Home > The Economics Profession > How to build a narrative linking the various heterodoxies: Part 1

How to build a narrative linking the various heterodoxies: Part 1

It would be good if we could get some discussion going here on how to build a narrative linking the various heterodoxies so as to have an alternative paradigm with which to challenge, both in the media and the classroom, the neoclassical/neoliberal mainstream.  Here, to stimulate comments, are comments from the new RWER issue on Peter Radford’s Whither economics? What do we tell the students?

Comments and reply on Peter Radford’s
“Whither economics? What do we tell the students?”                            

Steve Marglin   [Harvard University, USA]

Dear Mr Radford,

I agree with most of what you say about economics, except that it is not as easy as you suggest to separate the study of economics from the study of economies.  Keynes said it very well in the preface to the General Theory: the hardest part of coming to his new ideas was getting rid of the old ones.  The problem is that one needs some kind of framework for studying economies and is thus plunged willy nilly into the study of economics.

Peter Radford

Steve,

Thanks for the comments.

I don’t mean to overstate the ease of separation, so I thank you for pointing that out. Clearly any practical work in economics is going to rely heavily on a theoretical framework. My point is that the subject has progressively divorced itself from reality in order to deal with theoretical problems and seems, in my opinion, to have lost its connection with practicality. Subsequent applications of theory are then suspect – the restrictions necessary in theory render its constructs of dubious value in the ‘real world’.

I thank you for the reference to Keynes. He could not be more correct.  That so much of the internal discourse in economics is focused on the efficacy of his theory goes to show just how tough it is to get rid of those old ideas!

Edward Fullbrook

Steve Marglin, it seems to me, has raised a matter of great importance and one traditionally overlooked by economists at odds with the modern neoclassical mainstream.  Dissent generally aims at specific points in the traditional framework and in total may include most or all of its structural timbers.  But a new framework, or what Radford calls “coherence”, for studying economics never emerges as an alternative.  Here work cries out to be done. Without it the revolution will never take place, because either, as Marglin notes, one flounders “wily nilly” or, as Daniel Kahneman has explained, reforms are “noncumulative”.

Drawing on his experience with behavioural economics, Kahneman [2003] elucidates the process by which the neoclassical framework – or “cornerstones” as he metaphorizes it – will, if not superseded, silently nullify all reforms even after they have been accepted as valid.

My first exposure to the psychological assumptions of economics was in a report that Bruno Frey wrote on that subject in the early 1970’s. Its first or second sentence stated that the agent of economic theory is rational and selfish, and that his tastes do not change. I found this list quite startling, because I had been professionally trained as a psychologist not to believe a word of it. The gap between the assumptions of our disciplines appeared very large indeed.

Has the gap been narrowed in the intervening 30 years? A search through some introductory textbooks in economics indicates that if there has been any change, it has not yet filtered down to that level: the same assumptions are still in place as the cornerstones of economic analysis. [p. 162]

Kahneman then goes on to explain the mechanism by which the “church” or “theoretical framework” can forever and ever successfully defend itself against any and all significant reform.

The church of economics has admitted and even rewarded some scholars who would have been considered heretics in earlier periods . . . However, the analytical methodology of economics is stable. . . . the standard assumptions about the economic agent are in economic theory for a reason: they allow for tractable analysis. The constraint of tractability can be satisfied with somewhat more complex models, but the number of parameters that can be added is small. One consequence is that the models of behavioral economics cannot stray too far from the original set of assumptions. Another consequence is that theoretical innovations in behavioral economics may be destined to be noncumulative: when a new model is developed to account for an anomaly of the basic theory, the parameters that were modified in earlier models will often be restored to their original settings. [pp. 165-6]

It is worth recalling how the last revolution in economics came about. It took place not through theory but through pedagogy.  If Samuelson had any claim to genius it was that he understood better than anyone else that nothing in economics is nearly as important as Economics 101.  Marshall, Samuelson’s target, understood it also. 

Prior to Samuelson’s book, Alfred Marshall’s Principles of Economics (1st edition, 1890) had, beginning with its first edition in 1890, been the leading prototype for introductory economics textbooks.  Its opening sentence offered a definition of the subject which underpinned the basic narrative that developed through the long book.

‘Political Economy or Economics is the study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing.’ (8th edition, 1938)

In 1932 Lionel Robbins in his Essay on the Nature and Significance of Economic Science in effect redefined economics via a set of axioms declared self-evident and thereby beyond the empirical realm, as the “science” of individual choice, the individual being conceived atomisticly, that is, as a determinant self-contained entity.  Robbins’ redefinition would have counted for little if Samuelson had not then adopted it along with its implicit scientism in his textbook, using it as the reference point from which he constructed a new narrative for academic economics, and with the result that it became and remains the standard narrative approach or “framework” or “church” hymnbook in economics.  Because it is inculcated into the student’s mind from the first week and every week thereafter, many economists, including heterodox ones, seem unaware of its hold on and significance for their thought. It is this integrated set of empirically false ideas – that economics is the “science” of the choices of isolated individuals with fixed and quantified preferences on a planet which is a subset of the economy – that pervades the economist’s mindset, enables economics to proceed in a formalistic manner and justifies to itself ignoring economic phenomena that do not fit its methodology and narrow agenda. 

But it does not have to be like this.  It is possible to invent for our time an approach to the study of economics that rescues us from willy nilly, that does not disdain empiricism and that restores the dismal science to a cumulative pursuit.

Reference
Kahneman, Daniel, 2003, “A Psychological Perspective on Economics”, AEA Papers and Proceedings, May 2003, pp. 162-168.

See also
Peter Radford at https://rwer.wordpress.com/2010/06/21/why-%e2%80%9cheterodox-economics%e2%80%9d/#comment-1628 and at https://rwer.wordpress.com/2010/01/25/soul-searching-in-economics/#comment-488

Edward Fullbrook, “The Glass Wall “at https://rwer.wordpress.com/2010/06/25/the-glass-wall/

  1. Vince
    June 30, 2010 at 8:41 pm

    Economics slowly morphs from a rational science to a social one. I highly recommend Socionomics and the work done by Robert Prechter at Elliot Wave International to understand just how much social mood provides the primary stimulus to economies and markets.

  2. Norbert
    July 1, 2010 at 4:24 pm

    Edward,
    I like your analysis in the glass-wall-piece and I would draw the following conclusion from it. Lets make it a habit, whenever we write about a certain subject or policy area to give an overview of the thinking of the relevant schools of thought; an overview which is not organized around their points of departures from neoclassicism. Let the latter just appear as one of many alternative approaches. If the Real World Economic Review were to encourage such a style, this should help to get various heterodox schools to communicate more amoung themselves an less with neoclassicism. The term heterodox should be used very sparingly, because it enshrines this way of defining everything in terms of its departure from the orthodoxy.

  3. Merijn Knibbe
    July 1, 2010 at 7:20 pm

    Some ad hoc ideas which might be helpfull – none of these were taught to me during my study, back in the eighties, though some modern textbooks do a better job:

    1. Evidence based economics. Let’s inculcate into the students mind from the first week and every week thereafter how important it is to a scientist to be able to assemble basic data. A book which might serve as an example how diligent and painstaking assembling of data leads to new insights: Collins, D., Morduch, J., Rutherford, S. and Ruthven, O, ‘Portfolios of the poor’ (Princeton, 2009). Just like in other sciences, students of economics have to learn how to collect the facts (in Science of december 18th, 2009, all ot he ‘scientific breakthroughs of the year’ were directly conected to ‘new fact finding’). You can’t assume the facts, you have to search for them (and of course, quit some theory is needed to define and analyse them).

    2. Use clear definitions. One of the weird aspects of economics is that many definitions they use are quite ‘fuzzy’ (utility, markets, households – to name but a few).

    3. Families come first (using the definition of statistical offices I should in fact say: households come first). More than half the stock of capital in modern economies is not used for market production or government production, but for basically on monetary household production: houses, cars, furniture, electronics and the like. A somewhat comparable statement can be made about labor (see among many other publications the Bureau of Labor Statistics publication of today (July 1): Average time spent caring for household children, 2005–2009. Families finance quite some part of the investment in human capital, provide labor, own companies – one can go on forever. More robots are used within households than within companies. Weel, you get it. The (essentially nn monetary, non market) structure of the family and the household is pivotal to our welfare, prosperity and the like. A major work by an economic historian to analyse the dynamic economic role of the family: Jan de Vries, ‘The Industrious Revolution: Consumer Behavior and the Household Economy, 1650 to the Present’ (Cambridge (New york), 2008). It’s clearly a ‘brilliant failure’, as there are (unavoidably) quite some open ends. But it does place the household and the family where they belong: center stage (personal consumption expenditures typically are about 60% of real final sales of domestif product). Not only ‘GDP per capita’ but ‘disposable income per household’ (including divisions according to incomepercentiles, occupation, age, race and the like) should get our attention. To be sure: the statistical offices turn out masses of data on the family, paying more attention to the real household sector would just align economics with this statistical tradition (which is of course dictated by the insititutional framework of our societies: households, an not individuals, are its main building block).

    4. People are not like atoms, but much more like nervecells which are irreversibly changed when making contacts with other cells. And the fabric of these contacts sets the direction for new contacts. One could read Norbert Elias or Friedrich Hayek on this (as far as I now, Deirdre McCloskey is at the moment also writing on this subject, Hayek was anathema to the idea of rational man).

    5. Markets are, sometimes, marvelous beyond believe. Roughly (very roughly) around the same time as when the west ‘discovered’ Australia, the aboriginals were already using pipes to smoke tobacco – which they bartered with ‘Indonesian’ sailors against see cucumbers which would find their way to China.

    6. Markets are a complex phenomenon with (sometimes dismal) intended and unintended consequences. To my knowledge, there is some connetion between tobacco production (and sugar, and coffee) in the eighteenth century America’s and the rise of slavery. Markets can not be understood when no account is taken of their complex social nature.

    6. Companies can be the focus of technological progress. An evolutionary survival process combined with the profound human capacity to imitate others and the freedom to invest and hire people has, again and again, led to fast technological progress, increases of production and decreases of costs.

    7. However. The pay off of initail investements in new break through technologies often only comes after about twenty years.

    8. Money might have extremely low costs of production – but the monetary system is quite costly – and has a long history. The income of all people working at banks and Wall Street, operating cahs registers, working as accountants and the like have to be regarded as ‘the macro costs of money’. this might add up to around 10% of GDP. A monetary economy is clearly no ‘free lunch’. The idea that money has (almost) no costs of production might be true – but using money brings high institutional costs. Also, a monetary market system is not the same as a barter economy with lower transaction costs. Reading the textbooks on money (first, there was inefficient barter, then came money and now we have this marvelous market system) reads, to me, a bit like: ‘first, we had inefficient horses, then we started to feed them gasoline and look: now we have these marvelous cars’! Money is a developing social technology – how does it function and how do companies and households use this technology (see, again, portfolios of the poor)?

    Merijn Knibbe

  4. Merijn Knibbe
    July 3, 2010 at 11:03 am

    On ‘evidence based economics’ or, in fact, ‘evendice based science’:

    WITTEN SAYS: ‘FACTS ARE SACROSANCT’…
    We all know that quite some economists were and often still are inspired by the methods of physics. But are they, really? In todays Dutch newspaper ‘De volkskrant’ (July 3, ‘Wetenschap p. 7’) an interview with Edward Witten, who is something like the founding father of ‘string theorie’ is published. String theory, a kind of highly mathematical theoretical physics which I absolutely do not understand, has been criticized for its utter lack of empirical content (“Not even wrong”). Interestingly, Witten however states (my imperfect translation)

    “You can’t beat reality. In the end, the facts decide. That’s how science works. You have to bend to this. I have, too. I even more or less like it when it turns out that I made a mistake. Often, these are great moments of insight”

    AND PUTS HIS MONEY WHERE HIS MOUTH IS!
    Of course, anybody can say anything, surely when he or she is criticized for not being a real scientist, as your ideas carry no empirical content. But he did spent his sabatical at the Large Hadron Collider – the cutting edge of ‘fact finding’ in physics.

    Of course, the Statistical Offices around the world are, to economics as a science, the equivalent of the Large Hadron Collider. Let’s spend more time overthere. And let time spent overthere play a role in the job requirements for university economists.

    Merijn Knibbe

  5. July 5, 2010 at 12:49 pm

    Fascinating how discussion of the current economy almost always ignores any acknowledement of the enormity of total debt, public plus private. We keep hearing how the rise in sovereign debt will burden our grandchildren but in the US that $13 trillion of national debt is only about 1/4 of the total debt carried by the populace.The underlying assumption is that public debt is bad, private debt is good, and there is not even any need to mention total debt since the monetery system is basically stable. We therefore need concern ourselves only with limiting public spending and preventing ‘cycles’ of asset bubbles building and crashing.

    Meanwhile, total debt keeps building, with almost no one questioning as to why, or how much total debt is ultimately sustainable.

    Why isn’t the popular press, or the economics profession, addressing these questions? When total debt reaches $50 trillion, as it has in the US, isn’t it quite possible it has hit an upper limit of sustainability? That’s $600,000 per family of four. At 5%, their interest payments, some direct some indirect, would total $30,000 per year. Is it any wonder total debt can’t go any higher? What happens when it hits its limit? Why is this never discussed, except by a few economists like Steve Keen and Ann Pettifors? How can it be ignored by the likes of Paul Krugman and Dean Baker?.

    .

  6. July 6, 2010 at 3:17 am

    Although it does follow in the footsteps of the line of thought
    expressed by the three commentators in the opening passages; for reasons
    that I hope to make clear soon, my (belated) contribution to this thread
    I’m afraid won’t do much in the way of bridge-building between the
    various heterodox approaches existing already.

    FWIW, I fully agree with just about everything that Edward Fullbrook
    wrote. Just having a slight reservation, in that I’m perhaps a little
    less enamoured with empiricism than he is. For even though empirical
    observation remains vital in order to detect contradictions in posited
    theories; since we cannot reason from (empirically observed) details to
    arrive at the truth in general, empiricism has primarily a checking
    function wherewith to give an indication that another (better) theory
    may be required. But more to the point, along with him I believe that a
    new framework isn’t going to emerge from existing heterodox thought,
    while the latter remains steeped in the assumptions put forth by econ
    101. “Willy-nilly” and “non-cumulative”, as heterodox liabilities, to my
    mind needs to be complemented with: putting too much faith in inductive
    reasoning going to save the day. Not because the theoretical innovations
    of public-spirited economists aren’t worth pursuing, but because these
    remain just sermons to the choir, until shown to be true. And since they
    are neither true in terms of econ 101 assumptions, nor as a rule have
    more fundamental assumptions underlying them, they’ll never get anywhere
    within the presently reigning academe; at least not until it’s too late
    but for perhaps being allowed to pick up the pieces after a crash that
    is facilitated by the current powers that be.

    Without deductive reasoning, underpinning a full understanding of what’s
    going on, the taking of empirical appearances as reasonable indications
    for corrective measures; which, as far as I’m aware, is the mainstay of
    all currently existing heterodox economic toolboxes, amounts to dealing
    with symptoms rather than with a cause; unless by pure happenstance the
    appropriate countermeasures are hit upon, since there is no way to be
    sure of their effectiveness beforehand. My argument therefore is that an
    entirely different set of assumptions is required. And one that is not
    only so general that their self-evidence becomes most difficult if not
    impossible to deny, even by those in the mainstream; but also, no doubt
    to the chagrin of this same orthodoxy, will attest to much of heterodox
    thought having been true all along. It would be a bonus if these axioms
    were to justify compassionateness in economics, not ad hoc as is kind of
    happening at present, but because deductive reasoning, true in terms of
    its assumptions, remains congruent and integrated with compassion.

    Note, I said “much”. But what if quite a bit of what now commonly passes
    for heterodox thought, perhaps even the majority of it, will be shown to
    be either straight-out wrong, misleading, or at least operating in a
    substantial different manner from what academic and lay dissidents are
    holding to be true at present? Would such an alternate paradigm still be
    able to garner enough support and pick up the momentum needed to unseat
    orthodoxy? I guess only time will tell. And even if its chances must be
    thought at this time to be slim and none, given what I’m about to point
    out, I’ve got to believe that Slim is still hanging around town.

    The surest way for a heterodox approach to unseat a reigning orthodoxy
    has to be when the former is able to point out that the latter violates
    established philosophical principles that underlie all theories. But it
    can only do so of course when it doesn’t commit the same errors itself.
    It is my contention that it is precisely because of holding onto econ
    101 assumptions, that current heterodox thought handicaps itself. All
    axioms have to be thought of as pre-analytically envisaged anterior to a
    theory’s existence, whose outcome (or end) will be true; thus inexorably
    linking axioms and ends. A theory: being an analysis of a set of facts
    in relationship to one another, and a fact: being something definitively
    existing. This not only entails that at the time of axiom conception,
    cause and effect of the means within the to be theorized field don’t yet
    exist, but also that there cannot be a systemic relationship between
    axioms and means. In other words there is no analytical way by which to
    establish an end from a bunch of means, nor the other way around. So,
    while a system’s means are born exogenously just like its axioms, the
    endogenous values we impose on them after having made them systemic,
    cannot just be anything we like and yet expect those to be valid in
    terms of exogenous axioms, that themselves lack any and all endogenous
    characterization whatsoever. Therefore the value of means as legitimate
    points of departure in a logical analysis is ruled out.

    From the above reasoning, a couple of things jump out right away: 1. the
    value of all means is indeterminate until the time its involvement
    toward a systematic end has been ascertained; and 2. if, on the other
    hand according to one’s adopted theory, capital and/or money are
    considered to be a means, then their values cannot be axiomatically
    given, i.e. they are either axiomatically given or a means to an end;
    but, since axioms are born and remain exogenous while means as such
    exist endogenously, they cannot be both. This is where, in my opinion,
    all conventional economic theories fall apart; as none of them are able
    to deduce capital/equity/money from more basic terms, and yet they all
    consider them to be a means. This would leave all those theories pretty
    flagrantly surreal, if indeed my own philosophical interpretation does
    reflect reality. Is there a philosopher in the house??

    The set of first principles I’m herewith proposing, from which the
    entire paradigm becomes deduced and is deemed to make economics an open
    book, comprises just three concise assertions: WHAT the economy is (a
    human-made system), WHY it exists (to _add_ a variety of use-values to
    humanity, that commonly cannot be obtained in the absence of a formal
    economic structure), and WHO is supposed to benefit from it (everybody;
    as a birthright). But while perhaps at first sight this all may look
    innocent enough, the changes bound to be wrought are so profound that
    even if able to survive the philosophic onslaught indicated above,
    economics teachings would never be the same.

    For if no internal contradiction can be pointed out to flow from them;
    the consequent economic structure, being true in its terms, will have
    indeterminate coefficients at any point _in_ time. All presents, thought
    to have been setup in full, are incomplete. No static identity, and this
    includes Y = C + I, will be able to capture its essence or make sense of
    it. No mathematical technique that I’m aware of, will be able to furnish
    a toolkit to identify (a collective of) micro activities. And instead of
    following a pathway having determinate activation points through time,
    our economy will resemble a “charged field” with exogenously located
    impulses and whose inherent potentialities will globally net to zero
    _over_ time in a dynamic way. As a human-made structure however, it’s up
    to us to decide the WHY. So that as free agents having the power to more
    or less deviate from a full compliance, we can introduce instabilities
    being the result of accumulating non-use-values as an _end_ purpose;
    which in turn will require the political disposition to implement apt
    countervailing measures. Hence economics and political economy are
    adamantly linked.

    I’ll leave it at this for now since my contribution to this discussion
    won’t be going anywhere, if someone in this group is able to point out
    some kind of conceptual error that is fatal to my proposed alternative
    approach.

    John V

  7. July 8, 2010 at 11:09 pm

    Could I please ask that economics textbooks give a little more attention to the role that land plays in the economy, a la Henry George, and not just a small footnote trivialising him as ‘single tax George’.

    • July 9, 2010 at 9:53 am

      With respect, LVT is fine as far as it goes but it is of little importance, and significance compared with Transfinancial Economics. Ofcourse, there will always be people who waste too much time on the minutiae of economics, and on some kind of “ideology” such as Marxism.

      I do wonder about the intelligence level of many on this site, and elsewhere especially when there IS AN URGENT NEED TO DEVELOP A CREDIBLE NON-DEBT BASED ECONOMIC SYSTEM CONSIDERING THE ENORMITY OF THE PROBLEMS OF THE WORLD.

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