The Nature and State of Modern Economics

Book · April 2015with 3,828 Reads
DOI: 10.4324/9781315724416
Publisher: 978-1-138-85102-3
Publisher: Routledge
Abstract
What do modern academic economists do? What currently is mainstream economics? What is neoclassical economics? And how about heterodox economics? How do the central concerns of modern economists, whatever their associations or allegiances, relate to those traditionally taken up in the discipline? And how did economics arrive at its current state? These and various cognate questions and concerns are systematically pursued in this new book by Tony Lawson. The result is a collection of previously published and new papers distinguished in providing the only comprehensive and coherent account of these issues currently available. The financial crisis has not only revealed weaknesses of the capitalist economy but also highlighted just how limited and impoverished is modern academic economics. Despite the failings of the latter being more widely acknowledged now than ever, there is still an enormous amount of confusion about their source and true nature. In this collection, Tony Lawson also identifies the causes of the discipline’s failings and outlines a transformative solution to its deficiencies. Amongst other things, Lawson advocates for the adoption of a more historical and philosophical orientation to the study of economics, one that deemphasizes the current focus on mathematical modelling while maintaining a high level of analytical rigour. In so doing Lawson argues for a return to long term systematic and sustained projects, in the manner pursued by the likes of Marx, Veblen, Hayek, and Keynes, concerned first and foremost with advancing our understanding of social reality. Overall, this forceful and persuasive collection represents a major intervention in the on-going debates about the nature, state, and future direction of economics.
Essays on the Nature and State
of Modern Economics
What do modern academic economists do? What currently is mainstream
economics? What is neoclassical economics? And how about heterodox
economics? How do the central concerns of modern economists, whatever
their associations or allegiances, relate to those traditionally taken up in the
discipline? And how did economics arrive at its current state? These and
various cognate questions and concerns are systematically pursued in this
new book by Tony Lawson. The result is a collection of previously published
and new papers distinguished in providing the only comprehensive and
coherent account of these issues currently available.
The financial crisis has not only revealed weaknesses of the capitalist
economy but also highlighted just how limited and impoverished is modern
academic economics. Despite the failings of the latter being more widely
acknowledged now than ever, there is still an enormous amount of confusion
about their source and true nature. In this collection, Tony Lawson also
identifies the causes of the discipline’s failings and outlines a transformative
solution to its deficiencies.
Amongst other things, Lawson advocates for the adoption of a more
historical and philosophical orientation to the study of economics, one that
deemphasizes the current focus on mathematical modelling while maintaining
a high level of analytical rigour. In so doing Lawson argues for a return to long
term systematic and sustained projects, in the manner pursued by the likes of
Marx, Veblen, Hayek, and Keynes, concerned first and foremost with
advancing our understanding of social reality.
Overall, this forceful and persuasive collection represents a major inter-
vention in the on-going debates about the nature, state, and future direction of
economics.
Tony Lawson is Professorial Research Fellow of the Independent Social
Research Foundation and Reader in Economics at Cambridge University, UK.
‘This is a book of genuine originality, something that is rare in modern
academia and all too often confused with mere novelty. Few thinkers can
legitimately claim to have had a significant impact on their chosen field.
Fewer still can claim to have substantively changed the terms of debate of
that field. Tony Lawson is one of those few. These essays are for anyone
with an interest in the future of the discipline.’
Jamie Morgan, Reader in Economics, Leeds Beckett University;
Co-editor, Real-World Economics Review
‘Tony Lawson has changed the conversation.’
Edward Fullbrook, Executive Director of the World Economics Association
‘This book should be read by everyone concerned to remedy the
deficiencies in economics exposed by the 2008 financial crisis. Through
rigorous argument, Lawson shows that the answer is not more complex
forms of mathematical modelling, but the adoption of . . . methods
that recognize the open-ended, relational, and processual character of
economies.’
Diane Elson, Professor of Sociology, University of Essex, UK
‘Economics is notorious for a slapdash approach to its own methodology,
best epitomised by Friedman’s infamous “assumptions don’t matter”
paper. Samuelson rightly satirised Friedman’s position as “the F-twist”,
but despite this putdown, mainstream economists continue to use
Friedman’s obiter dictum as a way to escape having to consider the realism
of their methods. Tony Lawson provides the “L-correction” to Friedman’s
“F-twist”, by forcing economics to consider its ontology. If the L-correction
works, the reformed discipline of Economics may differ from Lawson’s
expectations, but it can only be improved by having to confront its current
unrealism.’
Steve Keen, Professor and Head of Economics, History &
Politics, Kingston University, London, UK
‘Tony Lawson is the enfant terrible of modern economic methodology.
Whether you agree with him or not, he makes you think. This collection of
(all but one) previously published papers is no exception. Highly
recommended for all those with the slightest interest in the current state
and nature of economic science.’
Dimitris Milonakis, Professor of Political Economy and Dean
of the Faculty of Social Sciences, University of Crete, Greece
‘There has been a growing sense of discontent with the economics
discipline since the outbreak of the Global Financial Crisis. Tony Lawson
argues that “the winter of our discontent” should be seen as much deeper
than the current debate conveys—tracing much further back in time than
2008, and at more fundamental methodological and analytical levels.
Lawson writes with clarity and with an intellectual passion. A must read
for any student of economics and political economy.’
Peter Boettke, Professor of Economics and Philosophy at George Mason
University, USA
‘For many years now Tony Lawson, whose background includes
mathematics and philosophy as well as economics, has been making a
sustained critique of the methodology and approaches of modern
economics. In this important book, which should be required reading for
all serious economists, regardless of their approach, Lawson sets out
starkly and systematically the substances of his criticisms. He outlines the
way forward towards constructive approaches in teaching, research, and
policy, allied with avenues for fruitful dialogue between the criticisers and
the criticised alike.’
G.C. Harcourt, Professorial Fellow, University of New
South Wales, Australia
Economics as Social Theory
Series edited by Tony Lawson
University of Cambridge
Social Theory is experiencing something of a revival within economics.
Critical analyses of the particular nature of the subject matter of social
studies and of the types of method, categories and modes of explanation
that can legitimately be endorsed for the scientific study of social objects,
are re-emerging. Economists are again addressing such issues as the rela-
tionship between agency and structure, between economy and the rest of
society, and between the enquirer and the object of enquiry. There is a
renewed interest in elaborating basic categories such as causation, com-
petition, culture, discrimination, evolution, money, need, order, organ-
ization, power probability, process, rationality, technology, time, truth,
uncertainty, value etc.
The objective for this series is to facilitate this revival further. In
contemporary economics the label “theory” has been appropriated by a
group that confines itself to largely asocial, ahistorical, mathematical
“modelling”. Economics as Social Theory thus reclaims the “Theory”
label, offering a platform for alternative rigorous, but broader and more
critical conceptions of theorizing.
Other titles in this series include:
1. Economics and Language
Edited by Willie Henderson
2. Rationality, Institutions and
Economic Methodology
Edited by Uskali Mäki,
Bo Gustafsson, and
Christian Knudsen
3. New Directions in Economic
Methodology
Edited by Roger Backhouse
4. Who Pays for the Kids?
Nancy Folbre
5. Rules and Choice in
Economics
Viktor Vanberg
6. Beyond Rhetoric and
Realism in Economics
Thomas A. Boylan and
Paschal F. O’Gorman
7. Feminism, Objectivity and
Economics
Julie A. Nelson
8. Economic Evolution
Jack J. Vromen
9. Economics and Reality
Tony Lawson
10. The Market
John O’ Neill
11. Economics and Utopia
Geoff Hodgson
12. Critical Realism in Economics
Edited by Steve Fleetwood
13. The New Economic Criticism
Edited by Martha Woodmansee
and Mark Osteeen
14. What do Economists Know?
Edited by Robert F. Garnett, Jr.
15. Postmodernism, Economics
and Knowledge
Edited by Stephen Cullenberg,
Jack Amariglio and
David F. Ruccio
16. The Values of Economics
An Aristotelian perspective
Irene van Staveren
17. How Economics Forgot History
The problem of historical
specificity in social science
Geoffrey M. Hodgson
18. Intersubjectivity in
Economics
Agents and structures
Edward Fullbrook
19. The World of Consumption,
2nd Edition
The material and cultural
revisited
Ben Fine
20. Reorienting Economics
Tony Lawson
21. Toward a Feminist
Philosophy of Economics
Edited by Drucilla K. Barker and
Edith Kuiper
22. The Crisis in Economics
Edited by Edward Fullbrook
23. The Philosophy of Keynes’
Economics
Probability, uncertainty and
convention
Edited by Jochen Runde and
Sohei Mizuhara
24. Postcolonialism Meets
Economics
Edited by Eiman O. Zein-Elabdin
and S. Charusheela
25. The Evolution of Institutional
Economics
Agency, structure and
Darwinism in American
institutionalism
Geoffrey M. Hodgson
26. Transforming Economics
Perspectives on the critical
realist project
Edited by Paul Lewis
27. New Departures in Marxian
Theory
Edited by Stephen A. Resnick and
Richard D. Wolff
28. Markets, Deliberation and
Environmental Value
John O’Neill
29. Speaking of Economics
How to get in the conversation
Arjo Klamer
30. From Political Economy to
Economics
Method, the social and the
historical in the evolution of
economic theory
Dimitris Milonakis and Ben Fine
31. From Economics Imperialism
to Freakonomics
The shifting boundaries
between economics and other
social sciences
Dimitris Milonakis and Ben Fine
32. Development and
Globalization
A Marxian class analysis
David Ruccio
33. Introducing Money
Mark Peacock
34. The Cambridge Revival of
Political Economy
Nuno Ornelas Martins
35. Understanding Development
Economics
Its challenge to development
studies
Adam Fforde
36. Economic Methodology
An historical introduction
Harro Maas
Translated by Liz Waters
37. Social Ontology and Modern
Economics
Stephen Pratten
38. History of Financial
Crises
Dreams and follies of
expectations
Cihan Bilginsoy
39. Commerce and
Community
Ecologies of social
cooperation
Robert F. Garnett, Jr.,
Paul Lewis and
Lenore T. Ealy
40. Essays on the Nature and
State of Modern
Economics
Tony Lawson
Essays on the Nature
and State of Modern
Economics
Tony Lawson
First published 2015
by Routledge
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© 2015 Tony Lawson
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asserted in accordance with the Copyright, Designs and Patent Act 1988.
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explanation without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Lawson, Tony.
The nature and state of modern economics / Tony Lawson.
Includes bibliographical references and index.
1. Economics—Study and teaching (Higher) 2. Economics. I. Title.
HB74.5.L39 2015
330—dc23 2014036834
ISBN: 978-1-138-85101-6 (hbk)
ISBN: 978-1-138-85102-3 (pbk)
ISBN: 978-1-315-72441-6 (ebk)
Typeset in Palatino
by RefineCatch Limited, Bungay, Suffolk
To Julien and Chloe
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Contents
Preface xii
Acknowledgements xiii
1 Continuing myths and fallacies of modern economics 1
2 Modern economics: the problem and a solution 13
3 The nature of heterodox economics 25
4 What is this ‘school’ called neoclassical economics? 56
5 The current economic crisis: its nature and the course
of academic economics 105
6 Contemporary economics and the crisis 130
7 Mathematical modelling and ideology in the
economics academy: competing explanations of the
failings of the modern discipline? 142
8 Tensions in modern economics: the case of
equilibrium analysis 169
9 Soros’ theory of reflexivity: a critical comment 188
10 Ontology, modern economics, and pluralism 204
11 The varying fortunes of the project of mathematising
economics: an evolutionary explanation 220
Index of names 252
Index of subjects 255
Preface
These essays are put together because, although there is some overlap
across them, they do I think complement each other. Frequently, critics of
one or other have castigated me for not mentioning or addressing matters
that are in fact covered by other papers. So here a set of inter-relating
papers are put together in a manner that hopefully comprises an integrated
and reasonably coherent whole.
All chapters but the first are previously published. For permissions to
republish the material included I am grateful to Anthem Press (chapter 2),
the Cambridge Journal of Economics/Oxford University Press (chapters
3, 4 and 5), the World Economics Association (chapters 6 and 7), Routledge
(chapters 8 and 10), Revue de Philosophie Économique/Vrin (chapter 9)
and the European Journal of Economic and Social Systems/Lavoisier
(chapter 11).
The papers have been written over a decade or more and so for
intellectual input and support I am indebted to far more people than
I can possibly remember. Individual chapters do though carry their own
particular acknowledgements. However, in the endeavour of putting the
chapters together (as well as that of writing the most recent contributions)
I must thank the Independent Social Research Foundation for generous
supportive funding.
Tony Lawson
Cambridge, August 2014
Acknowledgements
Sources of chapters:
1. Continuing myths and fallacies of modern economics. (2014). Previously
unpublished.
2. ‘Modern Economics: the Problem and a Solution’, in Edward Full-
brook (ed.), The Student’s Guide to What’s Wrong with Economics,
Anthem Press (an imprint of Wimbledon Publishing Company),
(2004), pp. 21–32.
3. ‘The Nature of Heterodox Economics’, Cambridge Journal of Economics,
(2006)(30): 2 (July), pp. 483–507.
4. ‘What is this ‘School’ called Neoclassical Economics?’Cambridge
Journal of Economics, (2013) 37(5), pp. 947–83.
5. ‘The Current Economic Crisis: its Nature and the Course of Academic
Economics’, Cambridge Journal of Economics, (2009) 33(4), July,
pp. 759–88.
6. ‘Contemporary Economics and the Crisis’, Real-World Economics
Review, (2009) 50, pp. 122–31.
7. ‘Mathematical Modelling and Ideology in the Economics Academy:
competing explanations of the failings of the modern discipline?’,
Economic Thought: History, Philosophy Methodology, open access journal
of the World Economic Association, (2012) 1(1), pp. 3–22.
8. ‘Tensions in Modern Economics. The Case of Equilibrium Analysis’,
in Valeria Mosini (ed.), Equilibrium in Economics: Scope and Limits,
(2007) London and New York: Routledge.
9. ‘Soros’s Theory of Reflexivity: A Critical Comment’, Revue de
Philosophie Économique, (2013) 14(1).
10. ‘Ontology, Modern Economics and Pluralism’ in Robert Garnett, Erik
K. Olsen, Martha Starr (eds.), Economic Pluralism, (2010), pp. 99–113,
London and New York: Routledge.
11. ‘The Varying Fortunes of the Project of Mathematising Economics’,
European Journal of Economic and Social Systems, Volume 15, N°4 2001,
pp. 241–68.
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1 Continuing myths and fallacies
of modern economics1
What is the nature of economic analysis as it is currently pursued in
the academy and, intellectually speaking, in how healthy a state is
the modern economics discipline? These, broadly, are the questions
addressed in the papers collected below. Actually the state of health of the
discipline, not least that of its hugely dominant mainstream project
(and the latter project influences all else that goes on) is easily and
quickly summarised. Intellectually, the discipline is in some disarray,
short on explanatory successes, largely detached from its subject-matter,
and seemingly without clear objectives or sense of direction. However, if
the state of the discipline is easily in this way summarised, filling in the
details, accounting for the repeated failures, and indicating how the
discipline arrived at its current sorry situation, require a good deal of
systematic analysis and elaboration.
The papers included below are concerned to address these and related
issues. As such, they are generally explanatory in nature, albeit
concerned to lay the foundations for transcending the discipline’s
continuing failings. They are also, though, somewhat critical in orienta-
tion. Although the object of this critical concern is most clearly seen to be
the current hugely dominant mainstream project, the criticism levelled
does extend significantly further. For this mainstream project is able to
persist in its unhappy state and yet simultaneously remain hugely domi-
nant and influential, in large part because of the workings of a set of
persistent myths and fallacies many of which are accepted at least as
much by heterodox critics of the mainstream as by the latter’s own
protagonists.
These myths and fallacies usually take the form of presuppositions that
underpin more explicit beliefs and accepted practices, and as such they
tend very often to go unnoticed, or, if noticed, they are rarely critically
examined. It is because this is so that the objective of this current very
short introductory chapter is given over to formulating some of these
more fundamental preconceptions explicitly and in somewhat stark terms,
placing them up front, and indicating in an equally stark manner why
indeed they are erroneous.
2 Continuing myths and fallacies of modern economics
There are likely various reasons that the errors of the sort that I have
in mind do not receive greater critical examination. No doubt their
perpetuation serves (whether wittingly or otherwise) certain vested
interests at various levels. But an especially (and perhaps the most)
significant factor is that modern economists, not least those who set
themselves up as media commentators, policy advisors/analysts and the
like, mostly (there are important exceptions) reveal themselves to be
unwilling to do the philosophical legwork necessary to get to the nub of
the issues involved.
Most of these individuals unhesitatingly presume that the recourse of
criticising substantive claims (typically modelling assumptions) of others
and thereafter substituting (equally questionable) alternatives of their
own is always sufficient and proper procedure (the sort of error that I am
here seeking to dispel). To the extent that a few of the individuals in
question do reveal some awareness of somewhat philosophically oriented
critiques, the resort typically is to avoid the effort of engaging by instead
displaying overtly dismissive postures, suggesting for example that their
formulators know no economics, have hidden agendas, cannot do the
mathematics, are ‘economic flat-earthers’, merely hide behind terms
ending in ‘ism’ and ‘ology’, and so forth. The inevitable consequence is
that discussions of the state of the modern discipline remain largely
superficial, criticism is mostly misdirected and overly tame, and supposed/
proposed alternative approaches or projects (some of which receive
significant financial backing) end up, in the main, being essentially more
of the same.
It is thus with the aim of counterbalancing tendencies of the sort
just noted that in this opening chapter I focus solely, and in an explicit
and sustained fashion, on some of the various myths and fallacies
that, in my assessment, individually or collectively, serve to obstruct
serious attempts to transform modern academic economics into a more
relevant, open-minded, serious and pluralistic discipline. I proceed,
as I say, by way of formulating a number of them in simple and stark
terms and placing them up front at the outset rather than (or before they
appear) embedded in longer argumentative texts. In each case, after
indicating briefly why I take the presupposition in question to be
erroneous, I provide references to textual sources where the relevant
argument is developed at length.
Continuing myths and fallacies of modern economics 3
The myths and fallacies I have in mind run as follows:
Twenty common myths and/or fallacies
of modern economics
Concerning the nature and problems of the discipline
1 The widely observed crisis of the modern economics discipline turns on
problems that originate at the level of economic theory and/or policy.
It does not. The basic problems mostly originate at the level of
methodology, and in particular with the current emphasis on methods
of mathematical modelling. The latter emphasis is an error given the
lack of match of the methods in question to the conditions in which
they are applied. So long as the critical focus remains only, or
even mainly, at the level of substantive economic theory and/or
policy matters, then no amount of alternative text books, popular
monographs, introductory pocketbooks, journal or magazine articles,
newspaper columns, blogs, new institutes or centres, alternative
programmes or projects, conferences, workshops, plenary speeches,
videos, comic strips or whatever, are going to get at the nub of the
problems and so have the wherewithal to help make economics a
sufficiently relevant discipline. It is the methods and the manner of
their usage that are the basic problem. These methods more or less
necessitate that the sorts of theories and policy formulations
entertained are always (if implicitly) accounts of closed worlds
inhabited only by isolated atoms (entities that always act with the
same, separate and independent effect, whatever the context); social
reality is easily shown to be quite different (see all the chapters below;
also Lawson, 1997, 2003).
2 The failings of modern economics emerged only with the recent economic
crisis.
This is simply false. Economics has been in an intellectually sorry state
for the last 50 years or so. The output of the discipline has long been
explanatorily a failure, plagued with unrealistic assumptions, and
produced by those with no real idea where the project is going. This
has been the case indeed ever since the significant take up of methods
of mathematical modelling in economics. Even certain prominent
mainstream spokespeople, not least Nobel Memorial Prize Winners in
Economics (for example Wassily Leontief, 1982; Milton Friedman
1999; or Ronald Coase, 1999), have, at least when adopting a reflective
mode (in presidential speeches and such like), acknowledged this
sorry situation over the years (see this volume, especially chapters 1,
5, 6, 7 and 11).
4 Continuing myths and fallacies of modern economics
3 It is a failing of modern economics not to have predicted the timing of the
recent crisis, (and given that so few did so, those who were successful should
be lauded).
Not really. Social reality including the future is open, so that successful
event prediction is typically not much more creditable than winning a
lottery. This is not to deny that we can understand many of the various
tendencies in play at any time, not least those that are unsustainable.
In the latter case we all know that something somewhere must ‘give’
in some way sooner or later. But when and how it all happens is
usually highly contingent. Of course, as with all forms of betting, it is
very often the case with economic forecasting that all possible
outcomes are covered by the totality of forecasts made. Thus, at any
given point in time there are usually some that can claim (with at least
some subset of their projections) to have got it ‘right’ (in the sense that
official figures or ‘measurements’ fall with the assumed-to-be-
appropriate bounds of error attached to these forecasts) whatever
the actual outcome (although these ‘official figures’ are frequently
revised with time, albeit perhaps after reputations have been
established). But as with most lucky gambles, those forecasts inter-
preted as successful are usually not followed by similar successes the
next time around.
In any case, successful event prediction, if mostly infeasible in the
social realm, is actually unnecessary (we can still successfully identify
explanatory social causes), and also mostly unwanted (its impossibility
being consistent with our ability to use explanatory insights to
knowledgeably transform social reality to make the world a better
place) (see this volume, chapters 6 and especially 7).
4 The economics taught in modern universities is driven by right-wing or neo-
liberal ideology.
It is not. It is driven by a methodological ideology: that mathematical
modelling is the only sound way to do economics. Throughout the
modern academy the latter is widely accepted uncritically as ‘common
sense’. Most academic economists, in my experience, have little idea
what neo-liberalism even means; nor do they care (see this volume,
chapters 3 and especially 7)
5 Dismissing the substantive theory and/or policy contributions of opponents
with the label ‘neoclassical’ is helpful in pinpointing the problems of the
discipline.
It is not. Rarely is the term defined. And far from pinpointing or
facilitating an understanding of any fundamental problem of the
discipline it almost always detracts from doing so, through giving the
impression that the problem is self-evidentially essentially a matter of
poorly, but freely constructed, theory or policy—that which is
dismissed as neoclassical (see this volume, chapter 4). Not much
better is the strategy of supposing that any approach labelled
Continuing myths and fallacies of modern economics 5
heterodox or Post Keynesian or institutional or whatever, especially if
it is a form of mathematical modelling, is necessarily any better just
because it is so labelled. To transform the discipline in a constructive
way it is necessary first to identify its problems; this is not achieved
merely by signalling opposition or support for particular contributions
through the use of unexplained labels (see this volume, chapter 4
[where it is argued that there actually is no neoclassical economic
theory or policy]).
6 Whatever may be the source of the discipline’s problems we can always make
progress by highlighting and chipping away at the lack of realisticness of
prominent substantive assumptions (such as the familiar claims made about
rationality, preferences, beliefs and states of the economy).
I doubt it. To render mathematical modelling exercises tractable
(to guarantee that embedded hypotheses are consistent with event
correlations) economists must, as already noted, turn the ‘agents’ of
their analyses into metaphorical atoms and situate them in isolated
systems quite unlike those in which we actually live (see this volume,
most chapters). This endeavour (given the actual nature of human
beings and the social world) necessitates the making of assumptions
that are inevitably mostly unrealistic. It is specifically absurd
formulations of rationality and the like that serve the purpose of
‘atomisation’.
Significantly however, although the cause of this lack of realisticness
(i.e., the very use of inappropriate methods) goes unappreciated, the
fact of this lack of realisticness of assumptions is usually acknowledge by
everyone, including those who continually employ them, and fre-
quently with regret; very often the assumptions made are interpreted
as temporary devices that are expected to be improved upon in due
course. Certainly, few if any modellers or mainstream ‘theorists’ have
defended their rationality assumptions as realistic, and when pushed,
do often substitute other (fixed) behavioural assumptions or formula-
tions (e.g. alternative specifications of rationality; or those of limited
rationality; or those even of irrationality [as for example proposed by
neuro-economists and the like]) that serve similarly to ‘atomise’ the
subjects of the analysis. In the same fashion, modern accounts of
human beliefs (e.g. rational expectations) and economic states (e.g.
equilibrium) work to facilitate model tractability or achieve various
model consistency properties, and are rarely held by their formulators
to be realistic (see all chapters, but especially chapters 4, 8 and 9).
In consequence, it is more or less futile for critics to think that
inroads can be made by noting specific cases of assumptions that are
unrealistic. Any lack of realisticness is rarely news; very often, as I say,
it is regretted.
The insight that does seem like news, that does appear to go
unrecognised by most, is that it is the emphasis on methods of
6 Continuing myths and fallacies of modern economics
mathematical modelling that is responsible for this persistent lack
of realisticness, and that in an open complex social reality the
production of unrealistic formulations is not a temporary contingent
state but inevitable. Much better then to focus the critique on the
modelling emphasis per se (see all chapters below, but especially 4,
8 and 9).
7 The project of seeking to mathematise the economics discipline is a relatively
modern one, and its dominance has been achieved through the project’s
significant explanatory successes.
Not at all. It is a project that has been underway for over 200 years.
And the current dominance of the mathematical modelling endeavour
within the academic discipline owes nothing to explanatory successes
(see this volume, especially chapters 1, 5, 6, 7 and 11), something to
the manner in which mathematics was reinterpreted by mathe-
maticians themselves in the early years of the last century (see Lawson
2003, chapter 10, or this volume, chapters 4, 7 and 11), and much
to politics (see especially Lawson 2003, chapter 10 or this volume,
chapter 7).
Concerning theoretical/philosophical issues
8 Economics can and should avoid ontology.
To the contrary, the recent neglect of ontology is a major reason the
myths and fallacies of the sort here being criticised have prevailed.
Ontology is the study of the nature of being. Like all forms of
philosophy, ontology plays a ground clearing role for science. But this
does not mean that scientists, whatever their domain of study, do not
need to engage in it at significant moments in the advancing of causal,
and indeed all other forms of, knowledge. Many physicists for
example concern themselves with investigating the basic material of
reality when they inquire into the nature of quantum fields, ‘dark
matter’, particles and waves, mass, curved spacetime, quantum
gravity, black holes, etc., all issues in ontology. Economics too has its
more basic concerns. These include such matters as social relations,
collective practices, social positions, community, capitalism, money,
corporations, technology, gender, rights, obligations, human nature,
care, trust, crises, economy, and so forth. Yet most economists,
if inevitably occasionally referencing such categories, do rarely
investigate their nature. However, it is impossible to provide much
insight without at least some understanding of the nature of both
social being in general and also the specific social phenomena being
‘theorised’. These issues, all concerns of social ontological analysis,
are easily shown to constitute part of the subject-matter of any
would-be serious social science (see this volume chapter 5; also see
Lawson, 2012a, 2012b, 2014a, 2014b, 2015a, 2015b).
Continuing myths and fallacies of modern economics 7
9 The division between modern mainstream economics and heterodox
alternatives rests fundamentally on competing substantive and policy
claims.
It does not. It rests ultimately on very different ontological presuppo-
sitions (preconceptions, often implicit and unexamined, about the
nature of social reality) combined with the fact that heterodox, but not
mainstream, economists embrace pluralistic stances at the level of
method (see this volume, especially chapter 3, but also chapters 4
and 9)
10 To criticise/oppose the current mathematical modelling emphasis is to adopt
an anti-mathematics stance.
It is not. It is simply to point out that various tools (methods
of mathematical modelling) are being used, and more or less
exclusively so, in conditions (social reality) where these tools are
generally inappropriate and more useful alternatives are available.
One of the many features that I find striking in the scene
captured in Gustave Courbet’s 1849 painting The Stonebreakers
(depicted on the cover to this the book) is the seeming incon-
gruity between the wielding of relatively light-weight hand-
held hammers and the task at hand—which is to break up rocks
and stones in the process of creating a road through a hill or
mountain. The use of mathematical modelling methods to address
economic phenomena turns out to be at least as incongruous, and
perhaps significantly more so. For when Courbet was painting, the
hammers were conceivably used in the absence or unavailability
of alternatives tools that were more appropriate to the allotted task;
or at least this was likely the situation facing the older man and
young boy depicted (individuals who in themselves seem equally
ill-suited to the sorts of tasks undertaken). However, it is not clear
that mathematical models, interpreted as tools for providing insight
to social reality, have ever been found to be useful to this allotted
task; and there have always been better more productive/fruitful
alternatives readily available (as well as people skilled in their
application).
The point is that if close study of the practices of the modern
economics academy reveals a situation that is every bit as marked by
monotony and (albeit in a different sense) impoverishment as
Courbet’s scene (and its portrayal is similarly irritating to the powers
that be) the rendering of this situation in a realistic if somewhat stark
manner is not to oppose (or be ‘anti’) the tasks or the tools. Rather it is
to criticise the generalised matching of each to the other along with
the societal causal conditions that underpin the continuing insistence/
conviction that the identified tasks be addressed or tackled only
in the depicted ways (see this volume, all chapters; and also Lawson,
2003, 2009a).
8 Continuing myths and fallacies of modern economics
11 To criticise/oppose the current mathematical modelling emphasis is to adopt
an anti-science stance.
It is not. Mathematics is not essential (or inessential) to science; science
involves using tools that are appropriate to the given task. A science of
economics is perfectly feasible, and the current emphasis on mathe-
matical modelling in economics serves, given the nature of social
reality, mostly to prevent that potential from being realised (see this
volume, chapters 1 and 9).
12 To criticise/oppose the current mathematical modelling emphasis is to adopt
an anti-pluralist stance.
It is not. Pluralism, I take it, is an orientation of support for variety at
all levels, as well as of tolerance and respect for, and willingness to
listen to, and to engage with, others. To criticise the current emphasis
on mathematics is not to argue for keeping the approach of
mathematical modelling out of the toolbox, or to refuse to engage its
users. Rather it is to resist the dogma that only mathematical modelling
methods should be, and be unquestioningly, utilised (and utilised
however unrealistic the assumptions and explanatorily unsuccessful
the whole endeavour; and despite the availability of more appropriate
alternatives). It is, in other words, to resist one particular denial of
pluralism, the version that currently dominates the discipline of
economics (see this volume, chapters 6 and especially 10).
13 The mathematical models of modern economics can be shown to generate
insights about aspects of the real world, once or if these models are
appropriately, albeit super-cautiously, interpreted.
This claim, where it is not totally banal, or a mere expression of hope
and/or faith, is almost always based on a failure to recognise that, in
most cases certainly, any insight attributed to the modelling endeavour
was never actually a result of the latter, but rather achieved prior to
model construction and incorporated into the modelling process (see
especially Lawson, 2009a).
14 Methods of mathematical modelling are, even if unnecessary, used in a
neutral fashion, serving as just another language or heuristic device.
They are not used in a neutral fashion. They are tools. And like all
tools they are appropriate for some tasks and conditions and not
others. In certain contexts tools used inappropriately can be positively
harmful. This has been (and is usually) the case with the application
of mathematical methods in economics. It has forced the discipline
into irrelevancy at best, whilst diverting resources away from
potentially insightful alternative projects and applications. The claim
that the mathematical methods adopted by economists are, or might
conceivably be, employed as useful heuristic devices, serves, in the
main, merely as an apology for this unhappy affair (see Lawson, 1997,
2003 and especially 2009a).
Continuing myths and fallacies of modern economics 9
15 Thought-to-be false assumptions and questionable modelling methods are
justified and so useable if/where they generate agreeable conclusions, or
anyway conclusions held to be true.
This is incorrect, though seemingly widely believed even, or perhaps
especially, amongst heterodox economists critical of the mainstream.
That is, heterodox economists frequently suppose that although their
modelling assumptions are (necessarily) false, their models are better
(than those of their opponents) because the conclusions generated are
held to be true. It may be true that ‘all ravens are black’. But if this
apparent truth is deductively generated from the assumptions that ‘all
ravens are vegetables’ and ‘all vegetables are black’, we have added
nothing to our understanding of ravens, vegetables or blackness; and
nor have we provided explanatory support for the proposition that
‘all ravens are black’. All deductive exercises that are so based on
known absurd fictions, and this inevitably includes almost all
mathematical modelling exercises in modern economics, are just as
pointless. Certainly they add little to our understanding of social
reality (see this volume, chapter 5 and 6).
Concerning proposals for constructively transforming the discipline
16 The solution to making modern economics more relevant lies either in revising
certain assumptions of mathematical models, or in a turn to more complex (in
particular non-linear) forms of mathematical modelling, perhaps in the form
of simulation analysis.
It does not. This fallacy is based on a failure to see that the worldview
presupposed by a reliance on these revised methods and forms is just
as unrealistic (and indeed in essence is much the same) as that presup-
posed by more traditional ways of mathematical modelling. There is
little reason to suppose that any of the novel modelling assumptions,
modelling forms, model applications, or model estimation techniques
currently on offer are of much use in the endeavour of rendering the
discipline more relevant. The problem in all cases remains a mismatch
of method and the conditions of application (see this volume all chap-
ters). A continuing inability to recognise, or reluctance to accept, this
fact of the situation explains the failure of the more recent ‘alternative’
projects interpreted as critical and ‘new’. The Institute for New Economic
Thinking (INET) sponsored by George Soros is a particular example.
Although INET no doubt sponsors a few projects that do avoid the
noted problems, in the main, and despite Soros’ own best intentions
(see this volume, chapter 9), the enterprise mostly fails to address the
discipline’s more fundamental problems, and indeed risks constitut-
ing an enormous waste of resources and opportunity (see chapters 5,
6 and 7).
10 Continuing myths and fallacies of modern economics
17 If conditions of experimental control do not hold in the social realm, then not
only is science impossible, but all methods must be inadequate and not
just mathematical modelling techniques. Thus in seeking to improve the
discipline we might as well stick with the current emphasis on mathematical
modelling.
This is another view that is both pervasive and wrong. A social science
can fruitfully concern it itself not only with much needed social
ontological elaboration but also and especially with identifying
unknown causes of significant phenomena, amongst other things (see
Lawson, 2012a, 2012b). There are numerous ways of achieving such
goals even in non-experimental contexts such as the social realm (see
this volume chapter 2; see also Lawson, 2003, chapter 4; 2009b).
18 Economics, including any transformed discipline, can and should avoid
matters of ethics/morality.
Both parts of this claim are false. Ethics and moral argument are
unavoidable, so it is better and indeed vital to address moral and
ethical concerns in an explicit, systematic and sustained fashion (see
Lawson, 2013, 2014c). Even to contend otherwise is to engage in
ethical/moral argumentation. Ethics, and specifically an ethics
grounded in ontological analyses (of such matters as human nature,
care, the nature of social organisation, and the possibilities for
flourishing [of human and other living beings]), is essential for any
suitably transformed more pluralistic, emancipated, economics (see
especially Lawson, 2014c).
19 Economics appropriately conceived is basically descriptive common sense,
and this must be the basis of a transformed economics.
This is not so. This mistaken view is unhelpfully widely promoted by
various heterodox economists especially. Although mainstream and
heterodox economists disagree on the value of descriptive common
sense, the two are united in presuming that the latter is the only real
alternative to methods of mathematical modelling (the latter being a
methodological common sense to the mainstream—see this volume,
chapter 6). This shared presumption is simply wrong. In fact, we all
need seriously to raise our game and move way beyond common
sense in all its forms; and in this both causal analysis and explicit,
systematic and sustained projects in social ontology are likely essential
(see this volume, most chapters; and also see chapters in Stephen
Pratten 2014).
20 The improving of economic teaching inevitably requires a good deal of
prolonged, collective, formal discussion and debate over issues of substantive
theory and policy
This may be so, but I doubt it. Such an assessment seems to be
underpinned by the idea that current academic economists, in
constructing syllabuses, either conform to the uncaring atoms of their
Continuing myths and fallacies of modern economics 11
own theories or are ideologically biased at the level of theory and/or
policy. I find neither to be typically the case. Rather, most modern
economists are ideologically blinkered primarily by the idea that
economics must be mathematical if it is to make a contribution. Even
the lack of pluralism that so characterises the modern economics
academy, stems mostly from a belief that to allow other methods into
the toolbox will lead to a dumbing down of the discipline and a waste
of resources.
Once the methodological error underpinning all this is revealed, or
rather fully recognised, the potential is there in principle for the skills
and energy of all the various participants in the economics academy
to be harnessed to help fashion a more relevant discipline. Of course,
new skills will likely need to be acquired by many. But we always
must start from ‘here’. In a process of successfully emancipating the
discipline, the emphasis in the beginning will doubtless be as much
upon supplementing, as upon replacing, existing courses, albeit likely
involving the conversion of various currently compulsory courses
into options (and also a change in styles of teaching [with the latter
likely being rendered more interactive]). However, I do not anticipate
that, with methodological blinkers removed, the task of providing
relevant sets of courses in economics would be significantly more
difficult (given time) than it is in any other open-minded, confident
and successful discipline, where balancing acts regarding content
taught are always to be performed—all disciplines must cope with
issues of change in subject matter, competing interpretations and
interests, and limited resources.
The pedagogical balancing act in an emancipated discipline of
economics would presumably always be one of combining insights of
the discipline regarded (albeit provisionally) as the more ‘foundational’
with any ongoing (possibly widely contested) advances regarded as
contemporarily exciting and/or novel, taking into account local
research and teaching expertise, skills and interests as well as the
concerns of students; a transformed balancing act to that currently in
play, but no less (or more) an inevitable balancing act.
The current problems, as I say, do not, in my assessment, derive in
the main from an incapacity to care, or the sway of political ideology,
or even an inability to find solutions. Rather, to repeat one last time,
they stem from a pervasive and uncritical, indeed blinkered, belief in,
and insistence upon, a simple and understandable, if ultimately
mistaken, methodological dictum: that mathematical modelling is
essential to any serious contribution to economics (see all the chapters
that follow). It is in part with the intent of providing a focussed and
sustained challenge to this dictum that the following papers or
chapters are here collected together.
12 Continuing myths and fallacies of modern economics
Note
1 I am grateful to the Independent Social Research Foundation for generous funding
of the research upon which this chapter is based. For comments on an earlier
draft I am also grateful to Phil Faulkner, Clive Lawson and Stephen Pratten.
References
Blaug, Mark (1997) ‘Ugly Currents in Modern Economics’, Options Politiques,
September: 3–8.
Coase, Ronald (1999) ‘Interview with Ronald Coase’, Newsletter of the International
Society for New Institutional Economics, Vol. 2, No. 1, Spring.
Friedman, Milton (1999) ‘Conversation with Milton Friedman’, in Snowdon B. and
Vane H. (eds.). Conversations with Leading Economists: Interpreting Modern
Macroeconomics, 124–44, Cheltenham: Edward Elgar.
Lawson, Tony (1997) Economics and Reality, London and New York: Routledge.
Lawson, Tony (2003) Reorienting Economics, London and New York: Routledge.
Lawson, Tony (2009a) ‘On the Nature and Roles of Formalism in Economics’, in
Edward Fullbrook (ed.), Ontology and Economics: Tony Lawson and His Critics,
London and New York: Routledge, chapter 12, pp. 189–231.
Lawson, Tony (2009b) ‘Applied economics, contrast explanation and asymmetric
information’, Cambridge Journal of Economics, 33(3): 405–419.
Lawson, Tony (2012a) ‘Ontology and the Study of Social Reality: Emergence,
Organisation, Community, Power, Social Relations, Corporations, Artefacts and
Money’, Cambridge Journal of Economics, 36(2): 345–385.
Lawson, Tony (2012b) “Emergence and Social Causation” in John Greco and Ruth
Groff (eds.), Powers and Capacities in Philosophy, London and New York:
Routledge, pp. 285–307.
Lawson, Tony (2013) ‘Ethical Naturalism and Forms of Relativism’, Society, 50(6):
570–5.
Lawson, Tony (2014a) ‘A Conception of Social Ontology’, in Stephen Pratten (ed.),
Social Ontology and Modern Economics, London and New York: Routledge.
Lawson, Tony (2014b) ‘The Nature of Gender’, in Stephen Pratten (ed.), Social
Ontology and Modern Economics, London and New York: Routledge.
Lawson, Tony (2014c) ‘Critical Ethical Naturalism: An Orientation to Ethics’, in
Stephen Pratten (ed.), Social Ontology and Modern Economics, London and New
York: Routledge.
Lawson, Tony (2015a) “On the Nature of the Firm, including Peculiarities of the
Corporation”, Cambridge Journal of Economics (forthcoming).
Lawson, Tony (2015b) “The Modern Corporation: the Site of a Mechanism
(of Global Social Change) that is Out-Of-Control?” Forthcoming in: Archer,
Margaret (ed.), Social Morphogenesis: Generative Mechanisms Transforming the
Social Order, New York: Springer.
Leontief, W. (1982) Letter in Science 217: 104–7.
Pratten Stephen (ed.) (2014) Social Ontology and Modern Economics, London and
New York: Routledge.
2 Modern economics:
the problem and a solution
Modern economics is not very successful as an explanatory endeavour.
This much is accepted by most serious commentators, including many
mainstream spokespeople (see e.g., Rubinstein, 1995, p. 12; Lipsey, 2001,
p. 173; Friedman, 1999, p. 137; Coase, 1999, p. 2; Leontief, 1982, p. 104). In
the words of Blaug: “Modern Economics is sick” (Blaug, 1997, p. 3).
Certainly it seems desirable that we do better.
In order to determine whether we can do better, however, we need first
to be clear how modern economics goes wrong and then to explain why it
does. Once this is achieved, once we have identified the nature and
cause(s) of the problem, we will be well placed to determine whether the
failings of the discipline are in fact remedial. I briefly consider each of
these three issues here.
The problem
So how does modern economics go wrong? It does so, I contend, simply
through its practitioners seeking to utilise methods of analysis that are
largely inappropriate for addressing material of the sort that lies within
the social domain.
A fundamental insight here is that, for any method to be able to
illuminate a domain of reality, the nature of the phenomena of that domain
must be of a sort to render this feasible. There is a sense in which method
must fit with the nature of its object. We can easily see, for example, that
the nature of glass in the window is such as to allow a cotton cloth, but not
a pneumatic drill, to serve as an appropriate tool for cleaning it. In similar
fashion for a social research method to be relevant in a specific context the
material to be studied must be of a sort as to make feasible the method’s
application.
The problem of modern economics, as I am interpreting it, then, stems
from a neglect of this insight. Rather than starting with a question about
an aspect of social reality and determining an appropriate method,
modern economists usually start with a particular type of method and
presume, mistakenly, that it must be appropriate to all social contexts.
  • Chapter
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  • Article
    The versions of positivism that are critically assessed in Bruce Caldwell’s Beyond Positivism bear two dominant sets of implications. One is that knowledge growth is monistic in nature; the other is that science has a specific deductivist structure. Caldwell focuses mainly on the former and its critics. I argue here that the second set of implications always did, and still does, perhaps more than ever, warrant critical attention.
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    Full-text available
    This is the long version of the Chapter, it includes the footnotes and additional evidence and analysis which the final version omits to comply with word limit strictures. The book is edited by David Scott and is forthcoming 2019.
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    Full-text available
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  • Chapter
    This chapter begins by describing the standard model of the firm in organisational economics. It continues by providing a critique of the main premises on which the standard model is based: that shareholders own firms and directors are their agents; that agency costs arise at the level of the firm because of the different interests of shareholders and managers; that man is rational, self-interested, and rent-seeking and there is no non-pecuniary agent motivation. A case study of AstraZeneca is used to illustrate some of the points.
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    The initial focus in this article is the problem of mismatch between policy goals and statistical analysis, based on how data is transformed and processed. This intrinsically raises ontological issues regarding the nature of an economy within which policy is made and to which statistical analysis is applied. These are of general significance to post Keynesians irrespective of the position they take on the specifics of the ergodicity debate. However, they involve some issues that overlap with some aspects of that debate. The problem as posed in this article is specific and involves a practical contradiction regarding central bank policy and the problem of unit roots. The authors then consider some additional ways in which one can go beyond common practice based on the example of Forward Guidance in the United Kingdom and a more institutional approach to post Keynesian analysis.
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    This article reviews the key strengths and debatable issues in Thomas Piketty's Capital in the 21st Century. The authors fully agree with the view that Capital is the most significant book in economics published since the start of the 21st century but consider that this appreciation is based more on its persuasive style of argumentation than on the introduction of new ideas. The article notes that Piketty's central thesis about inequality is based on a huge research database in terms of global coverage and retrospective. The database was compiled through years of work with tax statistics archives, a method of gathering data that is not typical for mainstream economists. Another notable feature of Capital is the text itself - it is not overloaded with formulas, which makes Piketty's arguments even more persuasive. The authors point out that Piketty revives the political economy tradition of socio-economic analysis in a broad context and successfully combines it with modern methods of data analysis. The authors also point out the debatable ideas in Capital, particularly Piketti's aspiration to find universal principles of economic development. As a result, modern capitalism looks like the economy of the 19thcentury. This leads to an underestimation of the role of human capital and innovations in economic development and an excessively pessimistic forecast of the world's economic development. The authors consider doubtful Piketty's recommendations for counteraction to spiral of increasing inequality. The authors suggest that proposed measures could go against technological and institutional development when new technologies and "good" institutions enjoy a huge potential egalitarian effect.