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Realism in economics

from Maria Alejandra Madi

A relevant feature of the current crisis in economic knowledge is the recurrence of the  Ricardian Vice. Joseph A. Schumpeter coined this term in his book History of Economic Analysis when he criticized the habit assigned to Ricardo to represent the economy by a set of simplified assumptions and to use tautologies to develop practical economic solutions. Indeed, Schumpeter rejected the kind of economic thought that mainly favours deductive methods of inquiry – based on mathematical reasoning- because the  habit  known as the Ricardian Vice generates analytical unrealistic results that are irrelevant to solving the real-world economic problems.

Also Keynes warned that the understanding of the economic phenomena demands not only purely deductive reasoning, but also other methods of inquiry along with the  study of other fields of knowledge- such as History and Philosophy. In his own words:

The study of economics does not seem to require any specialised gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science? Yet good, or even competent, economists are the rarest of birds. An easy subject at which very few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher – in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.” (Keynes, Collected Writings, vol. X: Essays in Biography) read more

  1. April 18, 2017 at 4:00 am

    Maria, Your first paragraph will go down in history.

  2. Craig
    April 18, 2017 at 4:56 am

    Precisely. What economic theory needs is Wisdom which by the way has always had the scientific method (comparison of data to a hypothesis for its truthfulness or lack thereof) as an aspect of its overall discipline. Wisdom is the resolution of opposites by the integration of their truths, workabilities and applicabilities and only their truths etc. What economic theory needs is Wisdomics. wisdomicsblog.com

  3. May 17, 2017 at 4:46 pm

    I defend “Ricardian Vice.” It is not in reality a vice but a virtue. I argued on this theme in the ResearchGate:

    The essence of “Ricardian Vice” is to clarify the logic of a theory. A simple accumulation of facts does not lead us to truth or wisdom. Economics needs two moments which are often contradicting. One is abstraction, a logical (re-)organization of various propositions, deduction, mathematics and even abduction. The other is concrete events, accumulation of knowledge, natural history, induction, and sense of reality. As Maria Alejandra’s citation from Keynes tells, a good economist should be mathematician, historian, and philosopher at the same time.

    Those who demand reality in economics have a tendency to accuse mathematics. But it is not the mathematics that brings an absurd model. It is the lack of economic knowledge, history of the economy, history of economic theories, and the sense of reality. Do blame the enemy at the right target. Logical construction is something you need when you really want to reconstruct a new, more realisitic economics.

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