Home > Uncategorized > Solow being uncomfortable with ‘modern’ macroeconomics

Solow being uncomfortable with ‘modern’ macroeconomics

from Lars Syll

So in what sense is this “dynamic stochastic general equilibrium” model firmly grounded in the principles of economic theory? I do not want to be misunderstood. Friends have reminded me that much of the effort of “modern macro” goes into the incorporation of important deviations from the Panglossian assumptions that underlie the simplistic application of the Ramsey model to positive macroeconomics. Research focuses on the implications of wage and price stickiness, gaps and asymmetries of information, long-term contracts, imperfect competition, search, bargaining and other forms of strategic behavior, and so on. That is indeed so, and it is how progress is made.

But this diversity only intensifies my uncomfortable feeling that something is being put over on us, by ourselves. Why do so many of those research papers begin with a bow to the Ramsey model and cling to the basic outline? Every one of the deviations that I just mentioned was being studied by macroeconomists before the “modern” approach took over. That research was dismissed as “lacking microfoundations.” My point is precisely that attaching a realistic or behavioral deviation to the Ramsey model does not confer microfoundational legitimacy on the combination. Quite the contrary: a story loses legitimacy and credibility when it is spliced to a simple, extreme, and on the face of it, irrelevant special case. This is the core of my objection: adding some realistic frictions does not make it any more plausible that an observed economy is acting out the desires of a single, consistent, forward-looking intelligence …

For completeness, I suppose it could also be true that the bow to the Ramsey model is like wearing the school colors or singing the Notre Dame fight song: a harmless way of providing some apparent intellectual unity, and maybe even a minimal commonality of approach. That seems hardly worthy of grown-ups, especially because there is always a danger that some of the in-group come to believe the slogans, and it distorts their work …

There has always been a purist streak in economics that wants everything to follow neatly from greed, rationality, and equilibrium, with no ifs, ands, or buts. Most of us have felt that tug. Here is a theory that gives you just that, and this
time “everything” means everything: macro, not micro. The theory is neat, learnable, not terribly difficult, but just technical enough to feel like “science.”

Robert Solow

Yes, indeed, there certainly is a “purist streak in economics that wants everything to follow neatly from greed, rationality, and equilibrium, with no ifs, ands, or buts.” That purist streak has given birth to a kind ‘deductivist blindness’ of mainstream economics, something that also to a larger extent explains why it contributes to causing economic crises rather than to solving them. But where does this ‘deductivist blindness’ of mainstream economics come from? To answer that question we have to examine the methodology of mainstream economics.

The insistence on constructing models showing the certainty of logical entailment has been central in the development of mainstream economics. Insisting on formalistic (mathematical) modeling has more or less forced the economist to give upon on realism and substitute axiomatics for real world relevance. The price paid for the illusory rigour and precision has been monumentally high

wrong-tool-by-jerome-awThis deductivist orientation is the main reason behind the difficulty that mainstream economics has in terms of understanding, explaining and predicting what takes place in our societies. But it has also given mainstream economics much of its discursive power – at least as long as no one starts asking tough questions on the veracity of – and justification for – the assumptions on which the deductivist foundation is erected. Asking these questions is an important ingredient in a sustained critical effort at showing how nonsensical is the embellishing of a smorgasbord of models founded on wanting (often hidden) methodological foundations.

The mathematical-deductivist straitjacket used in mainstream economics presupposes atomistic closed-systems — i.e., something that we find very little of in the real world, a world significantly at odds with an (implicitly) assumed logic world where deductive entailment rules the roost. Ultimately then, the failings of modern mainstream economics has its root in a deficient ontology. The kind of formal-analytical and axiomatic-deductive mathematical modeling that makes up the core of mainstream economics is hard to make compatible with a real-world ontology. It is also the reason why so many critics find mainstream economic analysis patently and utterly unrealistic and irrelevant. The empty formalism that Solow points at in his critique of ‘modern’ macroeconomics is still one of the main reasons behind the  monumental failure of ‘modern’ macroeconomics.

  1. June 14, 2017 at 1:57 am

    Hey – don’t try to pin this one on the mathematicians. :) You can start with an economy of 10 people, use mathematical models and show how silly most of modern economics is in those simple models. It is true that mathematical deduction must be done with error bars carried along, which the economists won’t do because the errors would be many times larger than what they are measuring… But the poverty of today’s microfoundations should not cause us to give up hope of finding better microfoundations that are not created with the express purpose of finding reasons to give the rich all the money in society.

  2. June 14, 2017 at 2:15 am

    Lars Syll’s post is always almost right in his criticism of the existing mainstream economics. It is a necessary effort when we see may economists are still wondering whether we can rely on and extend the existing economics or we should change our track and make a kind of scientific revolution in economics. However, he does not show a prospectus for a new economics to come. When he try a kind, Syll’s posts are suggesting a probably-wrong direction.

    At the end of the post on Solow’s uneasiness, what Syll suggests is a return to ontological realism.

    >>[T]he failings of modern mainstream economics has its root in a deficient ontology. The kind of formal-analytical and axiomatic-deductive mathematical modeling that makes up the core of mainstream economics is hard to make compatible with a real-world ontology.

    If he recommend “return to real-world ontology,” he should presents what we can do on this direction.

    Syll is dreaming that we can construct a realistic economics when we abandon ” formal-analytical and axiomatic-deductive mathematical modeling.” He does not acknowledge that the real-world economy is a huge complex system that includes whole people on earth and consists of interactions of those people. How can we understand this complex object? A naive realism that believes what we see directly cannot arrive to understand the modern economy.

    • June 15, 2017 at 12:26 pm

      Some people around here i have informal contact with who have background in lgoci, computer science, philosophy, etc have been discussing things which are to me a sort of relaxation of the axiomatic-deductive method—basically they appear to be like neural nets, genetic algorithms, bayesian models . One person suggested Frege’s work on ‘non-formal reasoning’. Another is a book by Pei Wang of Temple U on ‘non-axiomatic logic’.

      In a sense these are oxymorons but try to deal with limitations of current strict axiomatic methods.Also, they are more realistic intuitively because strict axiomatic methods sort of imply the world is fixed and static (and ergodic). http://www.applied-nars.com/ is one of wang’s sites.

  3. June 14, 2017 at 10:54 am

    As Jeff points out there are ways to use mathematics in studying economic interactions. Error bars is a good suggestion. A better suggestion, in my view is chaotic or complex mathematics. This mathematics assumes the interactions it depicts are complex. That is, they are non-linear, not fixed, non-reversible, but still patterned. The patterns are called strange attractors. Strange attractors are mathematical representations of dynamic or chaotic interactions. These representations allow us to describe the interactions and make chaotic predictions about future states of the interactions. Two additional pluses: for professions like economics that use mathematics as a gate keeper and professionals like economists who like to tinker with mathematics to show the seriousness the profession, complex mathematics more that satisfies each goal.

    • June 15, 2017 at 12:49 pm

      Book by J B Rosser (who i think may have posted on RWER ) called chaos, catstrophe and economics (if i recall) was a sort of textbook written in 90;s that was a sort of intro to the ideas—some words, some math and in my view some mistakes or slight misrepresentations. In a sense Mandelbrot was writing on chaos in economics in the 60’s.

      A local IT group publishes a journal (which can be very technical) which basically develops algorithms to automate all data analyses, using chaos theory and other fairly advanced theory (condensed matter type physics, quasipotential theory). It may be that mathematical economists will be replaced by computers. (This reminds me of US employers who have their workers train people from foregn countries to run the business, and then they lose all their jobs, and the company is relocated overseas where there is cheaper expert labor).

      The gatekeepers may eventually also be locked outside the gate.

      However if robots do alot of the analyses, then people may have free time to look into other aspects of math which are less known (or to do arts, check out nature…). Back in the day people would spend years calculating pi to the nth decimla–now a calculator is faster. I thik some math, arts (which also are getting automated) will remain. People may still want to take a hike rather than fly over someplace in a plane.

      nonlinear dynamics/chaos etc is a very complex subject (for me at least) –gleick wrote a popular intoruduction (with some technical fudging). I sometimes think i understand it, and then i decide maybe i don’t–or too little. Also sometimes it provides very little information (though onje can get more insight using computer simulations of equations you can’t solve or visualize–often all one gets are scaling exponents, and such–basically steepness of certain curves).

      (Some chaotic systems are reversible–this is where it gets complex. There is also hamiltonian chaos. The chaotic/nonlinear dynamical zoo has all kinds of unexpected counterintuitive species –like the bacteria that live in the sea but don’t use oxygen–they use sulfur if i recall)..

      • June 16, 2017 at 6:30 am

        Mart, like what you’re thinking. Mandelbrot was indeed writing about one type of complexity (fractals). His work could be useful for economics.

        Most manuals like the one you mention are based on the pamphlets of the System Dynamics Group at MIT from the 1950s. Of course, much of the mathematics these pamphlets proposed could not be carried out until much later with the advances in electronic computing. The relations between humans and computing machines is not yet complex. When it becomes genuinely interactional then it becomes complex.

        That humans cannot “visualize” complexity is one the thresholds we must pass to study and apply complexity in our everyday lives and in social scientific research. Today’s computers can help with that. But giving up linear, cause-effect, closed thinking and ways of life will I think always remain a challenge for humans. I think this is one of the reasons many find it difficult to understand and accept evolution. Evolution is complex – for humans before evolution theory evolution is counter-intuitive, does not lead to clear causes or effects, and often mixes past, present, and future. But we’ve only had the theory for 250 years. More time may get us past some of these problems. But not in economics under its current standard operating procedures.

  4. June 15, 2017 at 5:18 am

    Jeff and Ken,

    I agree with Jeff. We need microfoundations, but not those based on neoclassical economics. We need a new theory from the b\very basis of price theory.

    As for mathematics or science of complexity, we should distinguish two different questions when we want to use them in economics. It may be better to set two problems:

    (1) Consequences of complexity on human behavior,

    (2) Complex behavior of an economic system as a whole.

    It seems Ken is mainly thinking problem (2). This is a necessary analysis, but we cannot understand economic processes as a whole without reformulating human behavior in view of (1).

    I argued long on the problem (1) in my paper (still in a draft stage)
    Microfoundations of Evolutionary Economics
    https://www.researchgate.net/publication/301766363_Microfoundations_of_Evolutionary_Economics

    Please read it and post comments there. This is the chapter 1 of a monograph written by me and two of my colleagues. I have still a chance to revise some parts.

    I am now writing the chapter 2, which treats how the economic system works more closely. This will not arrive to discuss the problem (2), but will give a basis of more dynamical analysis that comprises problem (2).

    • June 15, 2017 at 12:09 pm

      I just skimmed that paper but am familiar with many of the topics and references. It looks to be a well thought out paper. My background was in biology, and some physics—the volumes ‘Economy as a complex evolving system’ from 90’s by Santa Fe Insitute (K Arrow, P W Anderson…) were my introduction to economics. (The ‘macro-micro loop’ seems to be another version of what is called ’emergence’ at times, the ‘slaving principle’ in condensed matter physics, and the micro-macro links in nonequelibrium statistical mechanics, and even top-down causation—relation of the parts to the whole.).

      I never considered going into economics though now view it as interesting as other fields –i didn’t even know it was an option (and the people into that were doing pretty much usual neoclassical econ which is limited). I’ve talked to a few local academics somewhat into complexity theory and economics (and econophysics) but they basically have their own projects and approaches.

      Evonomics on-line journal has many semi-popular articles on complexity theory and econ (and an interview with Alan Kirman who described his early work on that in UK in 80’s or 90’s).

      Since I also think about current events, policy, issues like energy and inequality, and job distributions (eg automation, robots, AI, what David Graber calls ‘bs jobs’, guaranteed jobs proposed by Modern monetary theorists bs Universal Basic Income …) its hard to connect alot of abstract theory to the real world—-a different kind of micro-macro loop (eg how symbols, equations, words, computer programs relate to the world as people experience it

      Some people think actually we live in a computer simulation or ‘mathematical universe’ in whch case there is no loop because there is no distinction between abstract symbols and experience. I wrote a general essay for FQXI (perimeter institute) discussing such ideas—‘how mindless mathematical laws lead to goals, intentions, etc.’ (they rejected it) ). .

      • June 15, 2017 at 1:29 pm

        Dear Mart,

        thank you for reading my paper and giving comment on it. I work mainly in mathematical formulations, but in many cases mathematics is a too tight jacket. It is understandable that many sincere economists think that mathematics are spoiling economics. But to abandon mathematics simply does not, I believe, improve the state of economics. We should find some analytical tools which we can use along with mathematics and conceptual reasoning.

        Agent-based simulation may become such a new tool for economics to go beyond the limits of mathematics. It may become the third mode of scientific research after theory (logic and mathematics) and experimentation (or history, empirical study and observations).

        Please read
        A Guided Tour of the Backside of Agent-Based Simulation
        https://www.researchgate.net/publication/279177719_A_Guided_Tour_of_the_Backside_of_Agent-Based_Simulation

        This paper is already published in a book, but you can read major part concerning ABS of the published paper.

      • June 16, 2017 at 7:02 am

        Agent based modeling supposedly is an extension of System Dynamics models. Supposedly, it allows a deeper examination of the behavior of heterogeneous individuals. That’s just not the case because for all its efforts agent based models still rely on two errors. First, they assume the object of the model is “individual behavior.” There are two problems here. First, they are focused on something called behavior. But make no effort to connect behavior to actual actions of humans and the interactions in which they are involved. Behavior is the social scientist’s term. It actual connection to what going on remains undetermined. Second, why in the view of these modelers is focusing on individuals superior and how do the social scientists construct individuals? Is their construction congruent with that of actual humans? Again, undetermined. Second, the modelers have no view (theory) of human interactions with one another and the nonhuman world on which to found their models. Without this base, we cannot examine how the model results change when views on interaction change.

    • June 16, 2017 at 7:31 am

      Yoshinori Shiozawa, read your paper. I offer these suggestions. First, as Anthropologists have pointed out homo Sapiens began with nothing. Whatever exists for it in terms of ways of life, understandings, relationships came from its own imagination. Per Israeli historian Yuval Noah Harari, author of ‘Sapiens: A Brief History of Humankind’ homo Sapiens have always lived “immersed in fantasies, pursuing make-believe goals and obeying imaginary laws.” Homo Sapiens have always made it up as they went. This needs to be recognized in any attempt to model human actions and interactions. Second, homo Sapiens are, because of no. 1 above performers. Always creating their lives by performing them. Performance gives solidity and a sense of durability to the make-believe homo Sapiens construct. Third, the two above are what makes up human interaction. Interaction with one another and with what is not homo Sapiens. And interaction is the place where homo Sapiens’ imagination and creativity, and homo Sapiens’ performances are carried out. It’s our stage you might say.

  5. June 15, 2017 at 7:44 pm

    Thats also a good paper tho i just skimmed it. I like that Krugman quote. (Krugman was aware of complexity theory in 90’s, but he doesnt really mention this in most of his stuff in 2000’s).

    I view ABM as the computational version of statistical physics. Mansano Aoki of
    UCLA had many papers on the statistical physics aproach (he is also originally from Japan). The problem with the stat phys aproach as opposed to ABM is you just end up with alot of equations–no pictures. R Brian Arthur of stanford and SFI (‘path dependence’ and non-ergodicity) popularized that approach in 90’s ( i read an article by him in Scientific American and looked it up). Bruce Edmonds of JASSS (journal of artifical societies) has a whole journal on ABM though i dont know if its stilll around.
    jasss.soc.surrey.ac.uk/JASSS.html or https://jasss.soc.surrey.ac.uk/JASSS.html thats all ABM
    I see you cite Colander, Kirman, Mantel, etc.

    The equations Aoki used (master equation and fokker-planck, chapman kolmogorov or CKS )go way back–maybe to 1920’s. (One person who is famous for those equations –a russian–apparntley stole them, as i read in a translated version.He got them from another russian physicist who he then denounced to Stalin as an enemy or the USSR , so was shipped off to the gulags).

    Famous Biologist E O Wilson used them in a jointly written book with C J Lumsden in the late 70’s. ‘genes, mind and culture’. (The math in that book was correct basically, but the interpretation wrong in my view). ,

    They are all just nonlinear diffusion equations.(which means i can’t really understand them)

    https://arxiv.org/abs/0902.4274 is another alternative (and there are more recent ideas on that theme).

    I sortuh dropped out of theoretical biology because it all turned into computer programming.though some people still do statistical mechanics

  6. June 16, 2017 at 10:32 am

    Dear Mart

    I am astonished to know that Lee Smolin has written a long paper on economics ( https://arxiv.org/abs/0902.4274 ). I have read his book Trouble with Physics when it was published. I was much impressed by his strong radical criticism against the state of String Theory. But I never imagined that Lee Smolin has written a paper on economics. Thank you very much for informing me.

    As for the criticism (on weakness of results and assumptions) against Arrow-Debreu model, I totally agree with him. I have written almost the same thing in my Guided Tour (cited in my previous post) or in other papers and books in Japanese. The relevant part may not appear in my RG draft but I have fully argued why we cannot rely on General Equilibrium Theory of Arrow-Debreu type. This is the starting point of my discussion why we need ABS.

    Smolin’s proposal to introduce time in the model is a rather classical one that Joan Robinson and many others proposed even in 1950’s. Time (or actions in time is) (1) irreversible, (2) uncertain, and (4) decisions made by agents with limited rationality and sight (ability to collect information) (subsections 5.1). The problem for us is how to build such models by which we can obtain some relevant results. This is what I am now trying in my chapter 2 in our book on the Microfoundations of Evolutionary Economics.

    One of Smolin’s specific suggestions is this:
    -Derive a notion of steady states for markets and show that to some approximation they correspond with the notion of equilibrium in neoclassical economics. Different equilibria or steady states might then correspond to different phases of the models.

    A similar recommendation is made in these terms:

    [E]conomic equilibrium may be analogous to the kind of non-equilibrium steady states that occur in such open systems in physics. If this is the case then relevant observables include rates of flow of critical materials through the system and around closed cycles in the system.

    I have also made the similar proposal in the papers written in 1989 and 1996:

    The Primacy of Stationarity: A Case against General Equilibrium Theory
    https://www.researchgate.net/publication/233943723_The_Primacy_of_Stationarity_A_Case_against_General_Equilibrium_Theory

    Economy as a Dissipative Structure
    https://www.researchgate.net/publication/236149834_Economy_as_a_Dissipative_Structure

    However, I have different opinions on some of Smolin’s recommendations. For example, he refers to

    “markets with large numbers of agents have very large approximate symmetries” (#7 in subsection 5.1)

    The reference itself is not wrong, but it is important to note that this kind of market is a very special one (Bourse de Paris, or New York Security Exchange) and it is not advisable to make this type of market a standard type of economic interactions.

    In this way, I have many points that I agree with Lee Smolin but I cannot support his research program expressed in the subsection 5.3 and section 6 except his remark that trade is an action that two agents exchange two goods.

    Section 6 “Gauge invariance in economics” does not seem to me very promising. The gauge invariance of prices is the old problem that is treated under the topic of relative prices and price levels. Moreover, Smolin’s idea is deeply influenced by Arrow-Debreu model. In other words, he is still in the gravitation field of Arrow-Debreu model. It is now necessary to go far from it. We need a totally new idea on the working of economy and a totally new idea how to analyze it.

    By the way, let me add that Masanao Aoki is now living in Japan after he was retired from UCLA.

    • June 17, 2017 at 1:15 pm

      Hi Yashinori–(why dont you have a short name like me —say yashi (look up ishi on wikipedia)

      I agree with the 2 papers by you on ‘dissipative structures’ and ‘stationarity’ in economics. Apparently you were writing on this from 1989. I read some (or many) books and papers by Prigogine but most people i knew didnt like Prigogine (if i mentioned this they would immediately flunk me –you fail).they didnt like that subdynamics stuff published in PNAS. .

      order.ph.utexas.edu or https://order.ph.utexas.edu i had and have many relatives in texas (and got in trouble too–i know where the wild plants grow (peyote, psilocybin)

      dissipative structures is a term that has fallen out of use (nowadays most people seem to use stuff like maximum entropy production ( r dewar) or jarzynski inequality https://en.wikipedia.org/wiki/Jarzynski_equality —i would throw all these papers in the trash or save them for history ) (or maybe i have to read them to see if there is any there there–i got em around here). i like term dissipative structure.

      Smolin’s paper is from 2009. There is newer stuff (and actually it goes way back to https://arxiv.org/abs/hep-th/9710148 )

      You are correct i think that gauge invariance is an old problem with many names. I still think gauge invariance is the way to go. Hermann weyl coined this term back in the 1930’s (approx 8000 years after i was born) . (a failed attempt to unify gravity and quantum mechanics, but they got got QED (feynman and dirac).

      I do think you might include Sonnenschein-Mantel-Debreu theorem (or SMD) in refs. That is gauge invariance right there (but in different terms).

      i would reccomend all the papers you wrote and linked to.(but its alot of reading and then you have to read the references.)

      m aoki i just know from reading off the internet.

      have you ever climbed mount fuji? i talked to someone recently who did that.

      also maybe you can get some of your books into college curricula–or even non college. history of economcs. .

      • June 17, 2017 at 5:47 pm

        Dear Mart,

        Yoshinori is long for many English speaking people, but in Japanese four-syllable word is the most common word.

        I did not know that there are many people who do not like the term “dissipative structure”, but it is a good word to remind that equilibrium is not the only state which keep the spacious shape. It is a stationary state that lie far from equilibrium. I think this is extremely important for economics. My favorite parable is a lit candle. Economy is indeed a lit candle.

        I know of course Sonnenschein-Mantel-Debreu theorem. I have wrote about it in my Guided Tour (§1.3.3). However, I never imagined that it is related to Gauge theory. Would you explain a bit about it? Do you mean that demand remains constant when the price vector was dilated proportionally?

    • June 18, 2017 at 8:27 pm

      dear yoshinora—(maybe i got the name right this time–my niece has a youtube video on learning mandarin chinese ) I agree with you on dissipative structures.

      i can’t really easily explain now how SMD relates to gauge theory. you can add that in a later chapter to your books. http://www.eric-weinstein.net/economictheory.html may give an idea but i disagree with some of that.

  7. June 16, 2017 at 11:06 am

    Dear Ken,

    agent-based simulation is still in a burgeoning stage as tools of scientific analysis. There are many silly models. Still I am encouraging those people who work in ABS in hope that it may become a good tool some day. Actually, some results of them can be easily known by mathematical analysis. Some of them are a simple extension of System Dynamics. But we should know that mathematics in economics has also passed this infant stage before it becomes a real tool of analysis. Its success was so big that it is now one of major causes of trouble with economics. Many economists do not use mathematics but they are simply slaves of mathematics.

    What do you want to say by three suggestions from anthropology? It seems to me that a very few economists deny that imagination plays an important role for some of our activities such as inventions and creations. I cannot understand what you really suggest.

    • June 16, 2017 at 12:31 pm

      Economists should reverse how they look at the world. Humans imagine the world and then act on those creations. For example, mainstream economists like to focus on the micro (individual) level, they say. Even criticizing work that does not have an adequate micro foundation. But the economists never spend time or effort to look at what an individual is, that there are multiple forms for individual, and that individual is always being re-created. Nothing has been fought over more in the history of humanity than the nature of individual and individualism. Yet, economists go along blindly using a term about which they know virtually nothing. Economists also write and talk a lot about innovation and creativity. Yet, again they know nothing, or seem to know nothing about the history of innovation and creativity; that it is not a fixed or essential thing but rather involves endless creative struggle among homo Sapiens. Economists from what I can observe don’t even follow recent restructurings of innovation by younger CEOs, especially in newer areas of the economy (e.g., social media, computing). And most surprising of all for me is economists completely disregard, give no attention to the performances that go on around them every day in which homo Sapiens define and re-define economics and economic relationships. Even a cursory review of any large daily newspaper or online media feed provides dozens of stories of performances of economic relationships and economies that do not fit within the confines of the textbooks of professional economists. Living inside a textbook is not a useful strategy for understanding anything; much less creating guides for action.

      On ABS, I ask you what does it depict and what do its results show? At best ABS captures one moment in time that will not be repeated. Approached chaotically such captures can be assembled to show dynamic patterns. The may be useful so long as we don’t hold onto them too tightly. So tightly that we miss the ongoing creative performances of homo Sapiens that show us what is under construction, out of construction, failing construction, and has been pushed aside entirely. Sometimes this is a slow process, sometimes faster. But it’s always happening. We should not miss it while we fix our gaze on the mathematics homo Sapiens invented to explain it.

      • June 16, 2017 at 4:54 pm

        Economists write and talk a lot about innovation and creativity. But it is difficult to incorporate these activities in a framework of economics. There is no difference with this regard between mainstream and heterodox. Knowledge of a fact or facts and understand and formulate them in a theory are different thing.

      • robert locke
        June 18, 2017 at 9:55 am

        Since I learned about the disciplines of economics and business economics though a study of them in Germany, first, I know that the view that economics is based on micro (the individual’s behavior), is just a British-American peculiarity. Elsewhere individual behavior was studied with regard to inter and intra social-economic networking, national and group consciousness, and the institutional aspects of group and national dynamics.

      • June 18, 2017 at 11:48 am

        Robert,

        thank you for informing the state of the economics and business economics in German speaking world. We had a group of German School in Japan and some papers and books were translated into Japanese. Erich Gutenberg was very famous and popular among others. But, unfortunately, their influence is declining.

        It is true that mainstream neoclassical economics is dominating everywhere. But I still have some hope. Business economics is one possibility. Between the neoclassical economics and business economics (including American business administration), there is a fundamental contradiction.

        (Neoclassical) economics assumes an economy where firms can sell as much as they want at a given market price, whereas firms (excepting only a few) are endeavoring to sell as much as possible. By this fundamental contradiction, business economics is relatively free from the yoke of neoclassical economics. Now business schools are employing many heterodox economists. A renaissance of economics may come from business schools.

    • robert locke
      June 19, 2017 at 1:33 pm

      Dear Yoshinori,

      Erich Gutenberg, was the “most famous” business economists in postwar Germany, who worked closely with Erich Schneider, the German neo-classical economists, to turn his subject Betriebswirtschaftslehre into a scientific discipline. He wrote his doctorate in 1927, at the time when German BWL already had developed into a discipline in Germany. I devote my book, The End of the Practical Man, 1984, 2006, primarily to the development of BWL in the preWWII period. The great man of the pioneering years of BWL was Eugen Schmalenbach, who founded a research jounrnal in 1906, which still exists and carries his name. There is also an association to promote BWL named after him, Schmalenbach Gesellschaft. German prewar BWL influenced much of the world outside France, the UK, and America, including Japan. Many Japanese were among Schmalenbach’s students. In 1953, he was awarded an honorary doctorate at Keio University. In honor of his 80th birthday, his Japanese Schuler prepared a Festschrift (1953). It had numerous articles on a wide variety of topics written by them and shows just how thoroughly familiar the Japanese business economists were with German business economists’ accomplishments. See the Zeitschrift fuer betriebswirtschaftliche Forchung, 6 (1954): p. 548, which discusses the Festschrift. I discuss this briefly in my book, Management and Higher Education Since 1940, Cambridge UP, 1989, p. 92.

      Schmalenbach is famous for saying that BWL was a Kunstlehre, not a science, which divides him from postWWII German’s like Gutenberg. Despite the postwar scientific ambitions, however, German BWL has always had a practical bent to it: to prepare specialist for nontechnical jobs in business administration, that firms brought in at the beginning level in their operations and promoted up the hierarchy based on their performance. Germany had few MBAs or high flyers who were fast-tracked to high positions in US, UK, and French firms, like graduates of the French grandes ecoles, the top US and UK MBA schools. As in Japan, the firm’s not the business schools, determined the pace and reach of careers.

      • June 20, 2017 at 4:54 pm

        Dear Robert.
        thank you for good information.

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