and an economic theory should explain ways to achieve this. At present the theory I am taught
teaches profit maximisation,
utility maximisation and
(individually summed utilities) social welfare, which are achieved through
self-love and greed. Then the
fear created by competition forces us to do the best we can for each other to
fulfil our selfish motives. My
common sense tells me that a society dominated by fear and greed will not be
happy and my experiences provide me with enough evidence to believe that
selfish and scared people are never happy. The ideas for a new theory that I present here are
assembled in an effort to create a more realistic theory, to better
understand people’s behaviours and decisions, how prices are set and to explain
ways people can be happy.
My theory goes something like this: the economy is not made up of individual
rational utility and profit maximisers; it is made up of people. Traditionally, what makes human
beings as a species different from other animals is two things: the power to
reason and the power to communicate through language. We are creatures eternally looking
for reason, meaning, and value in everything around us (economics itself is
evidence of this) and most importantly in our own existence. If we find meaning and worth in
ourselves, then our own existence is valuable and can be appreciated. It is when our existence is
meaningful that we are happy. Of
course, the greatest human expression of value and appreciation is love. So my first assumption of economic
behaviour is:
People search for meaning and value in their own existence and everything
around them.
Our ability to communicate value and meaning between each other enables
values to be agreed and disagreed upon, reinforced and rejected by those
around us, and learnt and taught to those we have contact with. People who communicate to each other
(verbally, through body-language, clothing, or anything else that can
communicate meaning) create a social group and a social context. Groups can be formal and established
or informal, but groups have common and recognisable values and reason. These common values and reasons
within a group are referred to as, habits, culture, stereotypes and social
norms. They communicate meaning
and value. They exist within
friendships, families, firms, political parties, university faculties,
religions, age groups, and football teams. My second assumption is:
We are all subject to
social norms.
It is the values and meanings we learn from groups and individuals important
to us that define what is meaningful.
Our values are dependent on the groups we are members of. Group membership is maintained and
established with groups that provide and communicate meaning or value. To be members of a group people then
adopt what is important and representative of that group, and can be
recognised as group members.
Being recognisable means an identity has been established, which
communicates meaning to others.
My third assumption is:
People will adopt the norms of the groups most important to them at any point
in time.
What is important to people will
depend on what context they are in.
Different contexts will demand needs that need to be satisfied. Individuals will behave within norms
that will satisfy their needs according to a hierarchy. Importantly, people will satisfy
their needs within the boundaries of the norms (values & beliefs) of the
groups vital to their identities.
For example, a strictly Jewish man dying of starvation would not eat
pork. The hierarchy operates
such that lowest order needs of physical survival must be satisfied, then
pleasure needs, self-fulfilment, social fulfilment and spiritual/universal
fulfilment, each a higher order of needs. The orders represent levels of personal development. The level that people have reached
will determine what they value and consider meaningful. The more developed person experiences
a deeper meaningfulness and reason.
This fuels our desire to develop. Therefore, my fourth assumption:
The importance of groups (and their norms, which are followed) will
depend on two, sometimes opposing, forces – personal development and context.
Those are the basic assumptions I need, thus far, to explain behaviour within
economies. I feel that the
current assumptions in economic theory should be replaced by a set of
assumptions similar to these. I
want to direct this paper from here towards explaining how people can behave
according to the assumptions, how behaviour could be modelled, and the
implications of a theory based on these assumptions. Perhaps, to follow in the footsteps
of our ancestors, an example of how the butcher’s love provides us with meat
is appropriate.
According to these assumptions the butcher can provide us with meat for a
number of reasons. The
butcher can provide us with meat for his survival, purely out of
self-love. His job provides him
with income that lets him buy food, shelter and clothing. However, the butcher could do a
number of jobs that will satisfy his survival needs. He may choose to be a butcher, over
other trades, simply because he finds pleasure in cutting and preparing
meats. If the butcher’s father
was also a respected butcher then the son may have followed his fathers
valued footsteps to gain the same self-respect. Further he can provide us with meat because of the pride
it gives himself when others recognise him as a skilled tradesman and a hard
worker. He may work to support
his family. The butcher may love
the fact that he can provide fresh food as a source of life and enjoyment for
his customers and community, which means he may take extra care in ensuring
quality, not just for his own profits, but for the people around him. The butcher can choose to provide us
with different meat. He can
choose to supply ‘free range’ chicken, beef grazed in pastures that have not
caused deforestation, and non-genetically modified meat because of the values
he places on animal life, the environment or god’s creation. The butcher can provide us with meat
for any number of reasons and loves.
Why he does will depend on what is meaningful to him.
How then is this behaviour modelled?
I haven’t given this a huge amount of thought; however, I think the
supply and demand model can remain, with a few modifications. What follows is a list of ideas
instead of a structured argument. The simple supply and demand model can no
longer be viewed as the relationship between utility and profit according to
the axioms of price and quantity.
Equilibriums will no longer represent optimal outcomes and
equilibriums will only be context specific. Equilibriums could be viewed more as contextual agreements
and instead of equilibrium points they could be modelled as intervals. Agreements can be made within the
intervals depending on the salience (contextual relevance) of group
norms. This is where advertising
and salespeople come into play, they attempt to increase the salience of
norms that will most benefit sales and prices.
This then gives power to the people who influence norms (group leaders,
respected institutions, publications, advertising and media figures). Therefore, there does not have to be
perfect competition. Nor does
the assumption of perfect information need to be kept, indeed it is because
there is not perfect information that we adopt group norms, relying on the
perceptions and judgements of each other to guide our decisions (i.e. “if
everybody else whom we see as important thinks it is good there must be
something good about it.”).
Hence outcomes are not always optimal and people do not have to be
modelled according to subjective expected utility theory as rational economic
agents. Nor do firms have to be
modelled as profit maximising juggernauts. Instead people (on both the supply and demand curves) are
behaving in order to achieve something meaningful to find reason so that we
have value and can be appreciated by others.
To find what is meaningful we then look to those people we respect and regard
as important, and they are determined by our context and development. Therefore if we are to understand the
behaviour of different markets, identifiable groups with observable group
norms, we can benefit from understanding these processes. Importantly, what order of needs,
according to the hierarchy, are being satisfied need to be identified
explicitly. I think this is
already done implicitly in analysis but is left largely outside of analysis
that I have been taught. This
would require empirical research out in the wide-open ‘playing fields,’
finding out why people do what they do.
Present theory restricts motivations for behaviour purely to the lower
order needs of survival, pleasure and self. If this were true, then everybody would live according to
fear and greed – not a happy situation!
Progressing the theory in the way I have suggested here means analysis
can also include the value and benefit of things greater than our individual
existence. This is what my
common sense tells me will make the world a happier place, and this paper is
the draft of a theory that says the same.
The implications of a theory based on these foundations are many and I am
sure to think of others after I have written this paper. But primarily these foundations:
- bring
both consumer and producer analysis together through the analysis of
people;
- require
less emphasis on mathematical logic and more on observing reality;
- shift
methodology towards group analysis away from individualism (this is
important in explaining group hostility and cooperation, gender, class,
societal and cultural characteristics) and;
- require
explicit historical perspectives when analysing the development and
emergence of groups and their norms.
Importantly, economics will need to move to
analysing actual contexts that groups exist in. We will need to broaden our analysis from contextual
factors (e.g. income, welfare, savings, standard of living) to include
personal development factors (e.g. education, the family unit, group
membership, judgements and perceptions). Economists will need to ensure that the economy creates a
context, by including normative analysis and policy, where people are not
solely concerned with survival and self, a context where people value each
other, our environment, the miracle of life on this planet, the power of
love, and the existence of things greater than ourselves. It’s time to make economic teachings
relevant again.
______________________________
SUGGESTED
CITATION:
James Bondio, “4 New Assumptions for a New Economics“, post-autistic
economics review, issue no. 2 April 2003, article 4, http://www.btinternet.com/~pae_news/review/issue19.htm
Toward
a Holistic Economics
Jared Ferrie (student
at Simon Fraser University, Canada)
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