|
sanity,
humanity and science
post-autistic economics review
Issue no. 28, 25 October
2004
back issues at www.paecon.net
Subscribers: 7,614 in approximately 145
countries
Subscriptions are free. To subscribe, email
"subscribe". To unsubscribe, email "unsubscribe".
To subscribe
a colleague, email "subscribe
colleague" and give their email address. Send to: pae_news@btinternet.com
In
this issue:
- Symposium
on Reorienting Economics
This and the next four or five issues of
the PAER will be devoted in part to debate on and discussion of Tony Lawson’s
new book Reorienting Economics.
The intention is for his book to serve as a focal point for a general
discussion on the reform of economics.
- Geoffrey M. Hodgson
On
the Problem of Formalism in Economics
- Irene van Staveren
Feminism
and Realism - A Contested Relationship
- Bruce Caldwell
Some Comments on Lawson’s Reorienting
Economics: Same Facts, Different Conclusions
- Goodwin, Nelson, Ackerman and
Weisskopf
A Post-Autistic Introduction to Economic Behaviour
- Peter Söderbaum
Sweden Debates the Future of Economics’ “Nobel”
________________________________________________________________
Two
Announcements
There has been a PAE
reform of the economics curriculum at the Sorbonne (Paris I)
“At our university (the leading one for economics
in France) we have succeeded in cutting back the programs of micro, macro and
maths, something that would have been inconceivable a few years ago. This is in the aid of an approach
more open, more multidisciplinary.
The ‘orthodoxes’ have rather easily given way, having, despite
everything, interiorized the arguments advanced against them. In the colloquiums and in the press
they feel obliged to justify what they do, thereby admitting at least in part
the aptness of the ‘anti autistes’ criticisms.” Bernard
Guerrien
Invitation to join a heterodox economics e-mail list
Dear Colleague,
I run an e-mail list that distributes information that is of interest to
heterodox economists around the world. I try to restrict the e-mails to
one every 2-3 weeks. The e-mails generally take the form of a
description of a heterodox conference I have been to, brief comments on
various heterodox economic activity around the world, and perhaps a brief obituary
of a heterodox economist who has died. Then the rest of the e-mail
provides information that I think are of interest to heterodox economists on
newly published books, new journals, job announcements, call for papers of
conferences that are of interest to heterodox economists, seminars, and
distribution of information on heterodox journals, graduate programs, and
other things. Nearly all of the material I send out has been sent to me
by heterodox economists who want me to make it known to the economists on my
e-mail list. Thus, if you have any thing you want to send out that you
think is of interest to heterodox economists, please send it to me at leefs@umkc.edu and I'll send it out.
If you would like to be part of this e-mail list, please send me your e-mail
address. If you find the material I send not matching your interests,
you can just e-mail me and ask me to take your name off the list--and I will
immediately. If you have a questions please e-mail me.
Sincerely,
Professor Frederic S. Lee
University of Missouri-Kansas City, USA
leefs@umkc.edu
________________________________________________________________
Symposium on Reorienting
Economics
On the Problem of Formalism in Economics
Geoffrey M. Hodgson (University
of Hertfordshire, UK)
Modern
Economics is Sick
In his Reorienting Economics, Tony
Lawson cites this magnificently appropriate quotation by Mark Blaug (1997, p.
3):
Modern economics is sick. Economics has increasingly become an
intellectual game played for its own sake and not for its practical
consequences for understanding the economic world. Economists have converted
the subject into a sort of social mathematics in which analytical rigour is everything
and practical relevance is nothing.
I believe that on this issue, Lawson,
Blaug and I are in agreement: the victory of technique over substance is a
chronic problem within modern economics. Although the victory of formalism
can be dated to the 1950s (Blaug 1999, 2003), by the 1980s the problem had
become much more serious. Because mathematics has swamped the curricula in
leading universities and graduate schools, student economists are neither
encouraged nor equipped to analyze real world economies and institutions.
Arjo Klamer and David Colander (1990, p. 18) reported a survey which showed
that only 3 per cent of graduate students on top US economics programmes
perceived ‘having a thorough knowledge of the economy’ to be ‘very important’
for professional success, while 65 per cent thought that ‘being smart in the
sense of problem-solving’ is what matters, and 57 per cent believed that
‘excellence in mathematics’ was very important.
In 1988 the
American Economic Association set up a Commission on the state of graduate
education in economics in the US. In a crushing indictment, the Commission
expressed its fear that ‘graduate programs may be turning out a generation
with too many idiot savants skilled in technique but innocent of real
economic issues’ (Krueger et al, 1991, pp. 1044–5). Alan Blinder
(1990, p. 445), a member of the Commission, commented:
Both students and faculty find economics obsessed with technique over
substance . . . the many macro and micro theory exams the Commission examined
. . . tested mathematical puzzle-solving ability, not substantive knowledge
about economics . . . Only 14 percent of the students report that their core
courses put substantial emphasis on ‘applying economic theory to real-world
problems.’
Alarm bells concerning technique
displacing substance in economics have been sounding formany years (Ward,
1972). However, although mainstream economics has made some significant
theoretical advances in the 1990s, including an increasing adoption of
institutional and evolutionary themes, the situation concerning formalism has
not got any better.
Perhaps the
most serious emerging problem is that the graduate students of the 1980s and
1990s, who are skilled in technique but who have an impoverished
understanding of economic principles and their history, are now beginning to
achieve positions of seniority and influence in the university departments,
associations and journals of the economics profession. Their growing power
and influence will ensure that formalism further consolidates its
overwhelming hegemony, to the detriment of wider-ranging conceptual and
methodological enquiry. This problem is particularly serious in Britain and
America, where formalism has achieved its earliest and most complete victory.
But the process is delayed rather than absent elsewhere.
Both Blaug and
Lawson face the problem of formalism head-on. But, as I shall elaborate
below, their evaluations differ. Blaug complains that formalism has been
associated with a detachment of economics from substantial and practical
issues. Lawson’s (1997, 2003) attack is more extensive and radical. He
develops at length a methodological critique of what he calls ‘deductivism’
and identifies this as the root of the formalist malady. One of my main
purposes here is to examine some prominent aspects of Lawson’s critique of
formalism. I shall argue that his stance is too limiting, with the expected
outcome that mathematical and econometric tools will be illegitimate except
under ‘seemingly rare’ (Lawson, 2003, p. 21) conditions.
Tony Lawson’s Critique of Formalism
Lawson affirms
that the systems addressed by the social sciences are open, in that they are
subject to multiple extrinsic and intrinsic disturbances. This makes the task
of prediction either difficult or impossible. For Lawson (1997, p. 288),
‘event prediction is usually infeasible’ and ‘in any case not required for a
successful science of economics’.
Lawson (1997,
pp. 16-17) argues that ‘deductivism’ presumes ‘event regularities’ or
‘constant conjunctions of events or states of affairs’ with regularities of
the form ‘whenever event x then event y’. Philosophically, this is a rather
atypical definition of deductivism, because it refers to empirical
regularities concerning events rather than logical deductions concerning
propositions. He seems to suggest that logical or mathematical constructions,
if they are to be of relevance or use, must be some kind of map of reality at
the level of events. For example, Lawson (2003, p. 22) writes of the
importance of a ‘“fit” with reality’.
From this
stance, his critique of the use of formalism in economics readily follows.
Social reality is an open system, generally lacking in ‘constant conjunctions
of events’. By contrast, formal models cannot be open to an indefinite number
of additional relations or variables. In either a strict or a stochastic
sense, such formal models generate regularities in the form: if x then y.
Such event regularities are highly limited in the social realm. Accordingly,
there is a general mismatch between formal models and reality. If economics
is to progress, then formal modelling must be limited those cases where such regularities pertain, and
these appear to be rather rare.
In the absence
of formal models, what does the theorist do? Lawson realizes that no theory
(formal or discursive) can proceed without some degree of abstraction: it is
impossible to consider all elements and interactions at once. Indeed, he
develops his methodological notion of abstraction at length. But here he
faces a difficulty. If abstraction is necessary, and it involves the
limitation of the sphere of consideration and the exclusion of additional
relations or disturbing forces, then doesn’t this too imply the assumption of
a closed system? Stephen Nash (2004) has recently argued in the affirmative,
suggesting that Lawson too must assume conditions or forms of closure. To
some extent, however, Lawson (1997, p. 236) anticipates this objection. He
proposes a distinction between ‘abstraction’ and ‘isolation’ in the following
terms:
When we focus upon varying
productivity performances here, conditions of work there, rising or falling
unemployment rates, and so on, we do not suppose that these features we
choose to emphasise
exist in isolation, even as a temporary, heuristic, measure. To do so is to
assume a totally different world from the one in which we live, and one that
has no bearing upon it. … In short, there is literally a world of difference
between leaving something (temporarily) out of focus and treating it as though
it does not exist. The achieving of an abstraction and treating something as
though it existed in isolation are not the same thing at all.
He uses this distinction to protect his
argument against the objection that his method of abstraction also implies the
assumption of closure; he argues that abstraction does not imply closure but
isolation does. With some important nuances and qualifications, Lawson (1997,
pp. 131-3) associates the notion of isolation with the work of Uskali Mäki
(1992, 1994) and contrasts isolation with his own concept of abstraction.
However, I shall argue later below that the distinction is, at least in
prominent practical instances, difficult to sustain. Lawson takes a
relatively extreme position in his attitude to formalism in economics, even
among critics of mainstream economics, and even among the school of ‘critical
realists’ to which he belongs. For example, critical realists such as Paul
Downward (2000) have defended a more frequent use of some econometric
techniques. Lawson points to very few concrete instances where econometrics
has been appropriately deployed; Downward points to several. And the critical
realist Erik Olin Wright (1994, pp, 183-9) has strongly supported the use of
‘explicit abstract models, sometimes highly formalized as in game theory’ and
other ‘rational choice models’. Although of course an extreme position such
as Lawson’s is not necessarily inappropriate or wrong, it does invite
repeated criticism.
Perhaps a
consequence, in Lawson’s later writing, there has been a slight shift of tone
and emphasis, if not substance as well. For example, Lawson (1999, pp. 7-8)
proposes that from the fact that ‘the world is open and structured, it does
not follow’ that economists ‘ought thereby not to engage at all in formalistic
methods such as econometrics.’ He continues:
The possibility
of successes with the latter requires local closures. … Critical realism thus
cannot and does not rule out a priori their limited occurrence.
Rather, critical realism adopts an essentially ex posteriori orientation
… the opponent is the advocate of any form of a priori dogma.
With some amendments, Lawson (2003, pp.
xix, 27, 178-9) repeats a similar argument in several places in his latest
book. Again and again he insists that he is not against the use of
econometrics or models in principle, but that they are of highly limited use
given the closure conditions upon which they depend. He writes that ‘a
blanket rejection of econometrics, or indeed of any other method, is not a
stance that is, or could be, sponsored in critical realism.’ What is opposed
is not econometrics but ‘the reduction of economics to formalistic
analysis.’ But he then goes on to say that the ‘application of formalistic
methods requires certain (closure) conditions constituting special
configurations of social reality that (unsurprisingly from the perspective
sustained) have turned out to be rather rare.’ In a recent essay, Lawson
(2004) again repeats his insistence that he is not ‘anti-mathematics’. But
his expectation remains that the conditions for its effective and proper use
would be rare.
In these
passages at least two features are emphasized. The first is a strong, sincere
and repeated claim of anti-dogmatism concerning whether or not mathematics
can or should be used. But he lays down criteria for its use, including the
requirement of (approximated) local closure. As a result of these criteria,
the specific measure of his own anti-dogmatism, in practice rather than in
intention, is how far he would admit that open systems might appear (or be
approximated) in reality. Lawson argues that his critical realist perspective
suggests at the outset that they are ‘limited’ or even ‘rather rare’.
Accordingly, the ontological arguments in Lawson’s critical realism lead him
right away to expect that the possibilities for formalism are highly
restricted. This sets limits on his anti-dogmatist stance, despite his
pronounced antidogmatist intentions. Although Lawson imposes no absolute
normative ban on the use of mathematics, his arguments limit its legitimate
use to ‘rare’ circumstances only.
Generally, one
can also ask if a pervasive anti-dogmatism were possible. The need for some
dogmatic presuppositions must be acknowledged by any philosopher or theorist.
The removal of all dogma would mean a disabling nihilism of universal
scepticism. In such circumstances, no theory could be established. Similarly,
human activity would become paralyzed if we ceased to believe in the
essential dogma that most of the natural regularities and social institutions
of today will survive until tomorrow. We often admire anti-dogmatism as a
commendable personality trait, but philosophy of science suggests that some
considerable degree of dogmatism is unavoidable.
The second
feature is the proclamation of ‘an essentially ex posteriori orientation’,
although what precisely is meant by this is insufficiently clear. Critical
realists rightly emphasize the importance and priority of ontological
commitments. Consider fundamental ontological commitments such as ‘ubiquity
determinism’ (Bhaskar, 1975, pp. 70-1), which means that every event is
deemed to have a cause. We have known at least since the days of David Hume
that it is impossible to deduce causes a posteriori from our
experience of events. It is in the very nature of such primary ontological
commitments that they are neither based on nor deduced from evidence or
experience. One of the crucial aspects of the philosophical assault on
positivism in the middle of the twentieth century was the reaffirmation of the
importance of such prior ontological commitments, which cannot be established
by appeal to evidence or experience alone (Quine, 1951; Caldwell, 1982). So
one is left wondering what ‘an essentially ex posteriori orientation’
means, and how it can be reconciled with an insistence on the primacy of
ontology.
Again I detect
a slight post-1997 shift of tone and emphasis when Lawson (2003, pp. 20-1)
openly discusses the possibility that econometrics might be of use in some
instances:
Clive Granger
has argued convincingly that it is possible to use econometrics to provide
relatively successful short-run forecasts of phenomena such as electricity
loads and peaks in regions wherein one factor, temperature, or more
specifically the extreme cold, dominates behaviour. … The point remains,
however, that the sorts of conditions in question appear a posteriori not
to be typical of the social realm. Rather, as I say, social reality is found
to be a quintessentially open, structured, dynamic and highly internally related
system, amongst other things, whilst the conditions for achieving a local
closure are seemingly rare.
This is the only example I can find where
Lawson has pointed to a specific piece of econometric analysis and
acknowledged its legitimacy. Note, however, the strictness of the key
condition involved. According to this passage, for econometrics to be
applicable, ‘local closure’ must be actually achieved, not merely
approximated. However, it is clearly the case a posteriori that
electricity consumption (even in cold regions) is a feature of an open rather
than a closed system. For instance, electricity consumption is generally
affected by its price. Such prices are heavily influenced by global market
conditions. Global markets are far from being closed systems. Granger did not
provide an example which establishes local closure. By the logic of his own
argument, Lawson should have deemed econometrics to be inapplicable to this
situation as well. His single claimed example of the legitimate use of
econometrics turns out to be illicit according to his own key criterion.
Indeed, if we
require that formal models can only be applied in contexts where local
closure is actually achieved, then this would mean that such models were
inappropriate in other sciences and disciplines, such as biology, physics or
engineering. Generally, in multiple contexts, in both the natural and social
world, such closures are absent, as Roy Bhaskar (1975) as well as Lawson
himself have emphasized. If formal models require strict local closure, then
formal models are never appropriate. But this would overlook the achievement
of mathematical models in some sciences. It may be suggested that local
closure is sometimes approximated in physics, and because of this some formal
models can be of use. But models and simulations have also been used with
some success in biology and evolutionary anthropology, which face a degree of
complexity and openness comparable to that found in human societies (Murray,
1989; Boyd and Richerson, 1985).
At least in recent
seminar presentations, Lawson has amended his position still further, by
proposing that econometrics might apply when local closure is ‘approximated
in reality’. This formulation contrasts with that in his two (1997, 2003)
books, which generally insist that local closure conditions must actually
apply for formalism to be viable. From his amended standpoint, admitting a
degree of approximation to closure, it would be possible to admit the Granger
example as a case of the legitimate application of econometric techniques.
The general problem for Lawson in applying this revised criterion more widely
is that the degree of acceptable approximation is left unspecified. In
general, once the insistence on the actual achievement of local closure is
removed, and approximations to closure are admitted, then the door to
econometrics is unlocked and opened.
Some Key Problems and Omissions in Tony
Lawson’s Critique
Much of Lawson’s discussion of formalism
concerns econometrics. He gives insufficient attention to other applications
of mathematical techniques, which serve primary purposes other than the
prediction or explanation of measurable variables. Such additional
applications of formalism include (a) heuristics and (b) internal critiques.
I shall address each of these in turn.
The purpose of
a heuristic is to identify possible causal mechanisms that form part of a
more complex and inevitably open system. Heuristics can be useful without
necessarily making adequate predictions or closely matching existing data. Their
purpose is to establish a plausible segment of a causal story, without
necessarily giving an adequate or complete explanation of the phenomena to
which they relate.
An example of a
formal heuristic that has been persuasive in economics is the ethnic
segregation model constructed by Thomas Schelling (1969). Using a very simple
model of housing location, Schelling showed that ethnic segregation can
result even from very small feedback effects. Even if people only have a very
slight preference for their own ethnic group, this can be enough to cause
migration out of mixed ethnic areas, with the end result of segregated ethnic
ghettos. The problem is extremely simple, and hardly realistic in its
detailed assumptions. However, making the model more complicated and
‘realistic’ would be beyond the point, partly because it is obvious that
similar outcomes might result from a more complicated model. Instead, the
Schelling model points to a credible mechanism that shows that ethnic
segregation does not necessarily depend upon the actions of bigoted racists.
Such racists exist in the real world, so their inclusion in the model would
make it more realistic. But this would defeat the object of the model, which
is to show that segregation might result even without them. The model
abstracts from the more forceful versions of racism that we find in the real
world to establish this key point. In this case, the power of the model is
helped by its unrealisticness. The power of the model lies in its capacity to
abstract a plausible bit hitherto eglected causal mechanism.
In a very
useful discussion of such ‘credible worlds’, Robert Sugden (2000) asks
probing questions concerning the role and ‘realisticness’ of this and other
heuristic models in economics. These heuristic models have the paradoxical
claim that they are literally unrealistic yet they seem to illuminate
important aspects of reality. Using the Schelling model alongside George
Akerlof’s (1970) famous article on the ‘market for lemons’, which again
claims to establish meaningful propositions about the world on the basis on
an admittedly unrealistic model, Sugden (p. 28) describes these models as
‘credible counterfactual worlds’ that give ‘some warrant for making inductive
inferences from model to the real world.’
In no case can
the construction of a heuristic or counterfactual model clinch the argument
concerning the causal mechanisms that actually exist in the real world.
However, what they sometimes do show – as in the case of the Schelling model
– is that outcomes might not necessarily result from the causal factors that
may be presumed at first sight. To complete the argument, further theoretical
development and empirical enquiry are always required. I have suggested above
that heuristics are appropriate if they successfully abstract an important
causal mechanism in reality. Accordingly, heuristics relate to the very
process of abstraction that Lawson himself highlights. But Lawson suggests
that heuristics are isolations rather than abstractions. So here I must return
to Lawson’s (1997, p. 236) attempted distinction between isolation and
abstraction, as quoted above. According to him, the key difference is
‘between leaving something (temporarily) out of focus and treating it as
though it does not exist’. Again take the Schelling model as an example.
Schelling himself accepts that bigoted racists exist, yet he leaves them out
of his model. The purpose of the model is not to excuse or deny racism, but
the more severe forms of racism are deliberately removed. Nevertheless, the
model is extremely and worryingly persuasive.
No-one to my
knowledge, including Schelling himself, has suggested that such as model is a
complete or adequate causal representation of the processes underlying the
emergence of ethnic segregation in reality. The model is simply a heuristic
step along the road towards that more complete end. More generally, no
sensible mainstream economist would deny that the world is open, and no
adequate presentation of a formal model would omit to mention that other
(omitted) causal mechanisms exist.
Ultimately,
Lawson’s attempted distinction between abstraction and isolation hinges on
the precise meaning of notions such as ‘treating [that which is left out of
the picture] as though it does not exist’ and the implied distinction between
a ‘temporary heuristic’ and ‘leaving something temporarily out of focus’. Yet
Lawson is insufficiently precise here. If I ‘focus’ on the workings of a
national economy (perhaps without building a mathematical model) and ignore
its trade with other nations, then in what sense might this qualify as a
temporary account, rather than a presumption that such exports and imports do
not exist? Surely, some verbal statement would be required, acknowledging the
existence of international trade, explaining its omission from the current
discussion, and suggesting that further work must be done to incorporate it
into the analysis. But this is also the kind of necessary qualification that
we should expect from the best presentations of heuristic models. On the
other hand, it would be impossible to mention all the things that we have
left out of the account. In this sense all theory is ‘temporary’. But do such
unmentioned omissions amount to treating some causal linkages as though they
do not exist? If this were the cases, then every theory, including
non-formal, discursive theory, by Lawson’s criteria is a failure. Once we try
to apply Lawson’s criteria, then their insufficiency and vagueness become
apparent, and his attempted distinction between abstraction and isolation is
revealed as highly problematic.
A crucial point
here is that in economics we should not and cannot judge models in isolation.
Lawson treats any model as if it were alone an intrinsic claim to be a
partial map of the world. Yet the meaning of any heuristic model depends upon
an interpretive framework that is not contained in the formalities of the
model itself. If heuristic models are suitably hedged and qualified, in the
manner suggested above, then these qualifications form part of the
interpretative apparatus for the model. If heuristic models are treated
within an adequate interpretative context, then such heuristic packages can
successfully defend themselves against they charge that they treat other
aspects of reality as though they do not exist.
By contrast,
Lawson himself isolates formal models from their interpretative contexts,
treating these as if they do not or need not exist, and denies the validity
of even ‘temporary’ heuristic models per se. The strictures of
appropriate contextualization that Lawson rightly requires of discursive
theory should apply to his treatment of formal models as well. Bringing the
interpretative framework of a heuristic model into the picture is highly
important in appraising the problem of excessive or misplaced formalism in
economics. An alternative diagnosis emerges, in which the malady is not the
use of formalism as such but the inadequacy and underdevelopment of the
interpretative context in which they are placed. Technique can take priority
over substance as a result of the relative neglect of interpretative context.
An adequate interpretative framework would depend on the discussion of the
genesis, meaning and methodological significance of key concepts that are
involved in the model or its interpretation. This is never a small task, and
if done properly it will be at least as weighty as the formal technique of
the model itself. Yet in modern economics such interpretative and conceptual
matters are often marginalized and underdeveloped. I contend that this is one
of the main problems with formalism in economics today.
While Lawson
implicitly treats formal models as if they were claims to map the world, his
explicit metaphor is more frequently of the model as a tool. For example,
Lawson (2003, p. 12) notes the ontological mismatch between formal models and
reality and suggests that this is grounds to question their use: ‘Few people
… would attempt to use a comb to write a letter … or a drill to clean a
window.’ This argument is not as illuminating as it may seem at first sight.
Of course, we would use a pen to write a letter and a clean cloth to clean a
window. Yet the ontology of pens is very different from that of letters, and
likewise there is a big ontological difference between clean cloths and dirty
windows. So there is nothing in this appropriateness-of-tools argument that
rules out, for instance, using closed models to help understand an open
reality.
I now turn to
the second use of formalism that is neglected by Lawson: that of an internal
critique. Generally, the impact of an effective internal critique is negative
rather than positive; it shows the limits of an existing theory rather than
building a new one. It is nevertheless important. Consider the example of the
critique of mainstream capital theory by Piero Sraffa (1960) and others. By
developing a model with disaggregated rather than aggregated physical
capital, Sraffa showed that the measure of capital could not be independent
of profits, wages or prices. Consequently, any attempt to explain the latter
by means of an aggregated capital variable must assume that which it has to
explain. The validity of this argument was later accepted by Paul Samuelson
and others (Harcourt, 1972). It meant that several of the models and arguments
used in the mainstream theory of capital and distribution were either invalid
or dependent on highly restrictive assumptions.
A demonstration
that a widely adopted approach depends on restrictive or even implausible
assumptions is a key feature of many of the successful and significant
internal critiques that we find in economics. Other examples include works by
Rolf Mantel (1974) and Robert Rowthorn (1999). Mantel and several other
theorists showed that even with the assumption of individual utility-maximization,
the excess demand functions in an exchange economy can take almost any form,
and there is thus no basis in standard general equilibrium theory for the
assumption that they are generally downward sloping. Their work proved very
influential in bringing the microfoundations project in general equilibrium
theory to an end (Rizvi, 1994). Rowthorn showed that prominent models used by
governments in macroeconomic policymaking are based on highly restrictive and
unwarranted assumptions.
Such critiques
do not themselves provide new theories, although they may suggest some
appropriate measures and establish some relevant pointers. By their nature,
internal critiques are not claims to map the real world. Instead, they are
attempts to show that that other theories are inadequate or overly
restrictive in regard to the kind of world to which they relate. I have not
come across an adequate discussion of the role of internal critiques in
Lawson’s work, despite their prevalence the Cambridge tradition of economics
that used to be well established in his university department.
Significantly,
neither heuristics nor internal critiques are attempts to map the world with
a model. Accordingly, insofar as they are of some scientific use, severe
doubt is cast on Lawson’s central argument that the adoption of a particular
model involves explicit or implicit assumptions about the ontology of the
social world. By contrast, it would seem that some models are of use, even if
there is a significant misfit with reality. If so, then Lawson’s main
argument falls.
Conclusion
In regard to formalism, many economists
propose the extreme view that it is the principal and necessary means by
which economics becomes rigorous and scientific, and thus the dominance of
formalism is a positive sign of success. Lawson takes a position near the
other extreme. He argues that formalism is justified in ‘rare’ circumstances
only, where local closure exists or is approximated. I propose that both
attitudes to formalism are flawed, partly because they both downplay its
necessary interface with interpretative structures.
Yet while
Lawson and the mainstream are at odds, there are some shared presuppositions.
Many mainstream economists assume that their models are sufficient to
represent the world, neglecting the interpretative discourses required to
make such a claim meaningful. Lawson too believes that the adoption of a
formal model intrinsically upholds some substantial claims concerning the
nature of reality. I believe that both positions are false.
If modern
economics is sick, then what is the nature of the sickness? A good answer to
this question is required to help us find an appropriate remedy. Lawson’s
medicine is to require the application of formalism only when local closure
is achieved or perhaps approximated. However this remedy virtually ends up as
an inversion of the disease itself, and I have argued that it is based on a
faulty diagnosis.
Especially in
his recent writing, Lawson has insisted that he is not against formalism as
such, and he has no dogmatic prescription concerning its use. However, I am
aware of only one example of a piece of econometrics which Lawson has deemed
as legitimate, and even here to admit it he has to fudge the criterion of
strict closure declared in his 2003 book. More recently (but until now only
verbally as far as I am aware), he has relaxed this criterion to allow
econometrics to be used when closure is approximated, rather than actually
achieved.
The consequent
challenge for Lawson is to be more specific about the degree of approximation
and to point to still further examples of the legitimate use of mathematical
models in economics. Until this is done, Lawson remains in the extreme
position of admitting as legitimate only one specific case, among hundreds of
thousands of examples that are available to us.
Middle ground
solutions are not intrinsically warranted simply because they are middle
ground. But part of the tragedy of modern economics is that they have so far
received limited attention and consideration, with notable exceptions such as
a recent article by Victoria Chick and Sheila Dow (2001).
I suggest that
the problem with formalism is not the general inappropriateness of formalism
itself, but it is the problem identified by Blaug in the quotation near the
beginning of this article. Blaug sees the kind of formalism in modern
economics as ‘an intellectual game played for its own sake’ rather than for
its use in explaining and engaging with the real economic world. Blaug
complains that in modern economics ‘analytical rigour is everything and
practical relevance is nothing’. Again the solution here is not necessarily
to confine formalism to the very rare conditions of actual or approximated
closure, but to ensure that concerns for practical relevance come to the
fore. Formal techniques should be the servants rather than the masters of
scientific enquiry.
It is also
worth bearing in mind that there is an example of a social science in which
formal methods and models have hitherto been put to little use, apart from
statistics. Yet this discipline is widely acknowledged to be in a state of
severe disorder, especially concerning its core presuppositions, its
self-identity and boundaries, and its relations with other disciplines,
particularly economics and biology. This afflicted social science is
sociology. The persistence of its acute scientific maladies alongside its
relatively infrequent use of formalism indicates that additional problems
exist within the social sciences today. These include the postmodernist affirmation
that one theory is as good as another, the frequent choice of a theory on
ideological rather than scientific grounds, and an occasional self-inflicted
blindness concerning the biological aspect of human nature and its
significance for the study of human society.
Despite our
differences of view, I wish to emphasize that both Lawson and myself, and
others here cited including Blaug, Chick, Dow and Mäki, adopt a realist
philosophical perspective. Realism acknowledges that a world exists beyond
our perceptions. Realists uphold that, to be adequate, sciences including
economics should not be self-contained logical games but attempts to address
and understand aspects of the real world. Accordingly, there is no room for a
philosophy of science in which ‘anything goes’. There is a shared realist
imperative: to understand the real world.
However, I
argue here that there is a place for mathematics in economics, even when
conditions of closure are absent or fail to be approximated. I have
emphasized the greater importance of the interpretative structure within
which the theory is placed. The pressing agenda issue for further discussion
and enquiry in this area is to explore the inadequately explored middle
ground between the unacceptable extremes of unreflecting worship and (at
least expectational) denial of formal models and methods.
Acknowledgement
The
author wishes to thank Mark Blaug, Sheila Dow and Tony Lawson for very
helpful
comments
on an earlier version of this essay.
References
Akerlof,
George A. (1970) ‘The Market for “Lemons”: Quality Uncertainty and the Market
Mechanism’, Quarterly Journal of Economics,
84(3), August, pp. 488-500.
Bhaskar,
Roy (1975) A Realist Theory of Science, 1st
edn. (Leeds: Leeds Books).
Blaug,
Mark (1997) ‘Ugly Currents in Modern Economics’, Options Politiques, 18(17),
September, pp. 3-8.
Blaug,
Mark (1999) ‘The Formalist Revolution or What Happened to Orthodox Economics
After World War II?’, in Backhouse, Roger E. and
Creedy, John (eds) (1999) From
Classical Economics to the Theory of the Firm:
Essays in Honour of D. P. O’Brien
(Cheltenham: Edward Elgar), pp. 257-80.
Blaug,
Mark (2003) ‘The Formalist Revolution of the 1950s’, in Samuels, Warren J.,
Biddle,
Jeff E. and Davis, John B. (eds) (2003) A
Companion to the History of Economic Thought
(Malden, MA and Oxford, UK: Blackwell), pp.
395-410.
Blinder,
Alan (1990) ‘Discussion’, American Economic Review, 80, May,
pp. 445-7.
Boyd,
Robert and Richerson, Peter J. (1985) Culture and the Evolutionary Process
(Chicago:
University of Chicago Press).
Caldwell,
Bruce J. (1982) Beyond Positivism: Economic Methodology in the Twentieth
Century (London: Allen and
Unwin).
Chick,
Victoria and Dow, Sheila C. (2001) ‘Formalism, Logic and Reality: A Keynesian
Analysis’, Cambridge Journal of Economics,
25(6), November, pp. 705-21.
Downward,
Paul (2000) ‘A Realist Appraisal of Post-Keynesian Pricing Theory’, Cambridge
Journal of Economics, 24(2),
March, pp. 211-24.
Harcourt,
Geoffrey C. (1972) Some Cambridge Controversies in the Theory of Capital
(Cambridge, Cambridge University Press).
Klamer,
Arjo and Colander, David (1990) The Making of an Economist (Boulder:
Westview
Press).
Krueger,
Anne O. et al. (1991) ‘Report on the Commission on Graduate Education
in
Economics’, Journal of Economic Literature,
29(3), September, pp. 1035-53.
Lawson,
Tony (1997) Economics and Reality (London and New York: Routledge).
Lawson,
Tony (1999) ‘Connections and Distinctions: Post Keynesianism and Critical
Realism’, Journal of Post Keynesian Economics,
22(1), Fall, pp. 3-14.
Lawson,
Tony (2003) Reorienting Economics (London and New York: Routledge).
Lawson,
Tony (2004) ‘On Heterodox Economics, Themata and the Use of Mathematics in
Economics’, Journal of Economic Methodology,
11(3), September, pp. 329-40.
Mäki,
Uskali (1992) ‘On the Method of Isolation in Economics’, Poznan Studies in
the
Philosophy of the Sciences and the Humanities,
26, pp. 319-54.
Mäki,
Uskali (1994) ‘Isolation, Idealization and Truth in Economics’, Poznan
Studies in the
Philosophy of the Sciences and the Humanities,
38, pp. 147-68.
Mantel,
Rolf R. (1974) ‘On the Characterization of Aggregate Excess Demand’, Journal
of
Economic Theory, 12(2),
pp. 348-53.
Murray,
J. D. (1989) Mathematical Biology (Berlin: Springer).
Nash,
Stephen J. (2004) ‘On Closure in Economics’, Journal of Economic
Methodology,
11(1), March, pp. 75-89.
Quine,
Willard van Orman (1951) ‘Two Dogmas of Empiricism’, Philosophical Review,
60(1), January, pp. 20-43. Reprinted in Quine,
Willard van Orman (1953) From a Logical
Point of View (Cambridge, MA:
Harvard University Press).
Rizvi,
S. Abu Turab (1994) ‘The Microfoundations Project in General Equilibrium
Theory’,
Cambridge Journal of Economics,
18(4), August, pp. 357-77.
Rowthorn,
Robert E. (1999) ‘Unemployment, Wage Bargaining and Capital-Labour
Substitution’, Cambridge Journal of Economics,
23(4), July, pp. 413-25.
Schelling,
Thomas C. (1969) ‘Models of Segregation’, American Evonomic Review, 59(2),
pp.
488-93.
Sraffa,
Piero (1960) Production of Commodities by Means of Commodities: Prelude to
a
Critique of Economic Theory (Cambridge:
Cambridge University Press).
Sugden,
Robert (2000) ‘Credible Worlds: The Status of Theoretical Models in
Economics’,
Journal of Economic Methodology,
7(1), March, pp. 1-31.
Ward,
Benjamin (1972) What’s Wrong With Economics? (London: Macmillan).
Wright,
Erik Olin (1994) Interrogating Inequality: Essays on Class Analysis,
Socialism and
Marxism (London: Verso).
______________________________
SUGGESTED CITATION:
Geoffrey M. Hodgson, “On the
Problem of Formalism in Economics”, post-autistic
economics review, issue no. 28, 25 October 2004,
article 1, http://www.btinternet.com/~pae_news/review/issue28.htm
________________________________________________________________
Symposium on Reorienting Economics
Feminism And
Realism – A Contested Relationship
Irene
van Staveren (Nijmegen
University, Netherlands)
Introduction
This paper engages with chapter nine of Tony Lawson’s
(2003a) Reorienting Economics,
‘Feminism, Realism, and Universalism’. The chapter appeared as a journal
article in Feminist Economics, in
1999. That publication provoked a remarkable set of comments by feminist
economists – some of these highly critical – which were published in the same
journal as a dialogue, in 2003, including two responses by Lawson. Earlier
(in 1999), as well as in the set of comments in 2003, feminist philosopher
Sandra Harding gave her response to Lawson’s views. In my discussion of the
chapter/article on feminism and realism, I will regularly refer to this dialogue.
But before doing so, let me first briefly give some indication of Lawson’s
position towards feminist economics as a discipline.
Although I could not find his name in the two latest
membership directories of IAFFE, the International Associations For Feminist
Economics, he can certainly be characterised as a supporter of feminist
economics. In his book series with Routledge, Economics as Social Theory, he has published several books by
feminist economists (Nancy Folbre, 1994; Julie Nelson, 1996; Irene van
Staveren, 2001; Drucilla Barker and Edith Kuiper, 2003). He is member of the
editorial board of Feminist Economics,
the associations’ journal, and he has participated in several annual IAFFE
conferences over the past ten years. Lawson, together with some other male
economists involved in IAFFE and/or Feminist
Economics, can undoubtedly be characterised as a supporter of feminist
economics as a sub-discipline within economics. Acknowledging his clear
support for the feminist cause in economics, this paper will now focus on the
ideas of critical realism that he brings to feminist economics: what are
they, how are they connected to feminist economic research, and how are they
evaluated by feminist economists?
The
objective of his chapter on feminism is “to argue that (…) there are possible
advantages to feminist explanatory and emancipatory projects from engaging
(or engaging more fully) in the sort of explicit ontological analysis
associated with modern versions (at least) of scientific realism” (Lawson,
2003: 219). In his view, feminists too often reject universalism wholesale
(rather than only reject a priori
universalism as expressed in values, experiences, objectives and
interpretations of dominant groups) which would “be debilitating for the
feminist project” (ibid). In order to clarify his point, he illustrates his
argument with three examples, on formalistic modelling, epistemology, and
emancipation. The responses to his article agree unanimously with his
critique on formalistic modelling, whereas they disagree almost unanimously
(except Julie Nelson, who, however, has a related disagreement) with Lawson’s
universalism underlying his arguments on epistemology and emancipation.
In this contribution, I will
first discuss the strong disagreement of the feminist economists
participating in the dialogue with the universalism they detect behind his
critical realism. In doing so, I will not only rely on the dialogue following
Lawson’s article in Feminist Economics,
but also draw from a recent book (published in the book series under his
editorship) that provides a state-of-the-art overview of feminist economic
philosophy (Barker and Kuiper, 2003). Secondly, I will critically question
the apparent agreement between Lawson and the participants in the dialogue on
formalistic modelling as unhelpful for both ontological economic analysis and
feminist economics. For this part of my contribution, I will partly make use
of a paper on feminist econometrics by Brigitte Bechtold (1999), who instead
argues for a feminist approach to modelling. I will end with a conclusion,
arguing for a more explicit two-way relationship between realism and
feminism.
Feminist Opposition
to Universalism
In his original contribution ‘Feminism, Realism, and
Universalism’, to which I will refer to as chapter nine of his book (Lawson
2003a, with page numbers referring to the book version), Lawson rejects a priori universalizing, that is, the
mere assumption or assertion of a widespread validity or relevance of a
particular position. But he warns feminists for the opposite danger he
signals in feminist work, namely that “all approaches or stances are as
legitimate as each other” (Lawson, 2003a: 218). Now, what does realism offer
to feminism? First and foremost, Lawson claims, realism enables feminists to
study gender as an ontological category, that is, as a real kind of entity
rather than (only) as a representation of certain beliefs. Since gender, and
its derived concepts such as gender-relations, gender-inequality, and
gender-roles, is at the heart of feminist research, including feminist
economics, the potential contribution of realism to feminist research is not
trivial. Indeed, as Drucilla Barker and Edith Kuiper (2003: 2) state in the
introduction to their valuable volume on feminist economic philosophy,
“Gender analysis remains integral to feminist scholarship.” Lawson hastens to
emphasise that an ontological understanding of gender does in no way imply
essentialism. “… there is nothing essential to scientific or ontological
realism that supposes or requires that objects of knowledge are naturalistic
or other than transient, that knowledge obtained is other than fallible,
partial and itself transient, or that scientists or researchers are other
than positioned, biased, interested, and practically, culturally, and
socially conditioned” (Lawson, 2003a: 220). The participants in the dialogue,
however, are not convinced, as they notice a strong universalist claim in his
defence of realism. This disagreement underlies much of the dialogue. Lawson
perceives an understanding of realism among feminists which reduces this
philosophy to a simple, naive version of realism, from which he distances
himself. The feminists in the dialogue, however, perceive a strong version of
universalism to his position, that is, essentialism, a claim about the nature
of human beings, a claim against which the whole project of feminism is set
up, in particular post-structuralist feminism. So, the dialogue centres round
the opposition between essentialism on the one hand and relativism on the
other hand.
Now, do feminists, and in
particular feminist economists, reject or downplay realism as Lawson assumes?
Does critical realism indeed have the balanced position that feminists favour
between universalism and relativism, as Lawson claims in his assertion that
realism is not essentialist? In order to shed light on these questions, let
me now review the most important comments and replies from the dialogue on
the opposition between essentialism and relativism.
On naïve realism, Sandra Harding
(1999) agrees with Lawson that this version does not do justice to realism.
At the same time, however, she explains that strategically, feminists have
found it more helpful to argue from an epistemological perspective, in order
to be heard in the scientific debate (and get research funding, for example),
than from a realist perspective, in which they often remain marginalised. She
argues that feminists have perceived that ontologies are embedded in moral
and political projects, and are in no way disinterested. Therefore, she
claims, “… it requires a great deal more than just ‘clear thinking’ to
dislodge such ontologies from their status as obvious” (Harding, 1999: 130).
Indeed, feminist economists have analysed the economic importance of unpaid
labour and caring, the discriminatory part of the gender wage gap, negative
impacts of structural adjustment policies for women in developing countries,
to mention only a few feminist economic concerns. But these studies have been
largely ignored by the mainstream, as is visible in the selection of articles
in the discipline’s top-ranking journals and chapters in economic textbooks.
That is why, Harding states, feminists have found it more useful to rely more
often on an epistemological strategy, focusing on how standards are set for
what should count as knowledge, good method, objectivity, or rationality.
This is precisely why feminist economists have also spent time and effort in
challenging mainstream notions of economic rationality, efficiency, and work,
among others, as well as their underlying gender dichotomies of fact/value,
reason/emotion, and efficiency/equity. Lawson agrees with this point. The
volume on feminist philosophy of economics by Barker and Kuiper provides
several examples of such studies1. To quote just one author in
their rich volume, arguing strongly against an essentialist notion of
gender, urging feminist
economists to hold “no presumption that gender underlies economic processes
except in culturally specific, path-dependent ways” (Eiman Zein-Elabdin,
2003: 333).
But there is more than strategy
to the feminist preference for epistemology and standpoint theory, expressing
the situatedness of knowledge. Fabienne Peter (2003) draws the attention to
Lawson’s assumption of a common human nature, referring to a genetic
constitution and species-wide needs and capacities, which could be studied in
analogy to the study of physical objects in the natural sciences. This
assumption, Peter points out, denies the problematic character of science
itself, and the still largely positivist science practices in economics. She
argues that Lawson appears to suffer from this bias himself, with his notion
of ‘judgemental rationality’ which seems to stem from a positivist conception
of objective scientific explanation. Feminist economists, instead, tend to
follow Harding’s position of ‘strong objectivity’, as a recognition of the
situatedness of the scientist (see, fore example, Harding, 1995),
acknowledging that the ideal of objectivity is untenable and rather than
denying its problems, one would better recognise them explicitly. Referring
to Lawson’s example on the emancipatory project of feminist economics, Peter
(2003: 99) makes clear that in the face of oppression, “accommodating the
potential contestedness of needs is more important than issuing
universalizing statements.” Drucilla Barker (2003) elaborates this point by
questioning the grounds of the presumably shared interests, needs, and
motives of human beings – between women and men, but also between women or
any other group. Referring to Donna Haraway (1988), Barker (2003: 107)
clarifies that “collective subject positions are always socially constructed
and partial”. A good illustration of this point can be found in a recent
article in Feminist Economics on the different perceptions of labour
standards by some western feminists and other activists on the one hand, and
women workers in exporting industries in Bangladesh on the other hand. In
that article, Naila Kabeer (2004) points out why a different perspective is
needed, precisely for the sake of emancipation, rather than a unified image
of human interests, needs, and motives. Zein-Elabdin (2003: 333) therefore
proposes a feminist economic philosophy of hybrid subalternity, which she
defines “as subordination deriving from heterogeneous sources rather than a
single axis such as gender or colonial subjectivity”. She explains that such
a philosophy should be non-modernist and grounded in a self-critical approach
and ethical sensitivity to subaltern difference. “This framework remains
feminist to the extent that it is partially anchored in a concern for women’s
welfare; however, it is paradigmatically guided by the multiformity and
instability of difference, and is deeply aware of its own complicity in the
cultural hegemony of economic discourse” (ibid).
Lawson’s reply on the critique of
his essentialism is that he pleas for seeking commonality with recognition of
differences, and not a priori assuming this, which, however, makes one
question what is left of the ontology of human beings’ needs and interests.
Since he argues that “despite our interrelatedness and differences, indeed as
a result of appreciating these features, I believe that, at an abstract
level, we can give a formulation of the sort of society that is desirable”
(Lawson, 2003b: 125) But the
abstract level does not allow for interrelatedness and differences. Feminists instead tend to discuss what
is desirable in a society at the level of the concrete. Feminist economists Barker and Kuiper
are therefore explicit on their epistemological and methodological stance for
economics, a discipline they see as an integral part of culture, power
relations, and change: “Economics is not an abstract notion; it does not
exist without people. Rather, it is a state of affairs, always implicated in
global politics, regional interests, and local alliances. As economists, we
are part of the picture – we study, write, and teach from interested
positions. Such interests are affected by intellectual pleasure, ethnical
sensibilities, as well as by prestige, uncertainty, and a variety of other
institutional constraints. Explicitly recognising our location ties us
concretely to the world and enables us to envision effective strategies for
change and new perspectives on economic issues (Barker and Kuiper, 2003: 3)”.
They add, on page 15, that they adhere to the idea of a desirable society,
just like Lawson, but recognise that “what constitutes the ‘social good’ can
no longer be taken for granted”. Lawson appears more convincing in his reply
to Barker who labelled his universalism as humanist. He agrees, but explains
that his humanism is minimalist as it concerns the recognition of human
capacities to flourish in human society, as distinct from the capacities of
non-human beings. This conception of humanism is very close to Amartya Sen’s
and perhaps even closer to Martha Nussbaum’s theories of capabilities and
human development – a perspective with which feminist economists have engaged
to quite an extent – largely supportive as well as, to some extent, critical.
Julie Nelson (2003: 110) shifts
the attention to another bias she perceives in critical realism, namely its
“privileging reason, abstraction, and precision over emotion, particularity,
and what is vaguely known.” She argues, that this bias against emotion will
not help feminist economists to get the economic analysis of caring out of
the margin. My example on modelling care in the next section will illustrate
this point. Although agreeing with the general ideas offered by scientific
realism, Nelson does not find the particular branch of realism very helpful
for this type of feminist research. As an alternative, she points at the work
of Alfred North Whitehead on process ontology, which she finds a more organic
and inter-connected version of realism than Lawson’s. “By emphasizing
experience, including human bodily experience, as the fundamental unifying
reality, he removes the mind–vs.-matter conundrum” (Nelson, 2003: 113). In
his reply to Nelson, Lawson feels misinterpreted, and argues, extensively
quoting from Whitehead, that his critical realism is much closer to
Whitehead’s than Nelson claims. That may be so, but his three examples that
aimed to show the usefulness of critical realism for feminist economics do
not make this explicit – an example on core feminist concerns such as the
economic analysis of childcare, or care as a motivation for certain types of
unpaid and paid labour might have been a better choice to bring this point
across.
In his reply to the comments,
Lawson (2003: 128) re-states the objective of his chapter, as “to encourage
consideration of an ontological turn in feminist theorizing.” But the
dialogue that followed on his initial contribution signals that this
objective, modest as it may seem, has a problematic undertone. What about a
feminist turn in realist theorizing? In other words, what about a discourse
in which both feminism and realism are open to mutual influencing? This seems
even more desirable in the light of what Harding recognises as an oversight
in Lawson’s assumption of a feminist neglect of major messages of realism.
She argues that much of Lawson’s advise on ontology to feminists is
ill-informed about what feminist theorists already do, and for quite some
time have developed thoughtfully within feminist discourses of philosophy.
She refers to work by feminist theorists from the mid-1970s onwards which
“has largely already made the claims Lawson ‘proposes’ (Harding, 1999: 131).”
Indeed, she argues, his suggestions on acknowledging situated knowledge “are
the main points of standpoint theories” (ibid), but she finds them argued
stronger in standpoint theory than in critical realism. She finds Lawson’s
arguments helpful additions in the continuous defence that standpoint theory
is required to do against common misunderstandings. However, the point she
makes, referring to others as well, is that science is embedded in networks
of beliefs, a point which she summarizes in a question to Lawson: “Shouldn’t
we expect critical realism, too, to be a network of ontological,
epistemological, moral, political, etc. beliefs, even though it focuses only
on ontological issues?” (Harding, 2003: 154).
Formalistic Models
in Feminist Economics
In his chapter
nine, Lawson uses the example of formalistic modelling to illustrate why
realism/ontology matters. He argues that the method of formalistic modelling
is not at all well equipped for illuminating the social realm and he notices
that feminist economists have also criticised it as masculinist, with which
he concurs. He convincingly argues that the basic assumption for phenomena to
be appropriately analysed with the method of formalistic modelling is that
they occur in closed systems, while the social realm, of which the economy is
part, is characterised by openness, as well as by structure and dynamics.
Moreover, his critique extends beyond the particular type of models that are
formalistic (relying on mathematical proofs) to also include econometrics
(relying on statistical tests). He claims that both types of models –
theoretical as well as econometric – have been rather unsuccessful. Feminist
economists have, however, used modelling as one among a variety of methods,
although the type of models used are far more often econometric than formalistic
(except for some household bargaining models). Lawson rejects both types of
modelling for feminist economic analysis: formalistic as well as econometric
approaches. “I think that feminists may have been too cautious in their
criticisms of formalistic modelling” (Lawson, 2003: 228). On econometric
models, he continues: “there are grounds for supposing that those
empirically-oriented feminists in economics insistent upon applying standard
econometric methods in all contexts are proceeding wholly in the wrong
direction” (ibid).
Now, how did the feminist economists participating in the dialogue
react to this assertion? Surprisingly, perhaps, they agreed. Peter (2003: 94)
agrees with Harding’s endorsement of Lawson’s critique, finding “Lawson’s
article […] strongest in its critique of formalistic modelling.” Barker
(2003: 104) states: “I think that many feminists will find this argument
familiar and persuasive.” But she adds that his ontological critique misses
the sociological fact that it is precisely formal modelling which provides
mainstream economists with their status as scientists. Finally, Nelson (2003:
111) asserts that the critical-realist approaches shares with the feminist
approach a wish “to develop a more adequate investigatory practice, not
hidebound by allegiance to formal modelling.” These three confirmative
responses to Lawson’s critique on the use of formalistic modelling in
general, and within feminist economics in particular, require, however, a bit
more detailed discussion than they received in the dialogue. There is not
enough space in this article to do that, nor would I be best positioned to do
this, as predominantly employing qualitative rather than quantitative methods
in my own work. But I do think the matter deserves somewhat more attention
than it received in the dialogue. Therefore, I will try to point out briefly
how feminist economists tend to make use of modelling, and to what extent the
outcomes of this method contributes to the understanding of the economic
behaviour of women and men and how economic processes influence differently
on the economic lives of women and men.
It seems fruitful to start with the example of the disappointing
results of modelling the gender wage gap in an illuminative entry on
econometrics by Julie Nelson in the Elgar Companion to Feminist Economics.
In that chapter, Nelson (1999) points out that econometrics has not been able
to settle the dispute on the (extent of) discrimination underlying the pay
difference between women and men. “Consider regression results suggesting
that a wage gap still exists between men and women, even when they have the
same observable skills, experience, and so on. Those who do not believe
discrimination exists commonly argue that such results could be explained by
the omission of important – perhaps unobservable – variables (for example,
greater ambition on the part of men). On the other hand, those who believe
that the impact of discrimination is actually understated by such studies
will argue that some of the included variables (for example, seniority)
themselves reflect labour market discrimination” (Nelson, 1999: 155). She
explains the different positions on this as resulting from different
underlying beliefs, arguing that econometric testing therefore will never be
able to settle the argument. This shows again the importance of epistemology
for feminist economists, and the need to challenge masculine beliefs
reflected in econometrics.
The ways in which feminists address these biased beliefs is partly
through employing a broader set of quantitative tools for empirical
investigation, including more refined data sets, the use of survey data, and
creative technical specifications of models, as well as triangulation with
qualitative methods. At the annual conference of feminist economics held in
Oxford, in August of 2004, a roundtable on the relationships between feminist
economics and Post Keynesian economics, Lawson re-stated his view on the
uselessness of models for feminist purposes, while various of the feminist
economists present in the session pointed out that this would throw out the
baby with the bath water. Feminists have done valuable econometric work in
a different way than the mainstream commonly does: not axiomatic but
explorative, not claiming explanation but complementing found correlations
with theoretical analysis relating to gendered norms, institutions, and
power. An example of technical
specifications that point to gender inequalities in explanatory variables are
power parameters in household production models, that reflect male control
over household resources such as labour time, land, or income. Such
parameters do more justice to the underlying gender mechanisms than including
only a few separate variables for men and women, such as male and female labour
time. Moreover, feminist econometricians tend to be quite cautious about the
explanatory power of models, often being aware that more is needed than just
regressions with observable variables in order to explain gender differences.
In a recent paper (van Staveren, forthcoming), I have reviewed
modelling work on unpaid labour and the care economy. Of course,
modelling is not an end in itself or a substitute for theory (although for
some economists there is hardly any difference between model and theory). But
given the high status that modelling has in the discipline, as Barker has
pointed out, it seems strategically wise not to shy completely away from it,
not even in the case of analysing caring, a highly under-measured economic
activity. Various feminist economists therefore have expressed a need for
experimentation with the modelling of care (Frances Woolley, 1993; Martha
MacDonald, 1995; Irene van Staveren, 1999; Sue Himmelweit, 2003) – despite
the acknowledged limitations. In a comparison I did of two models, each
including a variable for unpaid labour (childcare or a broader variable
including domestic work), the feminist model appeared to do more justice to
the gendered structure of labour markets and the gender division of labour in
the household than the non-feminist model. That is because the non-feminist
model assumed high substitution elasticities between paid and unpaid work as
well as between male and female labour time. Hence, the only way that model
could account for observed inflexibilities and rigidities was by including
extra constraints for one or both genders. It did opt for a maximum value for
female paid working time of 20 hours a week and a minimum value of 20 hours
of female time spent on childcare at home, for women with children. For men,
no such limits were set. Such choices by modellers severely limit the
explanatory power of the model, as it assumes what needs to be explained and
thereby does not allow for changes towards a more gender equal distribution
of labour between men and women. In the words of Lawson’s example on the
emancipatory project of feminist economics, the model excluded such a project
form the beginning. The other model, however limited in other aspects, did
allow for changing gender relations to some extend, as it modelled low
substitution elasticities, reflecting job segregation in the labour market as
well as norms and institutions supporting the status quo of the unequal
division of paid and unpaid labour between women and men. Admittedly, these
needed to be explained outside the model, but at least the choice of low
substitution rates made such additional explanation possible, whereas the
non-feminist model foreclosed the possibility of emancipation altogether.
My conclusion of the discussion
of the models referred to above and several other models of care that I have
reviewed is that they may be useful to clarify the structural
dimensions of economic relationships, including gendered structures. Choices
between exogenous and endogenous variables appeared to matter, as well as
inclusion of care receivers next to care givers; including care in the
savings function (as a substitute for purchased services) appeared to enable
one model to show a counter-cyclical trend in women’s unpaid labour time;
and, finally, the modelling experiences indicated that the care economy can
be understood as much richer than only in terms of labour time, by including
variables such as caring goods, caring productivity, and substitutability
with market goods. Such empirical models remain important in order to bring
marginalized topics (such as unpaid labour) and differentiated economic
processes (such as the gender wage gap) to the attention of the discipline.
Moreover, such models on the structure of gender in the economy often serve
to refute commonly held beliefs on the benign effects of markets for all
economic agents. To give just one example, the carefully developed
regressions with additional institutional analysis, by Stephanie Seguino
(2000) on the gender wage gap in the Asian tiger economies has shown that
wage discrimination is an important factor behind the export success and
economic growth of these countries. Such empirical studies are necessary in
the discourse on globalisation, especially in the light of unsubstantiated views
held by well-known trade economists such as Jagdish Bhagwati (2004, in
particular chapter 7 on women), on a presumed equalizing impact of global
trade.
But models appear to be very
limited, in line with Lawson’s claims, when we are interested in learning
about the causation, dynamics, and meaning of these relationships in
the economy, which relate to motivation, reasons, beliefs, and interaction
effects of economic agents. But perhaps we should rather give up the ideal of
(full) explanation and use models pragmatically to explore possible
relationships between gendered variables, than dismissing models wholesale.
Finally, let me say a few words
on the possibility of feminist econometrics as suggested by Brigitte Bechtold
(1999). She starts by listing ten practices in econometrics that she labels
as non-feminist, including the violation of random sampling for gender
differences (as well as class and other differences), the emphasis on
monetary variables, and the use of dummy variables as a way to accommodate
gender differences. She argues that some types of modelling do better than
others, while she deems time-series analysis as particularly problematic.
But, she does not imply that we should discard econometrics, but rather use
it more carefully and with more attention to data gathering. “While bulky and
seemingly detailed simultaneous equation macromodels as well as VAR [vector
autoregression, IvS] models have major shortcomings in terms of
inclusiveness, and the basic classical regression model is lacking in
stochastic qualities required to apply limiting theorems, all is not lost”
(Bechtold, 1999: 49-50). Instead, she recommends eight ‘feminist econometric
habits’: look for higher t-values; use limited dependent variable methods;
avoid technical corrections for serial correlation (they may hide
misspecification); avoid dummy variables; use survey and experimental
methods; link to findings obtained in other disciplines; avoid re-affirming
the status quo; and replace deductive hypothesis testing with inductive
methods of analysis. Interestingly, this last recommendation comes close to
Lawson’s recommendation of contrastive explanation as an alternative to
formalistic modelling – apparently, modelling and inductive methods are not
necessarily mutually exclusive. Bechtold even suggests that deduction can be
done through formalistic models, applying mathematical proofs2.
Conclusion: from Realism to Feminism … and Back?
Lawson’s chapter nine has triggered an important debate
among feminist economists, a feminist philosopher, and Tony Lawson, on the
importance of realism versus epistemology, the balance between universalism
and relativism, and strategic choices for the emancipatory project of
feminist economics. Various issues were resolved, as they appeared merely
misunderstandings or partial interpretations – for example the role of
culture in knowledge construction (not only a hindrance but also productive)
and the role of humanism (about human capabilities rather than common
interests, needs, and motivations) in realism. Also, the dialogue has shown
that much of what Lawson had proposed to feminist economists is already
wide-shared practice among many feminist economists. Other issues, however,
remain unresolved, in particular because feminist economists reject, more
strongly than Lawson does, universalist conceptions of human beings and human
agency.
On
modelling, the participants in the dialogue largely agreed with Lawson’s
realist/ontological critique, but the point was also raised that modelling has
high status in the discipline as it is driven partly by modellers’ beliefs.
Therefore, it remains necessary, next to critiquing modelling as a
masculinist practice with limited explanatory power, to engage in theoretical
and empirical modelling and the discourses that surround these two forms of
modelling. Several suggestions were made how this can be approached in a
gender-aware and generally more inclusive way.
Finally, a note on the tone of
the dialogue and the various misinterpretations that contributed to the
somewhat tense tone. It seems to me that part of the critical tone of the
dialogue may be arising from a, at least seemingly, one-way interest by
Lawson in linking realism and feminism:
from realism to feminism, and not also the other way around. Feminist
theorists, and particularly feminist philosophers like Sandra Harding, appear
to have something valuable to say on realism with implications for realism.
In particular in issues of epistemology. Moreover, feminist economists
working on the philosophy of economics, may also have something to contribute
to Lawson’s critical realism project in economics, for example in the area of
identity and agency, as well as from their analysis of caring in economics.
Lawson’s message in his chapter on feminism is clearly one of urging feminist
economists to learn from realism, and not about what realism may learn form
feminism. This one-way approach of his critical realism project towards
feminism does not stand alone, as he has published similar articles on the
relationship from realism to Post Keynesianism (Lawson, 1999b) as well as to
institutional economics (Lawson, 2001). This is not to say, of course, that
such urging of heterodox traditions in economics to consider more explicitly
a certain philosophy of science would not be relevant or legitimate – we have
probably seen too little engagement with philosophy in economics over the
past decades. But there appears to be an implicit request for a stronger
commitment to mutual learning in the dialogue on Lawson’s chapter and which
should not be ignored, in particular if both strands of thought – realism and
feminism – are to benefit from future dialogues.
Notes
1.
The volume includes, among other things, a review of work on consumer theory
by an early twenty-century economist; a literary analysis of the notion of
efficiency; a political-economy study of wage setting; a critical reading of
Adam Smith, revealing the construction of masculine identity; a demonstration
of cultural biases in social statistics; two studies of the identity gap in
rational economic man; four chapters analysing caring and unpaid labour as
economic activities; and various chapters focusing partly or completely on
the importance of a postcolonial or subaltern perspective for feminist theorizing
in economics.
2.
“A mathematical proof using induction uses three steps: (a) prove the
proposition at hand for the first element, (b) prove it for consecutive
representative elements ‘k’ and ‘k+1,’ and (c) draw the conclusion that it
holds in the sample or population under consideration” (Bechtold, 1999: 51).
References
Barker, Drucilla (2003)
‘Emancipatory for Whom?’, Feminist
Economics 9 (1), pp. 103-108.
Barker, Drucilla, and Edith
Kuiper (eds.) Toward a Feminist
Philosophy of Economics. London: Routledge, 2003.
Barker, Drucilla, and Edith
Kuiper (2003) ‘Introduction. Sketching the Contours of a Feminist Philosophy
of Economics’, in Drucilla Barker and Edith Kuiper (eds.) Toward a Feminist Philosophy of Economics.
London: Routledge, 2003, pp. 1-18.
Bechtold, Brigitte (1999)
‘The Practice of Econometrics: a Feminist Critique’, Review of Radical Political Economics 31 (3), pp. 40-52.
Bhagwati, Jagdish (2004)
‘Women: Harmed or Helped?’, in In
Defense of Globalization. Oxford: Oxford University Press, pp. 73-91.
Folbre, Nancy (1994) Who Pays for the Kids? Gender and the
Structures of Constraint. London: Routledge.
Haraway, Donna (1988)
‘Situated Knowledges: the Science Question in Feminism and the Privilege of
Partial Perspective’, Feminist Studies 14 (3), pp. 579-99.
Harding, Sandra (1995) ‘Can
Feminist Thought Make Economics More Objective?’ Feminist Economics 1
(1), pp. 7-32.
--------. (1999) ‘The Case
for Strategic Realism: A Response to Lawson’, Feminist Economics 5 (3), pp. 127-133.
--------. (2003)
‘Representing Reality: The Critical Realism Project’, Feminist Economics 9 (1), pp. 151-159.
Himmelweit, Susan (2003) “An
Evolutionary Approach to Feminist Economics”, in Drucilla Barker and
Edith Kuiper (eds.) Toward a Feminist Philosophy of Economics. London:
Routledge: 247-265. Kabeer, Naila (2004) ‘Globalization, Labour Standards,
and Women’s Rights: Dilemmas of Collective (In)action in an Interdependent World’, Feminist Economics 10 (1), pp. 3-35.
Lawson, Tony (1997) Economics
and Reality. London: Routledge.
--------.
(1999a) ‘Feminism, Realism, and Universalism’, Feminist Economics 5
(2), pp. 25-59.
--------.
(1999b) ‘Connections and Distinctions: Post Keynesianism and Critical
Realism’, Journal of Post
Keynesian Economics 22 (1), pp. 3-14.
--------.
2001) ‘Why Should Economists, Including (Old) Institutionalists, Be
Interested in Critical
Realism?’, in Yuji Aruka (ed.) Evolutionary
Controversies in Economics. A New Transdisciplinary
Approach. Tokyo: Springer, pp.
227-242.
--------.
(2003a) Reorienting Economics.
London: Routledge.
--------.
(2003b) ‘Ontology and Feminist Theorizing’, Feminist Economics 9 (1), pp. 110-150.
--------.
(2003c) ‘Theorizing Ontology’, Feminist
Economics 9 (1), pp. 161-169.
MacDonald, Martha (1995) “The
Empirical Challenges of Feminist Economics”, in Edith Kuiper and Jolande
Sap (eds.) Out of the Margin. Feminist Perspectives on Economics, Londen:
Routledge: 175-197.
Nelson, Julie (1996) Feminism, Objectivity and Economics.
London: Routledge.
--------.
(1999) ‘Econometrics’, in Janice Peterson and Margaret Lewis (eds.) The Elgar Companion to
Feminist Economics. Cheltenham: Edward Elgar,
pp. 154-157.
--------. (2003) ‘Once
More, with Feeling: Feminist Economics and the Ontological Question’, Feminist Economics 9 (1), pp. 109-118.
Peter, Fabienne (2003)
‘Critical Realism, Feminist Epistemology, and the Emancipatory Potential of
Science’, Feminist Economics 9 (1),
pp. 93-101.
Staveren, Irene van (1999) “Chaos Theory and
Institutional Economics: Metaphor or Model?”, Journal of Economic Issues
(33) 1: 141-167.
--------. (2001) The Values of Economics. An Aristotelian
Perspective. London: Routledge.
--------. ‘Modelling care’
forthcoming in Review of Social Economy.
Seguino, Stephanie (2000)
‘Accounting for Gender in Asian Economic Growth’, Feminist Economics 6 (3), pp. 27-58.
Woolley, Frances (1993) “The
Feminist Challenge to Neoclassical Economics”, Cambridge Journal of
Economics 17 (4): 485-500.
Zein-Elabdin, Eiman (2003)
‘The difficulty of a Feminist Economics’, in Drucilla Barker and Edith Kuiper
(eds.) Toward a Feminist Philosophy of
Economics. London: Routledge, 2003, pp. 321-338.
____________________________
SUGGESTED CITATION:
Irene van Staveren, “Feminism
and Realism - A Contested Relationship”, post-autistic
economics review, issue no. 28, 25 October 2004,
article 2, http://www.btinternet.com/~pae_news/review/issue28.htm
________________________________________________________________
Symposium on Reorienting Economics
Some
Comments on Lawson’s Reorienting Economics:
Same Facts, Different Conclusions
Bruce Caldwell (University of North Carolina at Greensboro,
USA)
I welcome the opportunity to reflect on Tony Lawson’s Reorienting Economics. Lawson covers a considerable amount of
ground in his book, so my comments will of necessity be selective.
I will begin by stating that, for
what it is worth, I am in substantial agreement with Lawson’s fundamental
complaint that the economics profession is dominated by a mainstream
orthodoxy which is “not in too healthy a condition” due to its insistence on
following a specific methodological approach, one that is not well matched to
the social reality it wishes to investigate (p. 3). I make similar complaints
in the final chapter of my book on Hayek (Caldwell 2004), and indeed I quote
liberally from Lawson’s earlier book (Lawson 1997) in that chapter. In this regard I consider Lawson a
colleague who shares a quest, that of figuring out why economics turned out
the way it did in the twentieth century. This quest has historical,
methodological, ideological, sociological and even pedagogical dimensions,
and we are but two of many who have contributed to it (a selective sample
might include Mäki 1999, Mirowski 1989, 2002, Weintraub 2002, and selected
articles in Colander and Brenner, eds. 1992).
As an aside, I will add that
Lawson’s broad-brushed description of structured social reality is quite
attractive. For those who have
read Hayek, it is also familiar: many of the things that Lawson identifies as
features of social reality were similarly identified by the Austrian social
theorist. For example, that “human social activity is intelligible” (p. 33),
that we follow social rules (p. 36-38), that human actions are “intentional
human doings, meaning doings in the performance of which reasons have
functioned causally, where reasons are beliefs grounded in the practical
interests of life” (p. 47), that many actions are based on tacit knowledge
(ibid.), that humans form plans that are forward-looking (pp. 50-51), and
that all human agency takes place within given social structures, but also
produce changes in those structures (pp. 48-49), are all Hayekian
themes.
That such claims appear in both
Hayek and Lawson is perhaps not altogether surprising, for they are also
recognizable in the writings of other heterodox economists, post-Keynesians
(at least of the Shacklian variety) for example. Lawson explicitly recognizes
this in chapter 7, where he suggests that different heterodox traditions
share the broad-based description of social reality, and are to be
distinguished from one another according to the different aspects of that
reality upon which each chooses to focus (pp. 180-183). Given the richness of the complex
reality before us, this too makes sense. It may also help to explain why
(especially if one accepts the proposition that many issues that separate
such groups are empirically undecidable, more on which in a moment) such
groups inevitably persist. Some
may agree with Lawson and me that pluralism makes good sense; the complex
nature of social reality may also mean that it is inevitable.
In chapter 4 Lawson recommends
that economists reorient their discipline by resolving to seek causal
explanations. He lays out an
explanatory strategy for accomplishing this, which he breaks into three
steps: identify event regularities, form causal hypotheses that can account
for them, and then discriminate among the competing causal hypotheses that
are consistent with the regularities (p. 81). Though he does not say so
explicitly in his general formulation, it may be that Lawson is calling for
more long run causal explanations here, or, put another way, for more
economic history. Some of Lawson’s examples (e.g., explanations of
differential measured productivity growth rates, or of relative changes in
primary versus produced goods prices over the last century) support this
reading, as does Lawson’s italicized statement at the end of the chapter that
“the explanatory process so facilitated
is necessarily backward looking” (p. 108).
If Lawson is advocating that
economists do more economic history when he says that we should seek causal
explanations, I have no quarrel, though as will be clear, I believe that
there are other things that we can be doing as well. However, it may be that
Lawson is calling for what might be termed short run causal explanations as well. In my opinion, seeking to
produce valid short run causal
explanations is an extremely ambitious goal, and in many instances an
unreachable one. The complex nature of the open system that constitutes
social reality, one that poses such problems for mainstream efforts at its
analysis, will cause similar problems for any such program.
A homely example will illustrate
the problem. I work in a largely empirical department of economics. Though
the kind of research that I like to do is very different from theirs, I have
come to admire and respect the carefulness with which my colleagues undertake
their work. This is best revealed in departmental seminars, countless numbers
of which I have attended (the high price of good departmental
citizenship). Over the years
certain features of a “typical” empirical seminar have emerged. A problem or
puzzle is posed. Sometimes the problem arises from surprising relationships
that have been discovered among the data (e.g., one colleague found that,
during recessions, a number of variables associated with “better health”
improved); other times it is an attempt to identify the impact of some policy
change on some set of variables of interest (e.g., the impact of changes in
the welfare laws on household and labor market variables of interest, or of
the institution of charter schools on variables associated with educational
outcomes). As the speaker goes
through her presentation, typical questions arise. If the data set is a
well-known and frequently used one, the speaker is asked about how she
handled the equally well-known problems associated with it. If it is a new
data set, there are questions about how the variables of interest were
constructed, and whether their composition raises problems for the questions
that the speaker seeks to answer. Usually they do. The peculiarities of the data dictate which subset of
econometric methods should be used to correct for the problems. A good
speaker knows the limitations of her data, and has chosen the subset of
methods that hold the best chance of correcting for them. Speakers judged as
ineffective are either unaware of problems or of the appropriate tools for
correcting for them, or worse, both.
Sometimes the speaker draws
policy conclusions from the study. This typically provokes animated
discussion, for a number of reasons. First, the relations among the data are
correlations. To move from there to policy conclusions, one must speculate
about causes, and there are
typically many plausible interpretations on offer. Next, all empirical
economists recognize that adding new variables to an existing set of
variables, or using new data sets that include different variables or which
cover different time periods, or using different types of corrections, all
typically yields different results, always in terms of the coefficients
attached to various variables of interest, and sometimes in terms of their
signs. The latter phenomenon is
sufficiently ubiquitous that an economist who has studied them has given them
a name: “emerging recalcitrant results.” Robert Goldfarb draws the obvious inference about such
findings:
These emerging contrary results
or “potential reversals” present a dilemma for the conscientious economist
who is part of an empirical literature’s audience. How is he or she to make
believable inferences from such a literature, when results may have already
been, or in the future be, challenged and even conceivably overturned (Goldfarb
1997, p. 222)?
The implications are evidently
quite profound if one wants to take the step towards making policy
recommendations. As a
result, the most successful seminar presenters (the most “scientific”) are
very careful about trying to discuss the policy implications of their papers.
It is usually done only in the last five minutes, when the substance of the
talk is over, sometimes with a bit of a smile or other body language to
suggest that this is the speculative part, always using very careful language
(“this study would seem to suggest…”).
No claims are ever defended with anything like the vigor with which
one defends one’s choice of econometric techniques.
The main reason why making the
jump from the empirical results of a study to policy conclusions is so
difficult is that a given set of facts always give rise to multiple plausible
interpretations as to why the facts are as we find them. In my estimation, precisely the same
holds true when one seeks short run causal explanations. To restate this
using Lawson’s own framework, my point is that the third stage of his
recommended strategy, that of formulating ways of discriminating among
competing causal hypotheses, is in the short run extremely problematical.
People are always able to reach different conclusions from the same set of
facts.
The bedrock claim that underlies
this pessimistic conclusion is that the complexity of social phenomena
implies severe limitations on what we can expect of empirical work in
economics. This does not mean
that progress in the empirical domain is impossible. We now have better and
more varied statistical methods, more powerful computers, and more detailed
data, so that we can describe the economy at a point in time much better than
we could even a generation ago. But even with all of these advances, the
complexity of the phenomena we analyze means that forecasting will be
difficult, it means that making the move from an econometric study to a
policy conclusion will be difficult, and it means that discriminating among
competing causal hypotheses, at least in the short run, will be
difficult. These are not
problems that will go away through time, once we have better tools. They are
a permanent feature and are due to the nature of the open system that we
study. This pessimistic conclusion is probably the most important implication
that I drew from my study of Hayek’s writings on the study of complex
phenomena. My working subtitle for my book, and one I had wished now that I
had retained, was “F.A. Hayek and the Limits of Social Science.”
Does providing long run causal
explanations exhaust the contributions that economists can make? No, there
are other things that we can and should do. For example, economists have long
contributed a method of analysis that helps all of us to make better sense of
the world. I have discussed this
contribution both in my book and on the pages of the post-autistic
economics review under the not very well-defined label “basic economic
reasoning” (Caldwell 2002; 2004, pp. 382-88). What constitutes basic economic reasoning is hard to
describe (though I am tempted to say, like pornography, I know it when I see
it), so instead of offering a definition I have provided a number of examples
of what I have in mind in my article and book.
Basic economic reasoning uses
simple tools, like production possibility curves or demand and supply curves,
to facilitate understanding of real world events. Such diagrams almost “think
for themselves.” They embody common sense, even proverbial knowledge (e.g.,
the notion of opportunity cost suggests the adage, “you can’t have your cake
and eat it too”), knowledge that has survived and been passed down through
time in various forms because it has proved useful.
Because they embody common sense,
the diagrams themselves are not really even necessary. Last week I read in the paper that,
due to the hurricanes that hit Florida in the summer and fall of 2004,
Americans should expect that the prices of certain produce (oranges,
grapefruit), of lumber and other products used in construction, and of
certain types of insurance to rise, and that east coast resort beaches
outside of Florida should experience more business. One could use a demand
and supply diagram to show why we might expect such things to happen, one
carefully hedged with ceteris paribus clauses, but one doesn’t need to do all
that, and they certainly did not do it in the newspaper. Nor does such
reasoning depend on humans acting like the perfectly rational agents that are
necessary for deriving such predictions in our formal models.
So what is the status of such
knowledge? In a recent paper on
Frank Knight and pragmatism, Wade Hands describes Knight’s views about
economic science. Knight’s views
are helpful here, because what he describes is very similar to what I have in
mind when I talk about basic economic reasoning.
For Knight,… even though
economics is not a positivistic science, it is a type of science: an
intentional or common-sense science
based on beliefs and desires of economic agents. Such economic science is
essentially a formalization of age-old common sense, but it successfully
provides both predictions and explanations of human behavior (though a
different type of prediction than those available in the natural sciences). Given the particular character of the
objects in its domain – humans – this intentional common sense science is not
only useful, it actually predicts better than the application of positivistic
science to the human domain. As Knight says, “in this instance the position
of common sense is better grounded in terms of the ultimate and inclusive
facts of experience than is that of scientific logic” (Hands 2004, p. 13; the
quotation from Knight is from Knight 1935, p. 81).
Basic economic reasoning is a
powerful tool, it helps us to make sense of the world, it allows us to make
better decisions, and it makes human behavior more ordered. It is part and
parcel of what makes human behavior intelligible, and predictable in certain
domains, to the extent that it is at all. Seeking to explicate and to expand
the domain of such reasoning is one of the most important contributions that
economists can make.
Yet as Hands’ passage makes
clear, the status of such knowledge is ambiguous. It clearly does not meet
the criteria of positivistic science. Nor, as far as I can see, does its use
fit easily into the categories that Lawson provides.
But perhaps I am wrong. It may be
that the phenomena that basic economic reasoning identifies are event
regularities, or “demi-regs.” So
it may be that I am saying that we should not worry about establishing
causes, but simply use these tools that have proven to be so useful in
identifying event regularities in the past, even if we do not know precisely
why they work. Alternatively, I also suggested in both my article and my book
that exploring just why such reasoning works might also be a fruitful
research endeavor: this may well be equivalent to Lawson’s call for forming
and discriminating among causal hypotheses. But such activity should not, in
my view, obscure the fact that such reasoning is essential, and should be
retained even if we are not sure (because we are unsure of the underlying
causal mechanisms) why it works as well as it often does. In any event, I would welcome hearing
Lawson’s views on such matters.
In conclusion, though Lawson and
I share much common ground in terms of our descriptions of what ails the
economics profession, our “policy conclusions” as to the best way forward
appear, at least, to be different. Given all that I have said above, the fact
that we might reach different conclusions starting from the same set of facts
is not surprising to me.
References
Caldwell, Bruce. “In
Defense of Basic Economic Reasoning,” post-autistic economics
review, no. 13 (May 2, 2002), article 4, http://www.btinternet.com/~pae_news/review/issue13.htm
_____. Hayek’s
Challenge: An Intellectual Biography of F.A. Hayek. Chicago: University
of Chicago Press, 2004.
Colander, David and Brenner, Reuven. Educating Economists. Ann Arbor: University of Michigan Press,
1992.
Goldfarb, Robert. “Now You See It, Now You Don’t: Emerging
Contrary Results in Economics,” Journal
of Economic Methodology 4, no. 2 (December 1997), pp. 221-244.
Hands, Wade. “Frank Knight and Pragmatism.” Manuscript.
2004.
Knight, Frank. “Economic Psychology and the Value
Problem,” in The Ethics of Competition
and Other Essays. New York: Harper, 1935, pp. 76-103.
Lawson, Tony. Economics
and Reality. London and New York: Routledge, 1997.
_____. Reorienting
Economics. London and New York: Routledge, 2003.
Mäki, Uskali. “Science as a Free Market: A Reflexivity
Test in the Economics of Economics,” Perspectives
on Science 7, no. 4 (1999), pp. 486-509.
Mirowski, Philip. More
Heat Than Light: Economics as Social Physics, Physics as Nature’s Economics. Cambridge:
Cambridge University Press, 1989.
_____. Machine
Dreams: Economics Becomes a Cyborg Science. Cambridge: Cambridge
University Press, 2002.
___________________________
SUGGESTED CITATION:
Bruce Caldwell, “Some Comments
on Lawson’s Reorienting Economics: Same Facts, Different Conclusions”, post-autistic
economics review, issue no. 28, 25 October 2004,
article 3, http://www.btinternet.com/~pae_news/review/issue28.htm
________________________________________________________________
Neva Goodwin, Julie A. Nelson, Frank Ackerman and Thomas Weisskopf
(Tufts University and University of
Michigan, USA)
In past issues of the post-autistic
economics review, writers have pointed out the many failings of
contemporary economics education and research. A variety of alternatives in instruction have been
suggested, including a greater emphasis on economic problems (rather than
technique) and a wider conceptual base. But how, in fact, can this be
implemented?
Take, for example, the idea that people are actually much more
psychologically complex than the self-interested rational choice-makers that
populate neoclassical theory. How could this be explained, in simple language
and with emphasis on economic implications, to students at the start of their
economic studies? And since
instructors will, at least in the near future, continue to have to
incorporate at least some of the neoclassical model—even if only to help
their students avoid being duped—how can that model be incorporated? We
venture the following passages as an example of how this may be done, and
welcome your comments.
These passages are abridged from “Chapter 2: Economic Actors and
Organizations” of Microeconomics in
Context by Neva Goodwin, Julie A. Nelson, Frank
Ackerman and Thomas Weisskopf (Boston and New York: Houghton Mifflin,
copyright date 2005, available as of August 2004). Reproduced by
permission. More information on
this textbook and related teaching materials may be found at the Global
Development and Environment Institute website, http://www.ase.tufts.edu/gdae/. The authors may be contacted at gdae@tufts.edu.
Motivation and Behavior
Economics is a social science--it is about people, and
about how we organize ourselves to provide the means for life and its
flourishing. Ultimately, all economic behavior is human behavior.
What motivates people, and how do these motivations
translate into economic behavior?
Economists generally make an assumption of purposeful or instrumental
behavior. Such behavior is motivated by particular goals, and actions are
undertaken as means to those ends. Most often, we assume that these goals are
conscious and—at least from a person’s own perspective—are intended to
advance individual and/or social well-being.
Intrinsic and Extrinsic
Motivations
A first
distinction to be drawn concerning goals is to note that people act from both
extrinsic and intrinsic motivations.
We say
that an action is extrinsically motivated, or motivated by “outside” forces,
to the extent that the action is taken for a reason that lies outside of a
person’s character and his or her relation to the activity itself. Usually
these reasons have to do with either reward or punishment.
Money
is obviously one of the primary extrinsic motivators. You may work, run a
business, make a deal, or study economics because you believe these
activities will bring you financial rewards. Besides having financial motivations, people may also
undertake activities because they fear the consequences of doing otherwise,
or in the hope of gaining some other extrinsic reward, such as high social
status or increased power. People
frequently use extrinsic motivators to try to change the behavior of others.
Economists talk about the various incentives set up by systems of reward and
punishment. Employers offer monetary bonuses or “employee of the week”
certificates to encourage good work. The government offers tax rebates to
encourage energy conservation and fines the worst polluters. A university may
tie scholarship money to maintenance of a certain grade point average. In all
these cases, the organizations are relying on monetary or nonmonetary
incentives to change behaviors by acting on extrinsic motivation.
Traditionally,
economists have paid a great deal of attention to incentives, and to financial
incentives in particular. Because of this emphasis, economists are often able
to point out where incentives exist and may have effects on behavior, even
when the incentives have been created unintentionally
and are unnoticed by other analysts.
For
example, suppose a civic group is concerned about teens who don’t finish high
school, and so it creates a center for dropouts. The center offer dropouts
individualized instruction, paid child care, and a weekly monetary stipend. The civic group’s intent, of course,
is simply to support dropouts and help them finish their schooling. But what incentives does this create for those students who are still in
school but are considering dropping out? These current students will have an increased incentive to drop out in order to qualify for
the center’s greater benefits. In this case, creating a program to solve a
problem could cause the problem to increase! The civic group might do more
good by devoting some of its resources to improving the support services
provided at the school itself.
The attention that
economists give to incentives can play a valuable role in evaluating the
wisdom of various policies, whether in communities, businesses, or elsewhere.
The focus on extrinsic motivations and financial incentives needs to be put
in context, however, by also considering other reasons for people’s actions.
People
are intrinsically motivated, or motivated by “inside” forces, to the extent
that the reason for action lies in the person or in the activity itself.
Intrinsic motivations include direct enjoyment of the activity itself, as
well as ethical values such as honesty and loyalty. They also involve issues
of identity, such as the feeling of “who you are” or “what our organization
is about.” Intrinsic motivations are what make you want to do something, without respect to rewards or threats from
the outside.
You may
produce a superior economics term paper because you enjoy learning or because
you feel you “owe it to yourself” always to do your best. A government
employee may resist a bribe because it is the honest thing to do. Most people
choose their work partly on the basis of extrinsic motivations like money and
status, but also partly on the basis of intrinsic motivations concerning what
they like to do, what kind of person they want to be, and what kind of mark
they want to leave on the world. Often both extrinsic and intrinsic
motivations are at work.
Self-Interest, Altruism, and the Common Good
Whose
interests do people care about? In a famous statement from The Wealth of Nations, written in
1776, Adam Smith declared, “It is not from the benevolence of the butcher,
the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
Many
people coming after Smith have interpreted these words in a special way. They
have assumed that if people in an exchange economy just follow their own
self-interest, acting in the way that most benefits them as individuals, the
goal of societal well-being will follow automatically. Many economists of the
20th century read Smith’s words out of context and saw them as
clever proof that there is no need to for people to think “benevolently”
about each other or about society as a whole. This has been used as an
ethical justification for following unfettered economic self-interest.
Adam
Smith, among others, would have disagreed with this extreme view. (His other
most notable work, The Theory of Moral
Sentiments, addressed at great length the need to take into account the
welfare of others). Exchange may fail to promote social well-being for a
number of reasons. People may be
badly informed. The situation may entail positive and negative externalities
not taken into account in individual self-interested decisions. And, as also
pointed out by all major philosophical and religious teachings, purely
self-interested decisions are often at odds with basic ethical concerns.
The
opposite of pure self-interest would be pure altruism. In this case, you
simply desire to help other people, with no thought about yourself. A soldier who throws himself on a
grenade to save his comrades or a mother who pushes her child out of the way
of an oncoming car and is crushed herself are classic—and extreme—examples of
altruism.
Perhaps
more relevant to economics is the fact that much economic behavior may be
motivated by a desire to advance the common good—the general good, of which
one’s own interests are a part. Advancement of the common good means seeing
your own well-being as connected to the larger well-being of society. For
example, even as children we find that learning to share, and not always
grabbing or whining for the best toy, leads to more prolonged games and a
much more pleasant social environment for everyone—including us. Social
theorist Howard Margolis points out that in many social situations people act
according to a rule he calls being "neither selfish nor
exploited." That is, people
are often willing to participate in the creation of social benefits, as long
as they feel that others are also contributing.
More
and more, economists are realizing that a well-functioning economy cannot
rely only on self-interest; it also depends on a culture that includes taking
into account the common good. Without such values as honesty, for example,
even the simplest transaction would require elaborate safeguards or policing.
If
everyone in business cheated whenever they thought they could get away with
it, business would grind to a halt. If everyone in the government took
bribes, meaningful governance would disappear. In addition, people have to
learn to work together to overcome problems of externalities. In regard to
children or the ill, who cannot take care of themselves through market
exchange, some “benevolence” is obviously in order as well. Self-interest may
indeed, in some cases, serve the common good, but it cannot be the only motor
for an economy that serves the well-being goals of the society. Indeed,
self-interest alone cannot even be efficient. Imagine if you were afraid to
put down your money before having in your hands the merchandise you wished to
purchase—and the merchant was afraid that as soon as you had what you wanted
you would run out of the store without paying. Such a situation would require
police in every store—but what if the police also operated with no ethic of
honesty?
Fortunately, recent experimental
research on human behavior demonstrates that people really do pay attention to social norms, and
they are willing to reward those who follow the norms and to punish people
who violate them, even when this has a cost in terms of their narrow
self-interest.
In the “Ultimatum Game,” for
example, two people are told they will be given a sum of money, say $20, to
share. One person gets to
propose a way of splitting the sum.
For example, this first person may offer to share $10 with the second
person, or only $8 or $3, and plan to keep the rest. The second person can’t offer any
input to this decision but gets to decide whether to accept the offer or
reject it. If the second person
rejects the offer, both people will walk away empty-handed. If the offer is
accepted, they get the money and split it as planned.
If the two individuals act only from narrow financial
self-interest, then the first person should offer the second person the smallest
possible amount—say $1—in order to keep the most for himself or herself. The second person should accept this
offer because, from the point of view of pure financial self-interest, $1 is
better than nothing.
In fact, researchers find that
deals that vary too far from a 50/50 split tend to be rejected. People would rather walk away with
nothing than be treated in a way they perceive to be unfair! In the context of social relations,
even the most selfish person will gain by serving the common good, making an offer close to 50/50, and thus walking
away with about half the total sum (close to $10). Players who look only at
their own potential gain may end up with their offers being refused, and have
to walk away empty-handed.
Concern for the atmosphere we all
breathe, and concern about poverty that contributes to crime and violence,
are examples of real-world cases in which serving the common good may lead to
better living for yourself and your family. In such cases, the assertion
attributed to Adam Smith should be turned around: concern for the common good
may be the best way of serving your own self-interest!
Habit, Constraint, or Choice?
What
did you eat at your last meal? Why did
you eat that, in particular?
Because economists want to explain economic behavior, we need to pay
attention to why people act the way they do. Take a minute and think about your answer to the second
question.
Perhaps your first thought was
that you had “the usual”—you ate those particular foods because that is what
you usually eat. In this case,
we would say that your behavior arose largely from habit. Behavior that
arises from habit or custom tends to be fairly slow-changing and is often
related to social roles, family, cultural institutions, and the like. Your
particular eating habits are probably related to, for example, your
particular age, sex, and ethnic background and where you grew up. Habitual
behavior is often performed repetitively and fairly automatically, without
conscious thought. You may think that the only “normal” breakfast in the
world is cereal and milk. Or you may think, on the contrary, that the only
“normal” breakfast is rice and fish. In neither case have you given a lot of
thought to what you eat.
Or perhaps you explained your
eating in terms of “what the cafeteria was serving” or “what I could
afford.” In this case, we would
say that your behavior reflected the constraints that you faced. You may have
wanted to eat something quite different, but you faced limits on your
behavior. In a small way, someone else had power over you. The cafeteria manager’s decisions
strongly determined your behavior. You knew the police would arrest you if
you left a restaurant or grocery store without paying. In this case, the
level of your economic resources was important to your behavior. The more you
have—in terms of time, money, and transportation—the more you can go where
you want and eat whatever you want, freer of constraints.
Or, lastly, did you think
carefully about what you were going to eat, making conscious choices between
one item and another, based on factors like your personal taste preferences,
your goals concerning weight, and/or what you know about nutrition? This
would be an example of choice behavior, in which the important factors are your
motivations, your knowledge, and your decision-making capabilities.
Actual behavior may arise from
habit, constraint, choice, or combinations of all three factors.
Rationality, Goals, and Information
Traditionally,
economists have tended to be especially interested in choice behavior. Given
this emphasis, the question “How do people choose?” arises. Economists
generally assume that people have the capacity to make rational choices.
In
common speech, when we use terms like “rational” or “reasonable” to describe
an action, we mean both that the goal of the action is rational and
that the process leading to the action was intelligent, appropriate,
and thoughtful. It is not
particularly rational, in the sense of “sane,” for example, for a person to base
all his actions on the goal of being a rock star if he has no talent, or to
have a goal of committing a heinous murder. These goals would generally be considered crazy because
they are not related to achievable states of personal and social well-being.
Or an action could be judged irrational if the goal is reasonable but the
actions taken are not. For
example, it is not irrational for a person to have a goal of maintaining a
healthy and attractive body weight. Yet a young woman suffering from the mental
illness of anorexia may act on the basis of a belief that her body looks
grotesquely fat, while in fact she is emaciated. The anorexic's weight loss may be based on the underlying
goal of wanting to be attractive, but in fact her judgment is distorted by a
neurotic perception.
Do
choices that are rational, in the sense of deriving from a thoughtful and
appropriate process, always lead
toward the desired goals? Perhaps not. Because the information base on which
we make our choices is imperfect, and because the processes of human
reasoning and group decision-making are also often imperfect, we can only say
that rational choices will normally be
expected to move individuals and organizations towards their goals. Rationality means that people weigh
the costs and benefits of alternative actions, relative to their goals, when
faced with a significant decision—not that people always make perfect
decisions.
Optimization vs. Bounded
Rationality
We
have worded our discussion of rationality rather carefully so far, trying not
to claim too much. However much more ambitious claims have sometimes been
made, making this a rather contentious topic. In particular, rational
behavior is used in the traditional model, as we will soon see, to mean
behavior that best moves a person towards his or her goals. This kind
of behavior is called optimizing.
In
1978, Herbert Simon, a psychologist, won the Nobel Memorial Prize in
economics by zeroing in on the question of information, with some surprising
results. He pointed out that optimization is normally not possible for human
beings, because it requires making the best decision out of the entire
universe of possible choices. “Universe” here does not mean planets and
stars, but rather the largest possible imaginable set of choices. Your “universe” of possible
breakfasts, for example, includes everything from cereal to snake meat.
Under
most circumstances it is not feasible to gather the information that is
needed in order to identify the entire range of possibilities. Could someone
at least identify the optimum point at which to cease gathering additional
information? Simon showed that complete knowledge is required even in order
to identify that optimum point. Moreover, the effort to find out what
additional information might be out there, and to gather it, can be very
costly in time, effort, and money.
Accordingly,
Simon said, people rarely optimize:
instead they do what he called satisficing; they choose a level of outcome
that would be satisfactory and then seek an option that at least reaches that
standard.
Satisficing
can be done in a way that resembles the search for an optimum outcome. If an individual finds that the
"satisfactory" level was set too low, a search for options that
meet that level will result in a solution more quickly than expected, or
perhaps even multiple solutions; the level may then be adjusted to a tougher
standard. Conversely, if the level is set too high, a long search will yield
nothing, and the satisficer may lower his or her expectations for the
outcome. Even with such adjustments, however, satisficing is not the same as
optimizing.
Another
explanation for behavior has been called meliorating, which may be defined as starting from the present level of
achievement and continuously attempting to do better. A simple example is the
fisherman who has found a whole school of haddock but only wants to keep one
for his supper. When he catches the second fish he compares it to the first
one, keeps the larger, and throws the other back. At the end of the day, the
fish he takes home will be the largest of all those caught.
One
result of using melioration as the real-world substitute for theoretical
optimization is its implication that history
matters: people view each successive choice in relation to their previous
experience. It is commonly observed, for example, that people are reluctant
to accept a situation they perceive as inferior to previous situations. This
psychological “path-dependency” (that is, where you are going depends on
where you have been) is relevant to feelings about rising prices, and even
more so to attitudes toward declining wages.
Satisficing and meliorating may
both be included under the term "bounded rationality." The
general idea is that, without surveying all possible
options, people adopt some more-or-less arbitrarily defined subset of the
universe to consider. In your breakfast decision, you probably limited your
choices to a narrow subset of possible foods.
The concept of bounded
rationality thus limits the universe to which decision making is to be
applied. Within this limited universe, processes such as satisficing and
meliorating are rational behaviors that would normally be expected to move
people toward their goals.
Now or Later?
One
last dimension of motivation and behavior is crucially important. What time
frame do people consider when they have the chance to make significant
choices about how they are going to behave?
At
one extreme, you probably know someone who has the attitude “Life is short,
and tomorrow is uncertain, so let’s have a good time now.” Economists would tend to say that
this person has a very high time discount rate, meaning that in his or her
mind, future benefits are very much discounted or diminished, when weighed
against the pleasures of today. Such an individual will tend to save little,
spend a lot, and not expend much effort worrying about the future.
You
might also know people who seem to live by the attitude “I’ve got to work
hard and prepare now; enjoying myself will have to wait for later.”
Economists would say that people like this have very low time discount rates
if by their current work they are gaining benefits for tomorrow. The later
benefits loom large (that is, are not
“discounted”) in their decisions. Such individuals will tend to scrimp and
save and expend a lot of effort planning for the future.
Time
discount rates are important in all sorts of situations. Economists usually
assume that anyone investing in a college education has a relatively low time
discount rate, since present pain is involved in forgoing income or
relaxation in order to study for some expected future gain. Company leaders
with high time discount rates may concentrate on making this quarter’s
financial statement look good, whereas those with more concern about the
future will look toward longer-term goals. In deciding on environmental
regulations, people working at government agencies are forced to make
decisions about how much weight to put on the welfare of future generations.
The lower the adopted discount rate, the more important safeguarding the
well-being of future generations appears.
There is no one “right” time
discount rate. An extreme
disregard for the future is probably irrational in most cases. But in some circumstances—say, for a
person diagnosed with a fatal disease, or who faces a high probability of
being killed in street violence—it may be understandable.
Extreme concern for the future is
also irrational if it means that an individual never gets around to enjoying
the benefits of his or her labors, during a whole lifetime. However, strong
arguments can be made for taking the future very seriously when discussing
actions with significant multigenerational consequences, such as
environmental policies. The
question of “now or later” is important in many economic decisions.
Economic
Actors in the Traditional Model
Traditional
economic theory focuses on a simple mechanical model of economic activity
where the central economic actors are assumed to be profit-maximizing firms
and utility-maximizing households.
It is worth exploring how this model differs from the broader
“contextual” approach we emphasize here.
Only Individual Actors
In
the traditional, neoclassical model of economic behavior, the economy is assumed
to be made up of only individual
economic actors. “Firms” are
treated as though they simply and seamlessly absorb information, make
decisions, and take action.
Similarly, “households” are treated as though they were uncomplicated
individual persons. Little
attention is paid to the people and modes of organization—custom, consent,
administration or exchange—that make up these entities as organizations. Nor is much attention paid to any
ambiguities or conflicts that might arise in coming to decisions, or to how
the entities might influence each other (for example, the effect of firms’
advertising on households’ preferences).
Rather
than envisioning layers of organizations mutually evolving over time, the
traditional model portrays only well-defined entities interacting at arm’s
length.
A Limited Set of Activities
The
traditional model of the economy includes just three economic activities and
makes strong and limiting assumptions about the relationships between
activities and actors, as follows: Production, accomplished by firms;
exchange, performed in markets; and consumption, done by households. The
usual “circular flow diagram” illustrates
the workings of the economy portrayed in this model. But such a portrayal leaves out some
key actors and activities.
For
example, the natural resource base of the economy does not appear in the
traditional circular flow diagram.
Because of this, the economy portrayed is a little like a “perpetual
motion machine,” in that the economy it portrays can apparently keep on
generating products forever without any inputs of materials or energy. The necessity of resource maintenance
activities is ignored.
Likewise,
the governments are absent, as though an economy could function without laws,
public goods, and other public services. Community groups and non-profits are also absent. Although households appear, they are
assumed not to be involved in production activities. Transfers (one-way distribution, in
contrast to two-way exchange) are not mentioned.
In the basic traditional model, actors are
assumed to be extrinsically motivated.
That is, people are assumed to work, produce, and engage in buying and
selling purely for financial gain (unless explicitly noted otherwise).
Purchases of goods and services for personal use are assumed to be made
because these will bring consumers “utility” or satisfaction of their
desires. Even today, the phrase
“he was economically motivated” is usually interpreted as meaning motivated
by money or profit. These goals
are taken for granted; in contrast to how we use the term “rationality” in
common speech, economists do not question the rationality of agents’ goals.
In a further simplification—which is
enormously useful in facilitating mathematical modeling—it is assumed that
all behavior is purely motivated by self-interest (except in rare and special
cases, which are explicitly noted).
The model also focuses on choice behavior and ignores behavior
determined by habit or outside influence.
Finally, the model applies a rather
extreme definition of rationality and an even more extreme assumption about
the informational basis of choice making. Rather than construing rational
processes just as something that helps actors move in the direction of their goals, the model assumes that
actors behave with perfect rationality. Actors are assumed to choose the
absolutely best action—the one that
actually does maximize profit (the assumed goal of firms) or utility (the
assumed goal of households). This idea of rationality can, in mathematical
treatments, be reduced to precise statements derived from logic. The basic
traditional model also assumes
perfect information. In spite of Simon's work on satisficing in the
late 1970s, it was only near the end of the 20th century that many economists
began to consider more carefully the problems caused by costly and/or
incomplete information.
The assumptions
of extrinsic motivation, self-interest, perfect rationality, and perfect
information are simplifications that make it possible to construct many
elegant theories. But in
order to do justice to real world economies, we will also need to develop
tools for analysis for cases where these assumptions do not hold.
Note
1.
The Wealth of Nations, 1776, Book I, Chapter 2. Emphasis in
original.
___________________________
SUGGESTED CITATION:
Neva Goodwin, Julie A. Nelson, Frank Ackerman and Thomas
Weisskopf, “A Post-Autistic Introduction to Economic Behavior”, post-autistic
economics review, issue no. 28, 25 October 2004,
article 4, http://www.btinternet.com/~pae_news/review/issue28.htm
________________________________________________________________
Sweden Debates the Future of Economics’ “Nobel”
In the Sunday October 10th issue
of Sweden’s number one newspaper, Dagens Nyheter, a debate was opened
by PAER contributor Peter Söderbaum regarding the future of the Bank
of Sweden’s Award in Economics in memory of Alfred Nobel.
Dagens
Nyheter, DN-Debatt, Sunday October 10, 2004-10-10
The Nobel Prize
in Economics – barrier for new thinking
Either the award should be withdrawn or it
should be admitted that the presumption of economics as value-neutral is
false, writes professor of economics.
Most Nobel
Prize winners in economics belong to the neoclassical school. But many are
those who question the dominance of this theory with its narrow-minded focus
on economic growth and markets. The Prize in Economics has become an obstacle
for new perspectives. One possibility is to withdraw the prize, the other is
to admit that economics has ideological content. In the latter case, the
economics award should be treated as being in the same category as the Peace
award, writes Peter Söderbaum.
The
Nobel Prizes in physics, chemistry and medicine are not uncontested but have
become reasonably respected. Lately, the Bank of Sweden’s award in memory of
Alfred Nobel has been added and instituted. It has been argued that economics
is an established discipline comparable to physics and chemistry and with
similar ideas of good science and scientific progress..
Economists can refer to a
distinct paradigm, that is a clear theoretical perspective. The tendency is
to stick to this perspective, and today there is a monopoly position for
neoclassical economics at almost all university departments of economics. Its
theories are useful for some purposes, for instance, as a way of
understanding financial and monetary policy.
Confronted
with the present challenges related to sustainable development, the
limitation to the neoclassical paradigm is a problem. Viewing humans as
consumers maximizing their self-interest is not very constructive if you wish
to discuss issues of environment and survival. Focusing on profit
maximization in business will not make it easy to understand the present
debate about corporate social responsibility, environmental certification of
organizations and similar phenomena. Interpreting economic phenomena and
relationships in terms of markets and prices and monetary indicators is not
always a good strategy.
Neoclassical economists can of course continue to refer to their
conceptual framework and turn their arguments in the best possible way. But a
problem that they cannot get away from is that economics, just as other
social sciences, is both science and ideology. As an example, focusing on the
role of consumer and her self-interest is not neutral in value terms.
One
of the scholars who received the Bank of Sweden’s Award in Economics in
memory of Alfred Nobel, Gunnar Myrdal, repeatedly argued that “values are
always with us” in our research. This being the case, it becomes problematic
from a democratic point of view to stick to one and only one paradigm at a
university Department of Economics. The ideological features and character of
this paradigm mean that the department plays a role of political propaganda
centre; “human beings are consumers, forget about other roles as citizen,
professional…” “anything connected with business can be reduced to a matter
of maximum monetary profits”, etc..
The
solution to this is a pluralistic attitude, that is, open-mindedness to
different possible theoretical perspectives compatible with different
valuational or ideological points of view. Just as economists otherwise
celebrate competition, this should also be applied to their own discipline.
The Bank of Sweden’s Prize in Economic Sciences in memory of Alfred Nobel
unfortunately has become an obstacle for new thinking.
Even prize
winners that present and support theories that could be connected with a
criticism of neoclassical theory, for example Douglas North and Amartya Sen,
tend to – for tactical reasons, it seems – profess themselves adherents to
orthodoxy. Gunnar Myrdal is the
exception among prize winners, with his outspoken criticism of the mainstream
and clear declaration in favour of institutional theory.
Today a
lot is happening internationally in developing institutional theory, social
economics, feministic economics, ecological economics, etc.. Ecological economics can be described
as “business management and economics for sustainable development” and in
this field neoclassical theory holds a minority position.
Adhering to neoclassical theory with its focus on economic growth in
GDP-terms is perceived by an increasing number of people as
‘unsustainable’. For several
years this has been a focus of the post-autistic economics review,
which also stresses the limitations of mathematics as a language for
economics. Books are now being
published, with contributors from many countries, that caution new students
in economics about the narrow-mindedness of the textbooks they are exposed
to.
The
problem is that these textbooks legitimise simplistic thinking about economic
growth and markets in a situation where instead a multidimensional and
ethically open analysis is needed. To systematically propagate this
simplistic economics to countries such as Russia and China is irresponsible.
Against
this background, one possible way of acting is to withdraw the Prize in Economics
in memory of Alfred Nobel. The alternative is to admit that economics much
like other social sciences has a specific ideological content and therefore
belongs to the same category as the Peace Prize.
This
would make it natural to return to the term ‘political economy’, the language
used in the 19th century.
It would also make it clear that the project to develop a ‘pure’
economics has been a failure.
With
this change, the idea becomes one of identifying potential winners of the
prize who, through their research and other actions, have contributed
something to humanity. Choosing
people who claim to have developed models useful for predicting shareholder
values would then become more difficult.
I am sure
that there are those who see markets of different kinds as the salvation of
the world, but there also are quite a number of citizens who are less
enthusiastic about market solutions.
Peter Söderbaum is Professor of ecological economics,
Mälardalen University, Västerås
___________________________
SUGGESTED CITATION:
Peter Söderbaum, “The Nobel Prize in Economics – barrier
for new thinking”,
post-autistic economics review,
issue no. 28, 25 October 2004, article 5, http://www.btinternet.com/~pae_news/review/issue28.htm
______________________________________________________________________________________________________
EDITOR: Edward Fullbrook
CORRESPONDENTS: Argentina: Iserino; Australia: Joseph Halevi, Steve
Keen: Brazil: Wagner Leal
Arienti; France: Gilles Raveaud, Olivier Vaury, J. Walter Plinge; Germany: Helge Peukert; Greece: Yanis
Varoufakis; Japan: Susumu Takenaga; United Kingdom: Nitasha Kaul; United States: Benjamin Balak, Daniel
Lien, Paul Surlis: At large:
Paddy Quick
PAST CONTRIBUTORS: James
Galbraith, Frank Ackerman, André Orléan, Hugh Stretton, Jacques Sapir, Edward
Fullbrook, Gilles Raveaud, Deirdre McCloskey, Tony Lawson, Geoff Harcourt,
Joseph Halevi, Sheila C. Dow, Kurt Jacobsen, The Cambridge 27, Paul Ormerod,
Steve Keen, Grazia Ietto-Gillies, Emmanuelle Benicourt, Le Movement
Autisme-Economie, Geoffrey Hodgson, Ben Fine, Michael A. Bernstein,
Julie A. Nelson, Jeff Gates, Anne Mayhew, Bruce Edmonds, Jason Potts, John
Nightingale, Alan Shipman, Peter E. Earl, Marc Lavoie, Jean Gadrey, Peter
Söderbaum, Bernard Guerrien, Susan Feiner, Warren J. Samuels, Katalin Martinás, George M.
Frankfurter, Elton G. McGoun, Yanis Varoufakis, Alex Millmow, Bruce J.
Caldwell, Poul Thøis Madsen, Helge Peukert, Dietmar
Lindenberger, Reiner Kümmel, Jane King, Peter Dorman, K.M.P. Williams, Frank
Rotering, Ha-Joon Chang, Claude Mouchot, Robert E. Lane, James G. Devine,
Richard Wolff, Jamie Morgan, Robert Heilbroner, William Milberg, Stephen T. Ziliak, Steve Fleetwood,
Tony Aspromourgos, Yves Gingras, Ingrid Robeyns, Robert Scott Gassler,
Grischa Periono, Esther-Mirjam Sent, Ana Maria Bianchi, Steve
Cohn, Peter Wynarczyk, Daniel Gay, Asatar Bair, Nathaniel Chamberland,
James Bondio, Jared Ferrie, Goutam U. Jois, Charles K. Wilber, Robert
Costanza, Saski Sivramkrishna, Jorge Buzaglo, Jim Stanford. Matthew
McCartney, Herman E. Daly, Kyle Siler, Kepa M. Ormazabal, Antonio Garrido,
Robert Locke, J. E. King, Paul Davidson, Juan Pablo Pardo-Guerra, Kevin Quinn,
Trond Andresen, Shaun Hargreaves
Heap, Lewis L. Smith, Gautam Mukerjee, Ian Fletcher, Rajni Bakshi, M.
Ben-Yami, Deborah Campbell
_____________________________________________________________________________
Articles, comments on and
proposals for should be sent to the
editor at pae_news@btinternet.com
______________________________________________________________________________________________________
Subscriptions to this
email journal are free.
Subscribe
a colleague(s) to this journal by sending their email address to pae_news@btinternet.com
Back issues of this journal and other material
related to the pae movement are available at www.paecon.net.
To subscribe to this journal, send an email with the message
"subscribe" to pae_news@btinternet.com
To unsubscribe to this journal, send an email with the message
"unsubscribe" to pae_news@btinternet.com
|
home page
PAE Review index
Global Economic News
|