Home > neoclassical economics, New vs. Old Paradigm > What is neoclassical economics?

What is neoclassical economics?

from Lars Syll

For your edification, I offer this link to an elegant explanation of why neoclassical economics presents itself as purely scientific and denies any ideological commitments, and strangles pluralism.

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In brief: Arnsperger and Varoufakis define “neoclassical” economics in terms of three “meta-axioms.” First, neoclassicism assumes “methodological individualism,” i.e. that economists must ultimately posit individuals’ behaviors as the root cause of broad economic phenomena. Second, it assumes “methodological instrumentalism,” i.e. that these actors are somehow or other acting instrumentally in pursuit of goals, are “irreversibly ends-driven.” Third, it assumes “methodological equilibration,” i.e. rather than asking whether or under what conditions shall a state of affairs continue unchanged, it seeks to show that if equilibrium occurs, then it will endure. 

The big twist of Ansperger and Varoufakis’ argument is that by keeping these assumptions well-hidden and unquestioned, neoclassicism simultaneously guts its own ability to effectively explain and predict real-world economic phenomena AND expands its own discursive authority.

The real genius of this article is in demonstrating how this paradoxical circumstance occurs. They carefully and explicitly reject the view that economics professors are cynically and purposively responsible as a “conspiracy theory.” Instead, they pursue a “functionalist” explanation (which seems like maybe the defining characteristic of science itself: showing how cause and effect, independent of any overarching purpose, lead from situation A to situation B), which boils down to funding sources. Basically, they claim that economists who pursue technical elaborations, “who simply ‘get on with the job,’” get funding while those who raise important but non-actionable questions about assumptions, method, and framework do not. “No one wants to keep quiet on the meta-axioms. They are just too busy building magnificent edifices on top of them, and being magnificently rewarded for it” …

So the three meta-axioms of neoclassical economics define the language and concepts which can/must be invoked by any economist who wishes to be taken seriously. By presenting as self-evident and obvious, they effectively make themselves invisible while also precluding alternative approaches.

Casey Jaywork

[h/t Mark Buchanan]

For my own take on this issue, see, e.g., here and here.

  1. March 14, 2014 at 1:03 pm

    This paper: “What Is Neoclassical Economics? The three axioms responsible for its theoretical oeuvre, practical irrelevance and, thus, discursive power”, by Christian Arnsperger and Yanis Varoufakis was published in what is now the Real-World Economics Review in 2006. Since then it has been downloaded over 100,000 times, which I think puts in the top 10 of the RWER’s all-time most downloaded papers.
    Edward Fullbrook
    http://www.paecon.net/PAEReview/issue38/ArnspergerVaroufakis38.htm

  2. henry1941
    March 14, 2014 at 3:37 pm

    And so the fraudulence is revealed…

  3. Russell Bradshaw
    March 14, 2014 at 3:38 pm

    The sheer idiocy of Neoclassical economics is described here:

    http://www.golemxiv.co.uk/2013/08/illogical-economics-guest-post-by-hawkeye/

    “Real wealth has to obey the laws of physics whereas money and debts are merely important social constructs. Paradoxically, neoclassical economics seems to inhabit a parallel universe where wealth can be created at will, money is irrelevant, yet debts are a tangible reality!”

    “It certainly is not an inclusive subject, nor is it a true science in that it rarely provides testable hypotheses. Even more disconcertingly it actually operates as a Trojan Horse for justifying morally reprehensible decisions and outcomes.”

  4. Norman L. Roth
    March 14, 2014 at 4:19 pm

    March 14, 2014

    I am hardly a fan of the grotesquely tautological flummery called neoclassical “economics”. Nor of the radical “Libertarian” offshoot of the “Austrian School of economics. But if Messrs. Arnsperger and Varoufakis wish to indulge in a bit of comparative analysis of different schools of economic thought, they should at least check out the ontology.

    [1] “Methodological individualism” is a defining feature of the “Neo-liberal” or Austrian school of economic thought. Not the academically stultifying “neoclassical” school.

    [2] The Austrian School has always been deeply suspicious about the equilibrium addiction.
    And its ruinous impact on the study of business cycles & structural change in economic history. It certainly does not “seek to show, that if equilibrium occurs, then it will endure”.

    [3]Neoclassical economics has never been particularly enamored of the guiding principle that:.”It is the ends that lend means its importance, not visa versa. There can be no doubt that there is a causal relationship between the importance of ends and means”.Eugen Von Bohm Bawerk.
    But “Austrian Economics” has never proclaimed that ‘ends or goals are irreversible’. Rather, they are constantly changing and cannot be tamed or swept under the table by the language & pseudo formalism of AGGREGATIVE symbolism: Embodied in such constructs as, capitalism, consumption, Capital, the Interest rate [=usury],the STATE, etc.

    [4] The most profound difference between ‘neo-liberal” or “Austrian” economics and Neoclassical economics, is their understanding of markets and their natural human origins. The neoclassical guys are wilfully evasive about markets: And wilfully clueless about their “all-too human” origins. In this respect they’re one-up on the left wing & Marxist acolytes. Who simply hate that mean old ogre they call “market fundamentalism”. Indeed, it is not unheard of for more than a a few “neoclassical” doyens to stagger into the bog of “anti-market fundamentalism” or the nightmare utopia of full-blown cybernetic control of all economic behavior and systems. e.g. Economic systems as {a} cybernetically controllable technologies.{b} The current rage called ‘Design mechanism’. All of which promise to ‘optimise” the behaviour of human institutions. Thank you for your attention and patience.
    Norman L. Roth, Toronto Canada. Please GOOGLE: [1] Origins of Markets, Norman Roth
    [2]Economics of Technos, Norman Roth [3] TELOS& TECHNOS, Roth

    .

  5. March 15, 2014 at 1:26 am

    Economists, close to seeing the arguments can be multidisciplinarian, information age and very intriguing. Paul Krugman’s position evaporates with understanding that deficit spending avoids the ire of actual taxpaying voters and thus undermines democracy, which is so necessary to focus distributed intelligence as understood in the modern versions of economic evolution. Can we please hastily assemble the sixth of a seven branch democracy? The branch that assembles and assigns externalized costs, in parallel with unmeasured cultural goods. I know, simple accounting seems boring. Yet there is no alternative.

  6. Rhonda Kovac
    March 15, 2014 at 12:46 pm

    Arnsperger’s and Varoufakis’s point that we should see unprofessional behavior and ideological rigidity not primarily as reprehensible–to be shamed, judged against, corrected by implementing rules of ‘ethics’, and such–but rather as objective phenomena with their own determiners, contributing conditions, and so forth, is well taken. We should take a leaf from our own ‘scientific’ book and look to understand what underlies such behavior.

    I’m not suggesting we ‘psychoanalyze’ the ‘errant’ behavior of scholars, thence to ‘cure’ them or weed them out. Rather, I’m speaking of looking more closely at the process through which difficult challenges–such as economics, and the corrupt political environment in which economics must function–produce stresses which lead to distortions of thought. This can throw a light not only on the psychology of scholars, but also on how better to deal with the phenomena themselves.

  7. davetaylor1
    March 15, 2014 at 2:04 pm

    “In brief: Arnsperger and Varoufakis define ‘neoclassical’ economics in terms of three ‘meta-axioms.’ by means of which “neoclassicism simultaneously guts its own ability to effectively explain and predict real-world economic phenomena AND expands its own discursive authority.
    “The real genius of this article is in demonstrating how this paradoxical circumstance occurs. They carefully and explicitly reject the view that economics professors are cynically and purposively responsible as a “conspiracy theory.” Instead, they pursue a “functionalist” explanation … which boils down to funding sources. … No one wants to keep quiet on the meta-axioms. They are just too busy building magnificent edifices on top of them, and being magnificently rewarded for it … “.

    I’d been wondering whether the problem is not just economists but, more generally, Scholasticism: teachers defending their dignity relative to pupils who question their authority. A book I had ordered then finally arrived in which I found a magnificent (if challenging) expression of this view. Stanley L Jaki was (among other things) reflecting on Martin Gardner’s apologetic inclusion in his “Great Essays in Science” of a piece of G K Chesterton’s writing: GKC’s forté being essentially the testing of meta-axioms rather than inconsequential detail. The context is solipstic science and Chesterton having turned down a professorship in Literature to pursue the universe: a subject immensely wider than the very vastness of English literature. “If Christianity should happen to be true”, wrote Chesterton, “then defending it may mean talking about anything and everything”.

    In “G K Chesterton, a Seer of Science”, Jaki then says, “Which, of course, Chesterton could do less unhindered as a journalist than as a professor of English literature, let alone as an academic eunuch parroting forever the actual prevailing consensus”.

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