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sanity, humanity and science post-autistic economics review(formerly “newsletter”) Issue
no. 13; May 2,
2002
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In this issue:
- Yanis
Varoufakis
Why Critics of Economics Can Ill-afford the “Postmodern Turn” - Alex
Millmow An
IgNobel Scandal - Geoff Harcourt Comment
on Guerrien’s Essay - Bruce
J. Caldwell In
Defense of Basic Economic Reasoning - Jacques Sapir Response
to Guerrien’s Essay - Gilles Raveaud For Guerrien… and Beyond - Poul
Thøis Madsen Teaching
students of political science post-autistic economics - Helge
Peukert Review
of Intersubjectivity in Economics Some
recent articles on PAE Editor’s
Note: Five of the articles in this issue are in part or in Why Critics of Economics Can
Ill-afford the “Postmodern Turn” The dissident’s nightmare It is a sad irony when the activities of dissidents help shore
up the establishment they set out to subvert. The point of this piece is to
warn the ‘economic’ dissident: Beware the Postmodern Turn! The
argument will turn on the thought that postmodern criticisms of economics
serve the twin purpose of (a) releasing pent-up frustration with the
profession while, at once, (b) reinforcing its ideological backbone. Every era has a tendency surreptitiously to guide young
dissidents toward a specific ‘umbrella movement’; one that ends up shaping
their milieu. Existentialism, structuralism, neo-Marxism, etc. have given
their place, in our era of devalued political goods, to Postmodernity and
Deconstruction. Without wishing to discuss the ‘postmodern condition’
generally, I shall concentrate entirely on its likely effects on the struggle
to ‘civilise’ economics. In this regard, the problem with postmodern thinking
is that it stands no chance of success. Postmodernity’s criticism of grandiose Theory may be
terribly satisfying to those who adopt its grandiose pronouncements. However,
the satisfaction at having lambasted all Theory is momentary and the ensuing
subversion short-lived. To paraphrase Marx, the subverters will be,
eventually, subverted and, tragically, the neoclassical establishment will
come out stronger and better equipped to obfuscate social reality than ever
before.2 If I am right, the task of the PAE movement must be to
clear the way for radical criticism that avoids the postmodern trap as
resolutely as it opposes economic autism. Dissidents or the economists’ handmaidens? Modernity marginalised Religion, but retained religious transcendence by worshipping Theory. Economics emerged as the highest form of this secular creed and enchanted all of its practitioners; free-marketeer and protectionist, liberal and Marxist, Keynesian and monetarist. It now seems that some economists are breaking ranks; joining the ‘other’, the postmodern, side which defines itself in anti-theoretical tones that exude an atheist’s anti-religious fervour. The danger is that the legitimate anger of students (which has given rise to the PAE movement) will draw them to an apostasy without a future. For despite its considerable oeuvre, postmodern criticisms of economics are doomed to shrivel and be absorbed by mainstream economics; the predator turning into unsuspecting prey. I risk this prediction for two reasons. First, postmodernists allow economics to parade as equally
scientific as the natural sciences (albeit on the grounds that no
discipline is truly scientific). They are right of course to think that all
theory resembles religion, since it also seeks to give meaning to the
practices and expectations of whole communities. However some theories are
capable of transcending religion and approaching objectivity better than others.
Nature’s habit of working independently of our beliefs about it means that
the natural scientist can devise experiments which have the power
disinterestedly to discard falsity and thus forge knowledge and progress.
Society, on the other hand, is corrupted to the very marrow of its bones by
our collective beliefs about it, and can therefore provide no objective test
of social theory (the latter being part of the very web of beliefs that
society is made of). Thus social theory, unlike thermodynamics, is condemned
to remain untestable, and stuck in the realm of opinion. Economics valiantly
attempts to extricate itself from this fate with a touching commitment to
mathematics but, sadly, it only ends up as a religion with equations. Postmodernity errs in thinking of this as the inevitable
failure of all Modernist enterprises. It lambastes economists’ churlish
reliance on an Outer Wall of Algebra and an Inner Wall of Statistics but
overlooks their success at never even coming close to the nature and
the dynamics of contemporary capitalism, thus shielding the latter from
rational criticism. But such is the fate of all idealisms which give language
an existence independent of the material conditions of social life and
reproduction. If only postmodernist critics understood theology and
mathematics a little better! Perhaps they would have recognised in economics
the greatest proof that Modernity is saturated with its negation. Which brings me to the second part of the argument:
Postmodernity not only lets neoclassical economics off the hook but, more
worryingly, reinforces it copiously before dissolving into it. Consider what
the postmodern rejection of metanarratives means at the individual level: It
means the loss of any capacity to scrutinise one’s private urges
rationally on the basis of some collectively constructed notion (or
metanarrative) of the Good. Stripped of those capacities, the individual
fragments into a community of selves, a bundle of ordinal preferences, and
ends up with no one self whose preferences those are. In this Empire of Ordinal Preference the only possible
data that social theory can go to work with are the differences in individual
whims and freely chosen identities. These data are then, courtesy of their ordinal
properties, impossible to compare across persons (for this would require a
metanarrative) or procure a view of capitalism as a system. Thus in a
fully-fledged postmodern schema, social relations are confined to interplay,
voluntarism, tolerance and exchange; society is the playground where the
latter unfold; and discussions of the General Will, exploitation and
developmental freedom make no sense. Does this all sound familiar? If it does the reason is that neoclassical economics went
down that alley decades ago. The asymptotic limit of postmodern fragmentation
is the neoclassical general equilibrium economic model. Both
Neoclassicism and Postmodernity espouse a radical egalitarianism which is
founded on the rejection of any standard or value by which either individual
action or the institutions of late capitalism (e.g. the labour and capital
markets) can be subjected to rational criticism. In short, whereas the
problem with modernist mechanism was that its view of our world excluded
value from the outset, the problem with Postmodernity is that it ends up
having no view of the world and becomes easy-pickings for a similarly
viewless/valueless tradition, one which bears the additional weaponry of
intricate mathematics and endless econometric ‘evidence’. For Oscar Wilde the supreme vice was shallowness. For
Postmodernity it is the New Jerusalem. Its playfulness allowed it to thrive
in the friendlier waters of literary and cultural studies at a time when
‘margins’ were becoming central and classical stuffiness was going out of
fashion. But now postmodernists have entered shark-infested territory.
Neoclassical economics, another purveyor of shallowness, threatens to bend
them to its will,3 gain strength from them and subsequently
reinforce hierarchies more oppressive and totalising than those the
postmodernists set out initially to dismantle. When the IMF dictates its policies to some hapless Third World country, there is a strong whiff of the radical egalitarianism shared equally between general equilibrium and Postmodernity. The same whiff accompanies, and legitimises, the inexorable devaluation of political goods, the vulgar commodification of human bodies and values, the impossibility of conceptualising freedom-from-the-market, the depiction of Central Banks as ‘independent’ only when under the thumb of financial capital, the confusion of liberty with the freedom to exploit and to demean and, above all else, the portrayal of coercion as tâtonnement. Thus Postmodernity unwittingly blows fresh wind in the sails of neoclassicism, the undisputed champion of the deconstructed human agent. While warning us correctly that new authoritarianisms will be born when we get caught up in our own rhetoric, it offers no resistance to the current authoritarianism of neoclassical economics and, more so, the socio-economic system that it serves. Conclusion: The dissidents’ dilemma When a fresh wave of criticism is unleashed, it picks up
along the way pre-existing discontents, hitherto bopping along hopelessly
near the surface, and propels them toward the shores of exposure and
respectability. Lonely dissidents suddenly find a new ‘movement’ that will
have them. New hope of escaping obscurity is thus born. In recent years many dissident voices had to adapt
themselves to postmodern-speak in an attempt to be ‘included’ on the
postmodern bandwagon. The PAE movement must release such voices from this
obligation. Social criticism of economics must reclaim an awareness that to
reject the scientific status of economics is not to reject science in general
or to espouse postmodernism. Indeed irony and ambiguity were utilised, long before
Postmodernity, by thinkers eager to come to what a more confident past once
knew as the truth. To re-establish irony, ambiguity and indeterminateness in
the discourse of economists would be a triumph of the spirit. But it would
not be a postmodern turn. For the latter has no monopoly on an appreciation
of the radical indeterminacy of social processes (as Hegel would be all to
eager to remind us) or the importance of not taking our selves, and our
theories, too seriously. On the contrary, Postmodernity undermines itself by
offering Modernity’s most awful purveyor another means of extending its
dominance. So, we have arrived at the dissident’s dilemma. The
postmodern kernel within neoclassical economics forces a stark choice: Submit
to homo economicus and model our messy world’s dynamic as if a series
of suburban disputes between postmodern neighbours. Or, seek an historically
grounded understanding of how systematic patterns of power and
economics are the joint products of the continual feedback between
technological developments and evolving social formations. The difference
between the two options is not theoretical; it is ideological. The postmodern
turn will be chosen by pseudo-dissidents whose prime interests lie in
acquiring a chic image; one that the self-effacing postmodern criticism is
good at imparting. The less fashionable option of working towards
historically grounded knowledge will appeal to the truly ‘unreasonable’
dissidents; those driven by an unbending commitment to a rational
transformation of society. Notes
1. Department of Economics, University of Athens, 8
Pesmazoglou Street, Athens 10596 and Department of Economics, University of
Sydney, Sydney, Australia. Email: yanisv@econ.uoa.gr 2. Recently, Routledge published a volume on the nexus of
Postmodernity with economics edited by Jack Amariglio, Stephen Cullenberg,
and David Ruccio (2001). The following thoughts have been extracted from my
review of that book (forthcoming in the Journal of Economic Methodology) 3. Courtesy of a more sophisticated take on the same type
of philosophical shallowness. References Cullenberg, S., J. Amariglio and D. Ruccio (2001). Postmodernity,
Economics and Knoweldge, London and New York: Routledge Varoufakis, Y. (2002). ‘Deconstructing Homo Economicus?’, Journal
of Economic Methodology, forthcoming. _______________________________________ Yanis Varoufakis’ most recent book is Foundations
of Economics : A Beginner's Companion. SUGGESTED
CITATION: An IgNobel Scandal In his play ‘The Importance of Being Earnest’ Oscar Wilde
said of political economy that ‘even these metallic problems have their
melodramatic side’. That prophecy came true at this year’s Academy awards.
Apart from the Nobel Prize and the Oscar almost melting into one with the
fanfare meted out to the film ‘A Beautiful Mind’, there was a whiff of
scandal with Russell Crowe missing out on a best actor award for his
portrayal of John Nash Jr. even though the production did well in all the
other major award categories. Nash, who was in the audience remarked that,
like the Nobel Prize, there was an element of politics in the Awards. Indeed
there was, and not just because Nash himself was a bit lucky to win the Nobel
Prize with the Prize-bestowing committee barely convinced about the wisdom of
giving it to a schizophrenic mathematician. As Sylvia Nasar, author of A
Beautiful Mind shows, the committee reluctantly came round to the
chairman Assar Lindbeck’s view that Nash should be given the award, as
Russell Crowe, aka John Nash, put it in a southern drawl, for his ‘one truly
original idea’. It is often
overlooked too that Nash actually shared the Nobel Prize in Economic Science
with two mathematical economists, namely John Harsanyi and Reinhard
Selten. The fact that the
economics community bestowed the prize upon Nash tells us something about
what that profession adores, namely, a mathematically driven formalism that
basically reduces to second-guessing your rival’s gameplan. Ironically, Nash has openly stated that he is not really
an economist. But there is, in all this, an even greater controversy in the
Nobel Prize in Economics. It concerns the great English economist, Joan
Robinson, who died nearly twenty years ago. Apparently she died lamenting
that she was never given the gong. This might come as a surprise because it
is alleged that Robinson made clear to the committee that she did not want to
be considered for the accolade. An alternative version is that she much preferred
‘having a grievance’ in not being awarded the prize. It was a mark of
distinction not to be given the award.
She would, moreover, have been horrified to be awarded the prize in
company with someone with polar views to herself as had occurred in 1974 when
the Economics Nobel Prize was, in an ideological balancing act, shared by the
Austrian economist, FA Hayek, and the Swedish institutional economist, Gunnar
Myrdal. When Milton Friedman was awarded the 1976 Nobel Prize, Myrdal spat
the dummy and embarrassed the committee for its overly political decision
with a string of denunciations, not least about the merits of having a prize
for economic science. The stormy petrel of Cambridge economics spent most of her
life trying to undermine the pillars of neoclassical thought and replacing it
with a new critical economy. She failed in that endeavour, but as her bête noire, Paul Samuelson, conceded,
Robinson was a pioneering theorist in so many fields that she deserved the
gong. In 1975
there was immense speculation that Robinson was to be honoured. It was, after
all, the International Year of the Woman and there was no more outstanding
candidate than Robinson. The gossip in the economics profession was that
Robinson was a shoo–in for the prize (McCarty, 2000) To much surprise the
Nobel Prize committee overlooked her and continued to do so right up to her
death in 1983. To borrow a journalistic cliché, Joan Robinson became, at the
stroke of a committee chairman’s pen,
the best Nobel Prize winner we never had. It is said that sunk costs
do not matter, but that decision has cost the profession dear, since surely
having not one female in the pantheon of economic laureates does little to
inspire one half of the student population to do a major in economics. How could she have been overlooked? Milton Friedman felt
she was ‘blackballed’ because of espousal of Keynesianism and that it had
nothing to do with gender (Feldman, 2000). Arguably it could have been due to
her works which were mostly destructive of conventional economic theory and
therefore, in the committee eyes, nothing to really build on. Nor was her
methodology of the ilk befitting a true deterministic science. It seems however that Lindbeck, the powerful chairman of
the Nobel economics committee was more concerned that the cantankerous
Robinson would use the prize to attack mainstream economics or, even worse,
publicly refuse it, especially, if awarded for her earlier work, The Theory
of Imperfect Competition which she had disowned. Unlike many other Prize-winners,
Robinson had more than just ‘one big thing’ to hang her fame on. The
consensus was that Robinson would, either way, be too risky. For a while
perhaps it helped her cause to establish a more heterodox economics. However,
the award of the Nobel prize to a self-confessed left wing Keynesian would
have given the Post-Keynesian movement weight as a viable alternative to the
mainstream. In the case of Nash, the Nobel Prize committee sent
someone to check to make sure he was no longer receiving messages from
extraterrestrials. If the same courtesy had been extended to Robinson in
1982, they would have found her amenable to the idea of getting the award.
According to Juliet Schor, a professor of sociology at Boston University who
looked after Robinson while she did a semester of guest teaching at Williams
in 1982, the grande dame of
economics was ‘terribly disappointed’ not to have won that year’s Nobel
economics prize. Adding insult to injury it went to another Chicago economist
and arch polemicist, George Stigler, for his work on deregulation. Robinson
apparently desperately wanted to win not so much for the recognition but for
the million dollars that came with it. She intended to donate it to the peace
movement. One could, therefore, liken Robinson’s experience to all those
great films and superb acting performances that missed out on an Oscar.
However even mainstream economists agree that even in Robinson’s time all the
titans of the profession have been deservedly rewarded bar her. Whatever the truth
behind the failure of Joan Robinson to be honoured by the committee it
remains the most mystifying incident in the history of the awards. Mark Blaug, a conservative historian
of economic thought has no doubt that Robinson’s omission from the list of Nobel
laureates is ‘one of the most extraordinary acts of academic
vindictiveness... in recorded intellectual history’ (1985). And, like the
Oscars, the Nobel Prize cannot be given posthumously to repair the damage. References
Blaug M. (1985) Great Economists since Keynes
Edward Elgar : Cheltenham Feldman B. (2000) The Nobel Prize Arcade
publishing: New York McCarty M.H. (2001) The Nobel Laureates McGraw-Hill: New York Nasar S. (2002) A Beautiful Mind : Faber and Faber SUGGESTED
CITATION: Comment on Bernard Guerrien’s Essay May I comment on
Bernard Guerrien's essay in Issue
12, March 15, 2002 in which he has some disagreement with what he alleges I
argued in Issue 11? There I set
out what I think is happening in modern mainstream microeconomic theory, for
example, that the general equilibrium model is the basis for descriptive
analysis of competitive markets instead of being at best, as is
conceded by the most thoughtful general equilibrium theorists, e.g. Frank
Hahn, a reference point.
Guerrien says I agree with this.
If he had any knowledge at all about what I have argued for many years
now, he would not have advanced such a canard. In fact, as with Joan Robinson, I do not even accept the
distinction between micro and macro as valid or useful; and I have doubts
about whether general equilibrium is a reference point and certainly it is
not descriptive analysis. I also tend to
think that game theory may not be that much use in thinking about
non-competitive market structures.
But I am re-examining this long held view, following re-reading Ken
Arrow’s masterful obituary of John Harsanyi and his contributions (Economic
Journal, 111, 2001, F747-52).
Minds should never be closed even in your 71st year! (I do not know how old Bernard
Guerrien is.) Guerrien quibbles
with my (implicit) description of Akerlof, Spender and Stiglitz’s findings as
“new”, arguing that they are just presenting some very old ideas in a
mathematical form. He is right
about the latter; but then I never claimed the findings were new. Mainstream economists think it is
helpful to establish rigorously by maths, if at all possible, the arguments
for conjectures, old and new. I
think that there is a limited place for this approach in economics. Moreover, if it helps to illuminate
the understanding of people who find thinking in this way useful, no harm is
done, provided that this way of proceeding is not regarded as the only
way of proceeding, and its advocates do not insist on a monopoly. I argued this in my first essay in
this review (issue 6)
(and in many other places).
Finally, Amartya Sen is a real force for good in our discipline and
the award of the Nobel Prize to him is a positive signal, to be embraced, not
belittled. SUGGESTED
CITATION: In Defense of Basic Economic ReasoningBruce J. Caldwell (University of North
Carolina, US) In issue number 12 of the Post-Autistic Economics
Review, Bernard Gurrien poses the provocative question, “Is There
Anything Worth Keeping in Standard Microeconomics?” His answer seems to be, “Not much.” Gurrien complains
about the highly formalized nature of modern microeconomic theory, about the
use of assumptions that describe neither the world nor the actions of the
people that populate it. He
finds much formal theory useless and irrelevant for helping us to understand
how the world works. I agree with many of Gurrien’s criticisms of formal,
highly mathematicized microeconomic theory. I disagree, though, with his
conclusion that the irrelevance of the theory undermines microeconomics. In my opinion, there is a body of
economic reasoning, something that might be called “basic economic reasoning”
that can and should be separated out from what might be called “formal
microeconomic theory.” Much of
basic economic reasoning is in fact microeconomic in nature, but it preceded
the latter temporally in terms of its development and it does not depend on
formal economic theory for its validity or usefulness. It is my contention
that basic economic reasoning is truly important. My fear is that if we take Gurrien’s advice, we will throw
out the standard economic reasoning “baby” with the formal economic theory
“bathwater.” I will elaborate on these claims by citing some personal
examples. In recent years I have taught both a one semester “everything you
want to know about economics” course as well as the principles of
microeconomics course to American undergraduates. I use very little
mathematics in either course. With the exception of a little algebra for
calculating elasticities, all other concepts are handled graphically, with
production possibilities curves and supply and demand diagrams being the
chief graphical tools employed. Even with this elementary set of tools, by
the end of the course students have learned a lot about how the world works.
Their education is a practical one, one that allows them to read a paper
better and to understand economic issues that are discussed in the news. Of course what I am doing in the
classroom is not unique; many other economists do the same things in their
own principles courses. Basically, I use the graphs to tell stories about the
world. The graphs alone are useless without the stories, and similarly, the
stories lose all focus without the graphs. So, for example, in discussing price
fixing we use a supply and demand diagram to distinguish between price
ceilings and price supports.
When price ceilings are binding, one can expect to see excess demand,
or shortages, and one also often encounters such things as non-price
rationing, deterioration in product quality, and black markets. With these
general concepts, we can them explore such diverse phenomena as rent controls
in New York City, black markets for tickets to the theater and sporting
events, the use of ration coupons during times of war, lines at gasoline
stations in the U.S. in the 1970s (when gas prices were controlled), and the
ubiquitous lines that one used to observe in East Bloc countries under
communism. The price support diagram is useful for analyzing current policies
(like agricultural price supports or the minimum wage law) as well as those
that have been proposed (comparable worth policies). Once the concept of elasticities has
been introduced, the diagrams can be used to analyze everything from the
incidence of taxation to the “paradox of plenty” in agriculture (good growing
seasons can lead to a reduction in farmer’s revenues if demand for their
product is inelastic) to the reason why a successful “War on Drugs” that
managed to reduce the supply of illegal drugs would put more revenue into the
pockets of drug dealers. (If the demand for drugs is inelastic, a rise in the
price of drugs causes a less than proportionate fall in quantity demanded, so
total revenue increases.)
Production possibilities curves can be used whenever the discussion
focuses on opportunity costs and the necessity of making trade-offs. Basic economic reasoning and simple diagrams can also be
used to tell stories that go beyond economics to what might be called
political economy. The recent history of agricultural price supports in the
U.S. provides numerous insights into how politics and economics interact. In
1996 a law was passed that was supposed to gradually phase out agricultural
price supports, so that they would be gone by 2002. In order to induce farm
interests to accept the law, payments in the initial years were quite
generous. But as we got closer and closer to 2002, and prices for
agricultural products began falling (this was exactly what was supposed to
happen, of course), farm interests declared a “crisis” in their industry. For
the past few years, “emergency” farm legislation was passed by Congress to
help agricultural interests survive their “crises.” The recurring crises have in turn prompted calls for a
“comprehensive” farm bill to deal with the problems on a permanent basis. And
sure enough, after September 11 some have begun referring to the new proposed
legislation as a Farmland Security Bill. A few years ago, a dot.com at the
end of a company name was supposed to ensure that investors would love it.
Now in Congress putting the word “Security” into a bill’s name will help to
ensure its speedy passage. Many other examples could be given. The recent decision by
the Bush administration to place tariffs of about 30% on steel imports was
analyzed in one newspaper under the wonderful byline, “In Big Steel States,
the Bush Democrat May Be Born.”
Ohio, West Virginia and Pennsylvania are major steel-producing states,
and the outcome of mid-term elections there may be crucial in deciding who
controls the Congress. So again steel has gotten help, even though it is one
of the most protected of all American industries: past studies have estimated
that it costs American consumers about $750,000 (in terms of higher prices
paid) for every steelworker’s job saved. That number will need to be updated
in the light of this recent event, especially given that other nations have
begun retaliating with tariffs of their own that will further raise the
prices that consumers face. Though basic economic reasoning is simple, it is not
simplistic, and indeed, it often leads one to results that are not at all
obvious. For example, the idea that the incidence of taxation depends on the
elasticities of supply and demand, and not on whether a tax is initially paid
by a buyer or a seller of a good, is not at all intuitive, but is crucial if
one wants to understand who actually bears the burden of a tax. Similarly,
the idea that there can be gains from trade even when one country has an
absolute advantage in the production of goods – the fundamental idea of
comparative advantage – is not one that many non-economists have
mastered. Some will say that basic economic reasoning is not valid
because it rests on faulty foundations – one must assume that agents are
perfectly rational, with complete information, trading in perfectly
competitive markets to get its results. This simply confuses formal
mathematical theory with basic economic reasoning. In my opinion, basic economic reasoning does not depend on
formal microeconomic theory for its validity. Now, to be sure, economists have not been very good at
identifying just what it does depend on. That is a topic for economic
methodology, and over the years various contending views have been advanced.
My own intuition is that there may well be multiple “foundations” that help
to explain why different parts of the theory may work. In any event, my own
confidence in basic economic reasoning has less to do with the fact that I
know why it works, then with the fact that it does work: as my examples
hopefully demonstrate, it can prove to be extremely useful in organizing and
understanding various and often very diverse social phenomena. The proof of
the pudding is in the eating, and in this regard basic economic reasoning
seems to me to provide much upon which to feast. There will of course be the complaint of those who believe
that basic economic reasoning is simply ideology dressed up as science. For them, to say that “we live in a
world in which scarcity makes choice necessary” is an ideological statement;
or to assert that “producing goods for which one has a comparative advantage
permits gains from trade” is a not-so-covert defense of globalization; and so
on. To this I would reply that I
think of the statements of basic economic reasoning as being positive rather
than normative claims. (This is not to say that they are easily testable
claims.) I would further rejoin that those who think that basic economic
reasoning is simply a defense of capitalism should look once again at the
socialist calculation debate, and in particular at the positions articulated
by the defenders of market socialism, or for those who would like to go back
further, at the Austrian economist Friedrich von Wieser’s Natural Value.
These economists recognized that an understanding of economic reasoning was
necessary even if one was in favor of organizing a socialist economy. As one
wag put it on the recent television production of the book Commanding
Heights, ignoring how markets operate is much like ignoring the winds and
the tides – you do so at your peril. In conclusion, I join with Bernard Gurrien in lamenting
the turn of the profession towards microeconomic models of ever increasing
formal complexity. Explaining why the profession has gone down this road is
something that has increasingly captured the attention of (our ever
diminishing number, alas, of) historians of economic thought. But we should
not conclude that microeconomics is of no value. Basic economic reasoning was
there before the advent of such modeling, and it remains a powerful tool
today for understanding how the world works. ______________________________ Bruce Caldwell is the author of Beyond
Positivism : Economic Methodology in the Twentieth Century. SUGGESTED
CITATION: Response to Guerrien’s Essay Jacques Sapir (L'École des Hautes Études en Sciences Sociales, Paris) Bernard Guerrien's provocative paper in PAE Review no. 12
raises some important issues. Along with other heterodoxical French
economists I am greatly indebted to Guerrien’s frequently illuminating work about
neoclassical economics. However, I feel that this particularly recent
contribution was ill-conceived and perhaps pointless. I agree with Guerrien that standard microeconomic
assumptions are not relevant. I
too criticized them in my Les Trous
Noirs de la Science Économique. In addition, I agree that the
Arrow-Debreu model has nothing to do with a decentralized economy. However,
part of Guerrien’s argument reveals an unhelpful bias against abstraction
itself. One of Spinoza’s famous arguments is helpful here. Spinoza taught us that the concept of
dog doesn't bark nor bite but the concept of dog is nevertheless necessary to
understand a world where real dogs can do both. Guerrien’s misplaced bias against abstraction is very clear
when he states that Akerlof, Spence and Stiglitz have no new findings and
have simply restated old ideas. Actually what these Nobel Prize winners did
was to restate certain ideas at a higher level of abstraction. To return to Spinoza’s argument, real
dogs may have predated the concept of dog, but such a concept was still
necessary and useful in the development of human culture. Unfortunately, the
way Guerrien orients his quest for reality throws us back to the nomilaism
which pertained pre-Ockham. In addition, rejecting Stiglitz's contribution to the
future demise of the current orthodoxy in economics, be it his theoretical
one or his political economy one, will not help to achieve the needed
breakthrough. The PAE movement would probably not have been possible without
Stiglitz’s theoretical and political work in the last decade. To acknowledge the positive effect of Stiglitz's work does
not mean agreeing to accept it as offering the limits to change. What is
needed is a shift from the information paradigm - plainly positivist - to a
new knowledge paradigm. The best way to move forward on this path is probably
to destroy, step by step, old microeconomics, and not just to forget them. We
now have the possibility of opposing new arguments to every argument voiced
by the neoclassical traditionalists. This is particularly true when we
compare the traditional way of thinking about individual preferences to what
we have learnt during the last two decades (Slovic's preference reversal or
Tversky's framing effect). It is
also true of our thinking about rationality and, last but not least, about
the necessary of making a distinction between signals and information. Actually the information Stiglitz is
so fond of does not exist as such.
Information is always a processed signal, which means that knowledge
predates information and that knowledge is at the center of the paradigm, not
information. And don't think that this is just a matter of terminology. If we acknowledge the centrality of
knowledge, then trying to collect as many signals as possible can be as
detrimental to decision-making as being starved of information. Increasing competition, which is
Stiglitz's cure for most of our problems, would then mean a considerable
increase in signal gathering that could overwhelm our signal processing
ability and lead to bad decisions and imperfect resources allocation. It is probably important for me to state explicitly that I
do not belong to the methodological individualism school. I think we have to
reclaim holism but in a non-deterministic framework. To understand that the
individual agent is part of a whole does not tell us how and why this agent
is making specific decisions. And, if we need and want to understand how
agents decide to understand interactions and transactions, then we need to
devise some radically new kind of microeconomics. Guerrien's nihilistic stand
here does not help us to move forward. Neoclassical microeconomics has to be taught (in an
abbreviated form of course) to allow students to move forward, but also to
equip them to understand the language the autistic economist uses. After all,
you could never understand history of the XIIth to XIVth Century without a
good knowledge of the Catholic dogma, which does not mean you have to believe
in it, or even in God. ___________________________________ SUGGESTED
CITATION: For Guerrien… and beyond SUGGESTED
CITATION: Teaching
students of political science post-autistic economics Poul Thøis Madsen (Aalborg University,
Denmark)
Choice and use of text books It was very difficult to choose an appropriate textbook
for this target group. Currently, my preferred choice is ‘Economics’ by Mulhearn and Vane
(Macmillan, 1999) because it is explicitly targeted at non-economist
students. Many economics textbooks, even very basic ones, address,
intentionally or unintentionally, students who are pursuing a degree in
economics. For our target group, these textbooks rely too heavily on
mathematical and graphical representations of economics and focus on the
current (or often even rather out-dated!) economic theoretical debate rather than the debate on actual economic problems. More importantly, in standard textbooks - intended or not
- the students are drawn into an autistic
world for the sake of being there and not much else. Somehow, teachers and
authors of textbooks seem to believe that students who stay within this
universe long enough will gradually learn how to analyse actual economic
problems and the related debates (which is the basic intention of our
teaching). Neither standard textbooks nor standard teaching really address
the acute and difficult problem of linking
the models presented to reality (defined as the actual economic
development, the actually applied economic policies and the real life debates
on economic issues). In essence, the occasional real life examples in
textbooks serve as mere illustrations of the often very abstract arguments
presented, thus, serving as some kind of entertainment without becoming an
integrated part of the argument. The partly implicit and partly explicit
working assumption in text books is that the more formal models presented to
the students, the more they will - somehow - be able to understand of the
working of the real economy. This is doubtful - to say the least - for many reasons.
One important reason is that the assumptions in many models do not survive
the meeting with 'reality' as defined above. A preliminary conclusion to be drawn from our experience
is that we can help the students by organising our teaching more consciously
and directly around basic economic
causalities (such as: expansive fiscal policy, increased economic
activity, increased employment, increased imports). These causalities should
be discussed at length. What are the basic assumptions? What is kept ceteris
paribus and why? How certain are these causalities? What do different
economic theories tell us about these causalities? Do the causalities work in
any kind of society, for example, industrialised and developing? What are the assumptions concerning
the institutional setting? Etc. The next logical step is to introduce (economic) politics
and discuss what possibilities exist for them to manipulate or intervene in
economic causalities. This is another obvious occasion for introducing
different theoretical perceptions - in this case the limits and possibilities
of economic policy. What
would we like the students to learn? As a consequence of our reforms, we have also changed the
way we examine the students. Years
ago one extreme but common practice during examinations was to make the students
derive the simple Keynesian model right from scratch (and, provided the
students were very clever, they were asked to do the same exercise with the
ISLM-model). For most of our students this took up most of their examination
time. And the weaker the
student, the more he or she stumbled on their road to – what? More often than not students would
not have time to discuss actual economic policy or the limits of the models
(usually teachers claimed that this was the ideal intention underlying this
type of examination). In recent years examinations have become much more
human (traditionalist economists would say ‘lax’), the examination being based on the papers produced by the students. In
these papers they apply and discuss the economic causalities most
likely to be of actual economic relevance. For example, in a recent semester the students discussed
the possible
consequences of the economic policies of the new Danish right wing
government. This focus on real life economic causalities, at the expense
of time spent on formal models, creates
uncertainty for the students and to a lesser extent for the teachers.
Despite the shift of emphasis, the models still tend to be seen as ‘the state
of the art’ to be taught by teachers and learned by the students.
Consequently, the students expect to be examined on the formal models and
they become a bit frustrated and surprised when in the main they are asked to
relate the learned causalities to real life instances. It is also seen by many as easier and fairer to the
students to tell them that they will be examined on the formal models. In
this way economics becomes one of the few fields within social science at
university level in which we are able to state very precisely what is
required. Personally, I see this
as a weakness – not a strength. To quote Keynes: “It is better to be vaguely
right than exactly wrong”. Seen from my perspective, teaching the students
how to make ‘vaguely right’ analyses and conclusions should be the basic goal
of teaching economics. My view is that the teaching and learning of models should
take up at most 10% of our time. Our students, but also students in general,
should learn how to ‘think’ and in this case to ‘think economics’. What does
this involve? First of all this is much more diffuse and more difficult than
handling rather simplified formal models. Basically, it means learning how to
make realistic assumptions and to discuss the possible causalities within the
field defined or framed by these assumptions. Moreover, the clever students
should also be able to question these basic assumptions. And of course they
should learn to consider both the implications of relaxing the assumptions
and to discuss the degree of realism of the different assumptions made.
Hereby, economics becomes just like any other social science and henceforth
also looses its aura of infallibleness. This is a very important and not at
all hidden part of the agenda underlying the reforms.
Thus turning the usual way of doing things upside down. But – and this is important – they should not be taught models for the sake of
models. They should be taught models for two reasons:
We have also asked them what they have learned. Here are three examples (my
translations): 1. 'I have learned a lot. I can follow the economic
political debates.' 2. 'I feel better equipped to understand economics, as it
is in the real world' 3. 'I can read a newspaper article and relate it to an
economic causality. It feels good' This is what I understand by post-autistic economics! _______________________________________ Poul Thøis Madsen, Aalborg University, e-mail: pmadsen@humsamf.auc.dk SUGGESTED
CITATION:
Helge Peukert (University of Erfurt,
Germany) Edward Fullbrook (editor): Intersubjectivity
in Economics: Agents and Structures. Routledge: London and New York,
2002. 306 pp. It should be mentioned at the beginning of this article that
the initiative to review this excellent and inspiring book originated with
the reviewer (and not the editor of this journal). The book consists of 17 articles, mainly by French and
British, but also American and German authors. The authors adhere to different
schools of thought, but they all treat economic agents as intersubjective
entities. Taken as a whole, the
volume offers a number of different kinds of groundwork for a new theoretical
approach to economics intended to capture the social embeddedness of economic
actions and the complexity and interdependency of economic agents. In particular, the book investigates
the social, cultural and economic structures which these agents construct. Fullbrook’s chapter tries to show that the concept of comparative
exchange-value produces paradoxes because it is circular. Frank Ackerman’s
chapter also tries to demonstrate flaws in the foundations of mainstream
economics with respect to consumer behavior and general equilibrium theory.
Instead of demonstrating the optimality of market processes, the theoretical
debates in the 1970s, especially the Sonnenschein-Mantel-Debreu theorem,
proved that almost any continuous pattern of price movements can occur in a
general equilibrium model. Ackerman shows that these skeptical results
depend, to a large degree, on the less specified and unrealistic assumptions
of the traditional model of consumer behavior. “The assumption of asocial
individualism in neoclassical economics guarantees that the aggregation
problem is insurmountable” (p. 63). Ackerman then presents some ideas for an
alternative theory in the tradition of Veblen, Galbraith, Duesenberry and
others. Ralph W. Pfouts’ essay also asks for a more complete
ontology of the consumer, one that does not ignore the role played by factors
like envy and imitation in consumer behaviour. John Davis´ article on collective intentionality, on the
other hand, operates on a more conceptual and philosophical level. Referring
mainly to Tuomela´s work, he tries to show that shared intentions exist
without any recourse to, for example a Hegelian super-mind. Davis shows that
these we-intentions are reciprocally related in a way that re-enforces them. Geoffrey Hodgson´s profound and well-argued contribution
also deals with ontological questions, especially with the relationship
between methodological individualism and collectivism and the
agency-structure distinction, and how Critical Realists (Bhaskar) and Giddens
(with the duality of structures approach) deal with them. Hodgson points out
that, besides some similarities, some fundamental and often neglected
differences with respect to a stratified ontology and the existence and
importance of emergent and structural properties must be considered. “Bhaskar
thus upheld the dualism of agency and structure that Giddens conflated into
his singular, but Janus-faced, ´duality´” (p. 163). But Hodgson criticizes
the way that Bhaskar leaves open the questions of how reasons and states of
mind are caused. Paul Lewis and Jochen Runde also argue from a critical
realist perspective and contrast it with Kate and Edward Fullbrook´s
phenomenological intersubjectivist approach as developed in the fifth chapter
of their Simone de Beauvoir (1998):
consciousness is a transitive relation that requires objects for its
existence and that is strongly influenced by the observations of other
people. Lewis and Runde argue that a strictly intersubjective position with a
strong emphasis on mimetic behavior ignores objective societal structures and
sets of hierarchical lines, vested interests, etc. Ernst Fehr and Armin Falk demonstrate that laboratory
experiments show the existence of reciprocal fairness, i.e. the willingness
to sacrifice resources for rewarding fair and punishing unfair behavior.
Usually a significant proportion of actors do not behave like rational
egoists. This heartening result of a deviation from pure self-interest is
reinforced by S. Abu Turab Rizvi’s chapter which, from its history of
economic thought perspective, considers Adam Smith´s concept of sympathy in
his Theory of Moral Sentiments. Anne Mayhew, in an elegantly written contribution, argues
that all consumption is conspicuous and explores the consumer´s role
as a part of a group that seeks to mark outsiders. As Sahlins and Baudrillard
underlined, consumption is an exchange of meanings and a discourse that can
signal both solidarity and superiority (Veblen). Roger Mason traces the often ambiguous reflection of
status seeking-consumption in economics. He starts with Mandeville, continues
with the ambivalent Adam Smith, and then moves on to the severe criticism of
J. Rae of such consumption on moral and religious grounds. The approaches to consumption of
Cournot, Marshall, Pigou, Veblen and Keynes, as well as the history of the
relative income hypothesis, Hirsch´s positional goods problem and R. Frank´s
heterodox approach, are also reviewed and critiqued. Peter Wynarczyk offers a critique of the Chicago approach
(Becker, Stigler) to criminal participation: law establishes a set of prices
(penalties) which influence conduct. The author criticizes their view of
human beings as pleasure/pain calculators and makes the case for the
importance of intersubjective factors in the determination of rates of crime.
Dupuy compares Hayek´s and Keynes´ concepts of imitation
as a basis for an intersubjectively inspired original understanding of the
market process in the tradition of the French conventions school (A. Orléan).
Without any underlying necessity, self-reinforcing dynamics can be created when
two persons A and B imitate each other.
Due to a rumor, A believes that he knows what B desires. “A now knows
what he needs to desire ... his own action brings the object O of B´s
attention, and when B manifests in turn his interest in O, A has proof that
his initial hypothesis was correct” (p. 140). What Hayek fails to see but
Keynes emphasized, is that imitation may create costly illusions which can
considerably destabilize economic systems. Frédéric Lebaron examines the revival of economic sociology
in France, especially the project of the recently deceased Piere
Bourdieu. Still another exercise
in French sensitivity to the originality of the human mind, the embededdness
of human action and the intersubjective context is Thévenot´s critique of one-dimensional
rationality. Fortunately, his cité-approach
is briefly highlighted in Thierry Levy´s contribution, which applies the
theory of conventions to the question of product quality. For Thévenot, every
social context is framed. “Correct” framing is difficult because a
fundamental uncertainty about (1) the competence of the actors, (2) the set
of relevant objects and (3) the mode of their coordination may exist. For example, in the case of a blood
donor: the situation can be interpreted in market terms or as a civic action,
the donor seen as naïve or generous. Two contributions deal with (cognitive) network effects as
potentials for market failures. Shaun P. Hargreaves Heap argues that people
watch TV in part because it is a conversational resource. The demand for a
program depends on the number of other program consumers. The key to success
is to win an initial audience. This results in a bias for the familiar and
sensational, a tendency which could be controlled by regulation. . Paul Ormerod shows that even slight deviations from market perfection can have implications which lead to results far removed from the standard case of perfect competition. Without the presumption of increasing returns (with constant returns and an undifferentiated product) a strong tendency for oligopolies or even a monopoly may exist when we assume that firms have different levels of cost from the beginning (e.g. due to different management efficiency). This result runs counter to the very common viewpoint that globalization, more advanced information technologies and the reduction of transactions costs lead to an increase in competition. The importance of Fullbrook´s book in the context of the
post-autistic economics movement lies in the fact that it substantiates the
criticism of the mainstream. At the same time it offers some new vistas for
an alternative research agenda. SUGGESTED
CITATION: Some recent articles on PAE from the international press |