Tag: Heterodox Economics

In his recently published The Puzzle of Modern Economics: Science or Ideology? (1), the historian of economics Roger Backhouse discusses the question of orthodoxy and pluralism in the economics profession. (It’s an interesting fact that economists love calling their field a ‘profession’; one rarely hears about ‘the anthropology profession’ or ‘the zoology profession’.) This is interesting not so much because he says anything new on the topic, but precisely because he does not. Backhouse is a very mainstream economist with very mainstream views anno 2011, but to his credit, he differs from many of his colleagues in having an intellectual interest in the activities of economists of other times and approaches. He authored the Penguin History of Economics (2), which although impeccably mainstream in its analysis, is not at all bad as a popularization and shows precisely its strengths mainly where it comes to a willingness to give space and attention to economic thought outside the usual focus on the postwar era. In any case, his dealings with the strange realms of non-neoclassical thought inevitably force him to consider the question of the ideological nature and content of orthodox economic thought today, an issue which apparently troubled his conscientious mind enough to write a whole book on the subject. Sadly, most of the book deals with discussions of what mainstream economics is today, and some debate about really very minor debates within modern orthodox economics, such as around Keynesianism. Backhouse only comes to the meat of the matter in the chapter entitled “Heterodoxy and Dissent”.

In this chapter, Backhouse gives the most commonly heard responses to the charge of ideological narrowness and dogmatism levelled against the orthodoxy in economics. Because these are so much the standard answers, it is worth using the occasion to criticize them. This is not because Backhouse is particularly worse than other orthodox economists, but precisely because he formulated them so concisely in a book purportedly dedicated to this whole issue. Because of this, he is worth quoting at some length:

Heterodox economists frequently make two charges against their orthodox colleagues. The first is that ignoring their work means ignoring insights that are fundamental to understanding economic phenomena. The second is that the economics profession adopts an excessively narrow view of the methods that should be used in economics and that it needs to be more pluralist(…). The response to both these claims is that ‘insights’ about the economy are rarely useful unless economists also have tools with which to apply those insights. (…) Within the mainstream there is great suspicion of methodological claims that are not backed up by results. (…) It means that arguments about pluralism are more persuasive if they arise from examples of how new insights and methods can solve important problems.

(3)

Variations on these answers are what every heterodox thinker in economics is inevitably confronted with when challenging orthodox-minded colleagues. In fact, ‘answers’ of this kind are nothing as much as simply a restatement of the existence of an orthodoxy in a particular field of science; they are the hallmark of the existence of an established method among a large proportion of the practitioners in that field, something often – in fashionable imitation of Thomas Kuhn – called a paradigm. But they fail to convince, precisely because of this tautological nature, despite the frequency with which economists have recourse to them to defend the orthodoxy. The reasons can be explained briefly and in a straightforward manner as follows, as concerns economic theory:

1) The charge that the heterodox theories fail to provide insights which can be transformed into tools for application is easily rebutted. Not so much because they do in fact so provide, but because neoclassical orthodoxy, or any economic theory orthodoxy whatever, also fails to do so. Neoclassical economic theory does not exactly stand out by its immediate predictive value, nor by its ability to give practical tools which have an immediate, traceable, and easily controlled effect on the economy or society as a whole. Since economics is a social science, it is doomed (at least for the time being) like all other social sciences to operate in the realm of the inexact and the general. While there are countless models for economic purposes, from monetary policy analysis by central banks to stock predictors for financiers, none of these have any obvious or immediate relationship to any particular economic theory. Rather, they are generally derivative of applied mathematics, not economic theory proper. This is proven moreover by the fact that such models and systems can be used in virtually any economic and political context, from Gosplan to Lady Thatcher. When it comes to economic theory, one is always dealing with theories about the dynamics of a whole society, and those are inherently so complex, rapidly changing, and affective of the evolution of their subject-matter, that one should not expect to be able to easily pass from theory-building to practical application in any particular case. Neoclassical economics does not in any way obviously perform better at such transferral than do competing theories.

2) Secondly, the whole phrasing deeply begs the question. For the insights of competing theories to be able to convince the mainstream of their ‘results’ and ‘solving problems’, there needs be agreement to a very large degree as to what constitutes the problems of the field in the first place and what sort of theoretical outcome or scientific product would count as a result towards solving them. In many fields of science, this is indeed the case: not just in most of natural science, but this is also broadly true for history, anthropology, archeology, (historical) linguistics and so forth. Economics is particularly remarkable precisely for the absence of such an agreement, whether now or in the past; as Backhouse himself points out repeatedly elsewhere in the book, many mainstream economists in their day also disagreed strongly on major questions relating to these without being thereby out of the mainstream per se. The fact the discipline reinvents not just its methods, but its entire purpose every couple of decades is unusual in social science as much as in the natural sciences it has tried so hard to imitate.

That being the case, one cannot reasonably expect there to be any way that an Austrian economist or a Marxist economist could produce results for problems that a neoclassical economist would be inclined to recognize, even one as relatively interested in heterodoxy as (say) Brad De Long, simply because there is no agreement about what the problems are and the methods used differ too much to allow much agreement over results either. A neoclassical economist thinks he has achieved a result when he has used mathematical techniques to derive a particular equilibrium outcome in, say, a fictional and simplified labor market. A Marxist economist thinks he has achieved a result when he has demonstrated a particular crisis phenomenon to be reducable to a fall in the rate of profit in value terms. While there is sufficient overlap in methods for it to be perhaps hypothetically possible, it is in practice not at all easy to see how there could be any meaningful communication between the two as to which counts as a result to which problem, and why the other should care.

3) Nor is it immediately clear why the insights proffered by the heterodox economist should be new. While one always strives for progress in science, this can only be measured by prevailing notions about results and problems, and by concrete changes in real phenomena effected by application of theory. The latter we have dealt with already. The former changes much more often in economics than elsewhere, as mentioned, perhaps with the exception of ethical and aesthetical disciplines. What’s more, to the eye of many of the heterodox, the history of economics from at least WWII onwards, if not WWI, is actually a history of a science going backwards rather than forwards. If one perceives economics as dealing primarily with questions of value, production, distribution, and trade, as both functions of whole societies and a historically woven social fabric they are made of, it is not at all clear that the development of economics between roughly 1918 and 2000 has avoided sheer retrogression on issues previously considered long dealt with.

Orthodox neoclassical economics, being the use of applied mathematics to solve problems of interactions between stylized individuals in modelled equilibrium settings, will appear to an economist interested in the questions debated in the century before as utterly inadequate to making any progress in the tasks at hand, if not outright ridiculous. The presumption that the insights of the heterodox economist should follow newly upon the already established current foundation already tilts the scale in favor of the orthodoxy. This is exactly because economics has not only changed significantly in agreed-on methods and its notions of problem and result, but that this in turn is the product of a larger change: a change in the subject matter. This is even more unusual in other sciences, but one does not do the historical record much violence to state that in the 19th century, economics (political economy) was generally regarded as dealing with economic production and distribution processes as social phenomena, and in the 20th century, economics was generally regarded as dealing with the interaction of individuals’ preferences in monetary transactions between them. Even a very naive undergraduate in social sciences will immediately observe that this involves a very significant shift in the actual subject of the discipline, never mind all the attendant ideas about what the problems of the day are.

Perhaps this century will see yet another such shift – one could plausibly hypothesize an economics of this century revolving around the relationship between personal identity (psychology) and revealed preferences in experimental and observed social exchange more broadly, pushing the field away again from mathematics and in the direction of anthropology. But each of these three economics disciplines deal in their own way with interesting and relevant subjects, and none of them are likely to produce methods and questions that would be of much help for each of the others. This is very strongly an argument, therefore, in favor of supporting a pluralistic, interdisciplinary and open-minded approach, rather than an approach based on orthodoxy wedded to novelty.

1) Roger Backhouse, The Puzzle of Economics: Science or Ideology?. Cambridge 2010: Cambridge University Press.
2) Roger Backhouse, The Penguin History of Economics. London 2002: Penguin.
3) Backhouse 2010, p. 163.