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Three Methodologies

from Asad Zaman

This is a summary of the introduction/motivation part of Lecture 15 on Advanced Microeconomics II, delivered at PIDE in Spring Semester 2017.  The lecture is about 19th Century European History, and how it is deeply entangled with Modern Economic Theory. We cannot understand one without the other.

19th Century European Economic Ideas In Historical Context.

“… the race is not always to the swift, nor the battle to the strong …” Ecclesiastes 9:11

In the late 19th century, a battle of methodologies (“Methodenstreit”) took place, which shaped the future of economics. The German Historical School lost out to the newly emergent, quantitative, mathematical and scientific approach. This led to a re-conceptualization of economics as a science similar to physics, which studies the economic laws of motion of societies. For a detailed account of this battle, and its effects, see “How Economics Forgot History,” by Geoffrey Hodgson.

1. Contemporary Methodology:[humans are predictable robots] The idea that economic theory is a science like physics has extremely unpleasant and counterintuitive consequences. We look for universal laws of economics, which apply equally well to Pakistan, France, Brazil, Russia and Nigeria. Furthermore, they apply equally well in the seventeenth, nineteenth, and twenty-first century. The trade theory of economists must apply equally to trade between Ghana and England, India and Pakistan, and the Huron and Iroquois tribes. Since the ability of human beings to shape their destiny in accordance with visions cannot be fit into a scientific framework, human behavior is reduced to that of a robotic pleasure machine, which follows precise mathematical laws.  read more

  1. July 27, 2017 at 4:16 am

    Asad Zaman’s presentation is a good concise summery of the question. As a lecture to undergraduate students, it is simply all right. However, for graduate students and economists after PhD, this may be too simplified. Let me point two suggestions. It is possible that Zaman has argued these points in his later lectures, but my comment is on the content he has uploaded here.

    (1) Universalism of physics
    Zaman assumes that universalism is a established philosophy of physics. It is true that a unified theory (e.g. theory of everything) is a dream of many physicists and they are endeavoring in that direction. However, it is important to note two points.

    First, physics has not yet succeeded in unifying its theories. Physics started as modern science in the late 16th century. More than 400 years has passed and yet it is still struggling for the unification of its theories. We should distinguish the ideal of physics and its actual history. Methodologists in economics should learn from the actual history of physics and examine the wide spread philosophy of science if it is real history of physics and physical sciences.

    Second, if we examine closely how physics emerged as modern science, the obtained laws are not universal at all. There are two major breakthroughs at the beginning of modern physics. One is the law of falling bodies by Galileo and the other is Kepler’s law of planetary motion. They are exact laws but valid in very particular situation and not universal at all. They may be valid through time and space but have a narrow range of validity and the laws do not hold outside of its proper range.

    Newtonian system was developed on these two laws and took a shape of universal law. Only at this stage Even in this stage Newtonian system did not comprise electromagnetism. Of course, it comprised nothing about weak and strong forces which mainly operate inside nucleus. Universalism that economics pretends to adopt is not the true methodology of physics. Physics has developed through a very different path than the fictive universalism.

    I hope that Zaman will teach what really happened in the history of physics. I believe we have much to learn from it.

    (2) Polanyi’s methodology
    I did not know Polanyi had this methodological viewpoint. I thank Zaman for this information. Can you give me a reference? Is there any particular part that Polanyi exposed this idea?

    “[M]aterial circumstance shape human societies, but also human vision and ideas shape material circumstances.”

    If this is Polanyi’s idea, I totally agree with him (and with Zaman). I even think there are few economists who dare to deny this idea. Even a stringent methodological individualist would not deny the truth of this idea.

    The question for researchers who are working for the development (re-structuring or re-costruction) of economics is how to implement this idea in an analytical framework.

    Zaman objects to the idea to treat humans as predictable robots. He represents this idea as the mainstream methodology. I do not deny it, but we should reflect on this with more caution. When we want to observe short period economic processes (e.g less than one year), we can assume that the human behavior patterns are fixed. If this is accepted, we can treat people as if they are robots or computer program. This is the basic methodology of agent-based simulation (ABS). For the details of ABS, please see my paper

    A Guided Tour of the Backside of Agent-Based Simulation
    https://link.springer.com/chapter/10.1007/978-4-431-55057-0_1

    I explained there how neoclassical economics went astray by its mathematical strait jacket. ABS has the same idea as “economic man” which is a mathematical optimizer. But the ABS has much more freedom than the optimization (and conventional “economic man”) and is free from equilibrium framework. A good point of agent-based simulation is that it is process-oriented. Although ABS is relying on the idea that humans are predictable robots, it makes possible a new style of investigation.

    Moreover, ABS can be connected to Polanyi’s idea, because agents’ behavior can change through time. To analyze this process of change is much more difficult than the simple ABS. In this process, we have to take into account how the material (or economic) circumstance shapes (or re-shapes) human behavior.

    A first attempt is give by genetic algorithm (GA) method. But I believe many other ideas must be developed until this line of economic analysis becomes to a satisfactory level.

    A more methodological argument is given in my working paper:

    Microfoundations of Evolutionary Economics
    https://www.researchgate.net/publication/301766363_Microfoundations_of_Evolutionary_Economics

    For example, I have thematised Polanyi’s idea under the heading of micro-macro loop. I will be happy if you have any comments on my working paper. It is still open to modifications.

    • merijntknibbe
      July 27, 2017 at 12:38 pm

      The point about evolutionary economics is that people themselves change with the system and vice versa. A technical example: the increase of literacy and numeracy was important for the growth of a monetary market system and the growth of a monetary market system will stimulate an increase of literacy and numeracy. It is abvious that your maximizers (optmizers would already be an improvement…) will change their way of thinking, their preferences, their methods of choice and even their feelings when they learn reading and arithmatic. The human atoms themselve change, by their intereeaction with other people. As such, they are more like nerve cells than atoms You might try to model this.

      • July 27, 2017 at 3:17 pm

        merijntknibb

        Why do you think that I am thinking that human agents are maximizers or optimizers? In my paper Microfoundations of Evolutionary Economics, I am presenting totally different formulation, i.e C-D transformation.

      • July 27, 2017 at 5:44 pm

        Whatever, it seems to me Merijn’s examples are about people changing not just their aims but their way of thinking. The point may be subtle, but you say, Yoshinori:

        ” In this process, we have to take into account how the material (or economic) circumstance shapes (or re-shapes) human behavior”.

        Merijn is not talking about material or economic circumstances:

        “[people] will change their way of thinking, their preferences, their methods of choice and even their feelings when they learn reading and arithmetic”.

      • July 28, 2017 at 4:07 pm

        merijntknibbe and davetaylor1

        Behind the behavior, there is a belief, feeling, way of thinking, and others. Economy is driven by the actions of people which are dictated by behavior. When we talk about economics, it is sufficient to consider human behavior. If the belief changes, behavior changes.

  2. July 27, 2017 at 4:51 am

    “More Heat than Light” by Mirowski gives a good picture of the “shameless” imitation of Physics by Economists. The post-Newtonian developments have not been noted by economists, who are still stuck in the Newtonian methodological paradigms. Indeed, Modern Physics is the most amazing of creations, which would repay deeper examination.

    For a discussion of Polanyi’s Methodology see my post linked below; which also provides links to my paper on this topic in WEA Economic Thought journal. I would note that this methodology is used in Polanyi’s book without explicit articulation. I have extracted this methodology from his book on the Great Transformation by looking at the structure of the main arguments he presents. There is a huge literature on Polanyi of which I am not aware, but I have been unable to find any previous authors who have come to similar conclusions about Polanyi
    https://weapedagogy.wordpress.com/2014/06/26/methodology-of-polanyis-great-transformation/

    I am fully in agreement with the idea that agent based models are a substantial advance on modern economic methodology for many different reason — they allow for heterogeneity and complexity. I have students working on theses based on such model.s However, I have become aware of the limitations of such models as a result of using them. In particualar they cannot allow for human creativity and innovation to the extent required to caputre human behavior. This means that they are good for “normal times, but would tend to fail in crises where change occurs rapidly and humans respond to it .

    • July 29, 2017 at 9:58 am

      Dear Asad Zaman,

      Thank you for references concerning Polanyi’s methodology. I will refer it in the paper I am now writing.

      My reply to your post at July 27, 2017 at 4:51 am was late, because I was re-reading Mirrowski’s book. I have some questions on the picture that Mirrowski gave. It may be “a good picture of the “shameless” imitation of Physics by Economists,” but in my understanding it applies only to neoclassical economics after 1870 (more exactly from 1860’s).

      Here is my understanding:
      (1) The conservation law of energy was only well established only in the late 19h century. Mirrowski claims that it just came “to be fully articulated in the mid-nineteenth-century physics.” (p.174) However, Robert Mayer had a great difficulty in 1840’s to let his papers accepted in journals. He was publicly rewarded only in 1960 after a decade of his mental illness. Except advanced physicists of the time, the public including economists at the time could not understand its great meaning until the late 19th century. It is quite strange and difficult to argue that David Ricardo died 1823 was strongly influenced by some form of conservation law, or philosophy related to conservation laws.

      (2) Mirrowski argues that Adam Smith was an unusual classical economist who was interested by Cartesian physics rather than Newtonian dynamics (p.164). Admitting that it is true, it is not evidence good enough to prove that Smith, Ricardo, John Stuart Mill and Karl Marx were influenced by conservation idea when they examined their theory of value. If Mirrowski emphasize influence of physics of the day, why does he ignore Newton instead of DesCartes and Leibnitz? The picture of “the “shameless” imitation of Physics by Economists” is an invention intentionally or unconsciously imposed on classical economists.

      (3) Even in the case of neoclassical economists, Mirrowski-type externalist criticism, i.e. “the ‘shameless’ imitation of Physics by Economists” as you put it, does not gives us a good hint when we consider re-organization or re-formulation of economics. It only creates rejection or contempt to economics. We see examples in so many replies in this blog. Criticism to the present state of economics is right but it must be accompanied with some suggestions to a future reconstruction of economics.

      • July 30, 2017 at 3:07 pm

        “shameless” is a quote from Mirowski. For my purposes, it does not matter whether or not economists imitated physics. It does matter that they adopted an a-historical methodology, which call for study of universal laws of economics,, which pays no attention to institutional and environmental factors. Most importantly, human ideas play no role in economics.

        My criticism is based directly on the provision of an alternative methodology, which argues that human ideas — social science theories — play an important role in determining economic, social and political structures. This idea is radically different from neoclassical economics, which does not allow for human ideas at all, and from Marxist economics, which argues for materialistic determinism, which says that human ideas are determined by fundamental economics constraints.

        Contrary to how Robert Locke understands my arguments, I explicitly argue for a BI-DIRECTIONAL causality, where institutional structures and political and historical events influence human thought, but also conversely, ideas affect events and institutions.

      • robert locke
        July 30, 2017 at 5:01 pm

        Asad, I don’t have a grand quarrel with you, but I am a trained historian, with a PhD in modern European history, emphasis on modern continental Europe (France and German) and I have always found that “human ideas = social science theories,” have much less to do with the history of ideas than geopolitical outcomes. This means that I agree with your view that neoclassical economics “does not allow for human ideas at all” but that I do not have as much faith as you have in how social science ideas affect events and institutions. My own research into the subject over the past fifty years has led me to conclude that the US political and economic hegemony led to the triumph of neoclassical economic theory, econometrics. and US management theory after WWII. But not the ideas themselves. We cannot even argue that American hegemony
        in economic theory, management, and econometrics led to the defeat of Germany and Japan in WWII. We all know, or should know, that Germany’s defeat occurred because the Soviet Union outmanaged Germany and outfought it. American hegemony was established in 1945, whereas the defeat of Germany had been consummated in the East by the destruction of he Wehrmacht in that desperate fight. Do we argue that superior soviet economic and management ideas produced the victory.

        When the smoke cleared, American strength was propagated all over the world. Those of us who after studied it, and there is a plethora of literature about it, have traced the development of US hegemony in economics and managerial thought through the development of the marshal plan, and the
        institutional profliferation US higher education. German universities closed down from 1945-1950, German worldwide influence in social thought and economic analysis suffered accordingly. You don’t suffer a crushing defeat on the order Germany did,without your thought world also losing credibility.

        If you knew more history, Asad you would not locate the triumph of neoclassical economics in the 19th century, nor would you try to make US managerialism a universal triumph as Alfred Chandler Jr. did, after WWII, because when they recovered from the war both Germany and Japan borrowed a lot from the Americans, but they also relied on their own institutions and habits of thought to guide them differently in their search for a proper social and economic order.

        I have written about this extensively, borrowing from a expanding literature.

        Asad, your own work, is about looking outside the American and Anglo-Saxonian traditions in economic and management thought, for intellectual and moral sources that are better guides to social order than those imposed on the world in the period of US hegemony. I don’t think that superior ideas triumphed over weaker ones (most Americans do) mid20th century. A constellation of political-military forces defeated the axis power, in which (except for the Pacific) the US played a minor roll right up until 1945, and then, emerging relatively unscathed from the cataclysm in 1945, a major one post WWII.

      • August 1, 2017 at 6:10 am

        As I have said before, the story is much more complicated than the one you give, which is not in anybody’s history of economics. It amazingly omits the “Keynesian golden age” – which was a triumph of the what you identify as the German approach over the neoclassical approach, AFTER the war. So this history is in many respects the opposite of the one that is universally accepted by the left and the right.

        Yes, the neoclassical-synthesis Keynesians had the neoclassical virus in it. It was unfortunate that Keynesianism didn’t combine enough with US institutionalism. And of course, both Keynes & the US institutionalists were inspired by German thought. But US economics & policy wasn’t taken over by neoclassicals until the 70s. 1945 just wasn’t the turning point.

  3. robert locke
    July 27, 2017 at 11:06 am

    If you did not make ideas drive intellectual outcomes, but understood that geopolitical outcomes do, then you would not ignore history the way you do. Right up until WWI historical and institutional economics predominated in economic studies, even in the US Economics Association, as Ken Zimmerman reminded us in a recent comment. When Germany lost two World Wars, then German economics succumbed to the economics of the victors. That’s geopolitical causation, and the fall out can be and should be traced in any good history of economic thought.

  4. July 31, 2017 at 1:29 am

    @robert locke: Don’t you think that Marx’s Utopian Vision of a classless society where each one would be provided for, according to his needs, was of great importance in shaping the revolution and the institutions of communist Russia and China? Does not this clearly demonstrate the power of human ideas to shape history?

    • robert locke
      July 31, 2017 at 9:03 am

      The “vision” had a great impact on society, but the means for its achievement did not have much to do with Marx. Marx’s analysis of the Revolution broke down in the 19th century when Bernstein revisionists adopted an anti-revolutionary outlook based on a democratic and economic view that challenged Marx’s idea of the increasing improverishment of the proletarian under capitalism. Marx’s Bernstein revisionism became the vision of the Majority Socialists in Germany, against which the Bolsheviks and Independent Socialists fought. The Bolshevik triumph was not triumph of Marxist’s ideas, neither in Russia or China, since both were hardly capitalist nations. The Collapse of Russia in 1917 occurred because a backward country could not prevail against an advanced industrial one in WWI. It had nothing much to do with Marxism, and certainly not with how Marx predicted capitalism would evolve into revolution. As the Mensheviks predicted, you might have a revolution, but it certainly won’t be a Marxist one carried out by the Bolsheviks. The Bolsheviks tried to justify their revolution as Marxist by latching on to Hobson’s idea of capitalist Imperialism, which Lenin portrayed in Imperialism the Highest Stage of Capitalism during WWI, but it won’t wash as a causal agent for subsequent events and certainly not events that Marx predicted. Marxism, in the late 20th century, which stretched officially from China to West Germany, collapsed and even the vision went under with it.

  5. July 31, 2017 at 9:17 am

    I agree completely that Marx’s analysis was wrong in terms of the mechanisms he thought would lead to the self-destruction of capitalistic societies — he did not at all think that agrarian societies would skip the capitalist phase and jump to the communist phase which would arise at the end of capitalistic phase. He was very much a believer in the social evolution of societies following “natural laws” of development, along the Hegelian lines of thesis antithesis and synthesis. This has nothing to do with the point I am making. The UTOPIAN VISION of Marx strongly affected 20th century history, EVEN THOUGH his detailed analysis was wrong on many points. This shows how human ideas impact history, whether they are right or wrong. IN FACT, this is one of the key point made by POLANYI (an excellent and deep student of HISTORY, whose work I am using): Humans FREQUENTLY come to a WRONG understanding of the historical mechanisms which are causing social change. THEY fashion their RESPONSES using this WRONG analysis. This response SHAPES history. Thus human ideas, WRONG or RIGHT, end up shaping history. ONE example of this is the Malthusian analysis of poverty, which was dead wrong. Nonetheless, it displaced the more humanitarian solutions which were on the table, and led to creation of very strict and harsh treatments, designed to eradicate poverty by eradicating the poor themselves. As Malthus said in an unguarded passage, that we need to encourage the poor to live in crowded filthy conditions and encourage disease and plague to spread among them.

    • robert locke
      August 1, 2017 at 3:29 pm

      Asad, could you please get away from the English and American thought world; in the 19th century the educated world did not accept it. Those of us who specialize in 19th century Europe know this. There was no Methodenstreit that ended historical and institutional thought in economics; Calgacus points this out in his comment, neoclassical economics triumphed in the 1970s. I wrote about it in the neoclassical takeover of economics in business school education in the 1960s’ Your problem is that you are falsifying the history of ideas, then making this false picture the causal factor in dismal human outcomes.
      When I was a graduate student in the 1950s, we read Keynes’ General Theory, as a corrective to neoclassical economics, and a lot of memoires about Marxism and Communism, Lenin’s Imperrialism the Highest Stage of Capitalism, Schumpeter’s Imperialism, as a corrective to Lenin, The Captive Mind by Milosz, Darkness at Noon, by Koestler, Craig, the Politics of the Prussian Army, Hobson on Imperialism, Trotsky, The Betrayal of the Revolution, Hannah Arndt book on the Origins of Totalitarianism, Friedrich and Brezenski Totalitarianism, and a host of other works that clarified the complex history of ideas on Marxism and Capitalism at the time. If people in economics were reading other things, they were not getting a very good intellectual history of the times. And reading your hero, Polyani, might be an eye-opener to people studying economics, but not to well-trained historians.

  6. robert lo9tke
    August 1, 2017 at 10:05 am

    Asad, could you please get away from the English and American thought world; in the 19th century the educated world did not accept it. Those of us who specialize in 19th century Europe know this. There was no Methodenstreit that ended historical and institutional thought in economics; Calgacus points this out in his comment, neoclassical economics triumphed in the 1970s. I wrote about it in the neoclassical takeover of economics in business school education in the 1960s’ Your problem is that you are falsifying the history of ideas, then making this false picture the causal factor in dismal human outcomes.

    When I was a graduate student in the 1950s, we read Keynes’ General Theory, as a corrective to neoclassical economics, and a lot of memoires about Marxism and Communism, Lenin’s Imperrialism the Highest Stage of Capitalism, Schumpeter’s Imperialism, as a corrective to Lenin, The Captive Mind by Milosz, Darkness at Noon, by Koestler, Craig, the Politics of the Prussian Army, Hobson on Imperialism, Trotsky, The Betrayal of the Revolution, Hannah Arndt book on the Origins of Totalitarianism, Friedrich and Brezenski Totalitarianism, and a host of other works that clarified the complex history of ideas on Marxism and Capitalism at the time. If people in economics were reading other things, they were not getting a very good intellectual history of the times. And reading your hero, Polyani, might be an eye-opener to people studying economics, but not to well-trained historians.

  7. August 2, 2017 at 1:18 am

    robert locke — as far as I know, the MAIN issue under debate is whether or not human visions and ideas influence history. You started by stating that ideas do not impact history, which is driven by geopolitics. Later, You have agreed that Marx’s Vision did indeed have a huge impact on 20th century history. In fact, many aspects of your OWN analysis show the powerful impact of human ideas on history. For example if Russian Victory was due to superior management and economic ideas, then obviously, ideas drive history. Unfortunately, positivist ideas have soaked deeply into minds of 20th century intellectuals, so despite a nominal understanding of collapse of positivism, social scientists throughout find it very difficult to give credence to the idea that invisible and observable forces — like human vision, independent of geopolitical context — could be drivers of history. This appears to me to the UNIQUE feature of Polanyi, his understanding that the Industrial revolution was not mainly a material transformation — the major innovations were SOCIAL, where human beings learned how to create a different way of relating to each other and to their environment. These new social structures, based on centralizing markets conceptually, have led to environmental disaster. Our positivist FAILURE to recognize these ideas as drivers, to ignore them in favor of observable and material and quantifiable causes, have led to a complete blindness to the source of our problems today.

    • robert locke
      August 2, 2017 at 8:36 am

      “Our positivist FAILURE to recognize these ideas as drivers, to ignore them in favor of observable and material and quantifiable causes, have led to a complete blindness to the source of our problems today”

      Who is “our” in this case? I am not part of this “our” and neither are those who influenced my education and teaching in modern history. The most important intellectual movement of the late 20th century was “postmodernism”. Postmodernist criticized positivism brutally in almost every study field in US universities, except economics and management. The nineteenth century thinkers, as opposed to novelists, I got interested in were opponents of positivism, people like Tocqueville, Social Catholics like Frederick Le Play, who adopted views of society and industrialization that were not anachronistic in terms of economic development, but communitarian in values. This communitarian vision is as much part of economic development as Polanyi version of the Great Transformation.

      When I taught European history I made a distinction between the 18th and 19th century. Marx saw the rise of the bourgeoisie as part of the evolvingmarket system. I concluded he was wrong. The age of the democratic revolutions were integral to the process of largescale commercialization and industrialization that came in the nineteenth century. Make this separation in your mind and you will discover that those countries that underwent liberalization and democratization BEFORE the 19th century, e.g., France, the US, industrialized differently in terms of socials and organizational values than those that industrialized in late nineteenth without ever having experienced a political and social democratic revolution first, e.g., Germany, Japan, etc.

      When the US triumphed in the economic thought world, the continental thought tradition came back to attack that world in the form of postmodernism, building on social=political traditions that were not Anglo=Saxon, which people like me who did not study US history or the British Empire, but central and northern Europe always understood to reflect different political-social modes for modernization.

      • robert locke
        August 2, 2017 at 8:56 am

        Sorry, my comment should read that the age of the democratic revolution were not integral to the process of largescale commercialization and industrialization that came in the late 19th century. I left the “not” out. I drew this conclusion after looking at 19th century French financiers and industrialists who participated in high scale finance and mass industrialization, but had anti-liberal backgrounds. Puzzled, I discussed this with Alfred Cobban, eminent British historian of France at the Senate House in London in 1962, whose work on the French Revolution made it into a social but not an economic revolution. Further work on the industrialization of Germany and Japan confirmed my conclusion. It took over 10 years of research and thought into the sources for me to conclude that the 18th century social revolution was not the 19th century industrial revolution. That formed the analytical basis for my book, French Legitimists and the Politics of Moral Order in the Early Third Republic, Princeton UP, 1974. It made my reputation among French historians.

  8. August 2, 2017 at 8:44 am

    You keep writing this that and the other, but I cannot see a clear postion on the MAIN ISSUE UNDER DISCUSSION: Does human vision affect and shape history or not? YES or NO?

    • robert locke
      August 2, 2017 at 9:20 am

      Of course human vision affects history but the human visions you and Polyani say did, do not explain the evolution of the political and social structures and market vision of capitalism outside the Anglo-Saxon world. If you knew more than Anglo-Saxonian thought, which you obviously imbibed in a postBritish-American imperial environment, you would understand this. You need to learn from me and others I have learned from. I was born in 1932 and have thought about these issues for a long time. And published. Why do you resist alternative visions of capitalism to Polyani’s that evolved in continental Europe. I can only conclude that you are twice a victim of British imperialism.

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