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Philosophy of
Economics Rules
Introduction to the symposium
N. Emrah Aydinonat *
TINT - Centre for Philosophy of Social Science,
Practical Philosophy, Faculty of Social Sciences,
University of Helsinki, Finland
Draft. 17 July 2018
Abstract: Economists have long been criticized for their use of highly idealized
models. In Economics rules: Why economics works, when it fails, and how to tell the difference
[Oxford: Oxford University Press, 2015] Dani Rodrik responds to this criticism
by offering an account of models that emphasizes the diversity of models in
economics. Rodrik’s account presents a rare opportunity for economists and
philosophers of economics to engage in a mutually beneficial exchange that
could improve our understanding of the power and limits of economics, and the
rights and wrongs of the dismal science. The symposium on Rodrik’s Economics
Rules is the first attempt to seize this opportunity.
Keywords: economics, philosophy of economics, criticism of economics,
history of economics, Dani Rodrik, symposium
JEL Codes: B40, B41
1 Introduction
Dani Rodrik’s (2015) Economics Rules presents a rare opportunity for economists and
philosophers of economics to engage in a mutually beneficial exchange that could improve
our understanding of the power and limits of economics, and the rights and wrongs of the
dismal science. The present symposium is the first attempt to seize this opportunity. It
consists of articles by philosophers of economics that critically discuss Dani Rodrik’s (2015)
Economics Rules, and a response from Rodrik.
Why is Economics Rules an intriguing book for philosophers of economics? There are some
obvious reasons: it concerns economic methodology, it is written by a prominent economist,
it is well-thought and well-written, and so on (Aydinonat, 2015, 2016). In addition to these
obvious reasons, I think, its following features make it particularly attractive for philosophers
of economics. First, Rodrik takes critics of economics seriously and responds to them
sincerely. Second, Rodrik follows the tradition of many great economists in engaging in a
critical reflection on economics. Moreover, his contribution contains ideas from
philosophers of economics. Third, Rodrik’s account of models underscores some of the
topics in philosophy of economic models that need more attention. Fourth, Economic Rules
opens channels for better communication between economists, their critics, philosophers of
economics and historians of economics. In this introduction, I will briefly outline these
features of the book.
2 Taking critics seriously
Consider the following titles. (1) Here is why economics is built on a monumental mistake.
(2) Failed economics: tyranny of mathematics and enslaved by the wrong theory. (3)
Orthodox economics is empirically invalid and theoretically flawed. (4) Economists
2
understand little about the causes of growth. (5) Economists still lack a proper understanding
of business cycles. The first three of these are titles of articles from the Evonomics website.
1
The latter two were published in The Economist (Print editions, 12 & 19 April 2018). This is
just a tiny sample from the vast variety of blog posts, articles and books that criticize
economics. Critics are diverse—they include social scientists, philosophers, journalists—but
there seems to be a common theme to their criticism: economic models are vastly unrealistic
and for this reason they cannot have much explanatory value or policy relevance. Economists
are not generally impressed by this line of criticism. Moreover, many economists think that
critics are misinformed about the current state of economics (e.g., Auld, 2013; Coyle, 2017;
Smith, 2017). Perhaps for these reasons, many economists do not think that they need to
take the questions raised by the critics seriously.
Most critics are concerned with questions concerning the epistemic value and policy
relevance of models. These questions are not confined to economic models but are
important questions about the use of models in science in general: about how we can gain
knowledge of the world by way of studying highly idealized models and about how we can
use this knowledge in practice. “Hey, this is how science works” is not a meaningful response
to these questions, and “the world is complex, we need to simplify” can only be a part of an
answer. Going beyond these simplistic answers will be beneficial for the advancement of
economics, because it will provide us with an enhanced understanding of the power and
limits of our models and help us to assess better their proper and improper uses in
explanation, prediction and policy-making.
It might be tempting to ignore the critics’ concerns if one thinks that they are uninformed
about recent developments in economics. However, even if this were true, pointing this out
does not help us understand the explanatory value and policy relevance of economic models.
If there are contemporary models that work, it is still important for us to understand why
and how they work. Moreover, questions about theoretical models cannot be dismissed
simply by appealing to the presumption that there has been an “empirical turn” in economics
(Hamermesh, 2013; cf. Cherrier, 2016; Backhouse and Cherrier, 2017). The presumed
empirical turn does not reduce the number of questions concerning models. On the contrary,
the number of questions is multiplied because empirical models also employ many unrealistic
assumptions, and additional issues emerge about the use of data and experiments in
economics.
In sum, independently of whether critics of economics are right or wrong, or of whether
they are misinformed or not, much can be learned from taking the questions concerning
epistemic value and policy relevance of our models more seriously. In Economics Rules, Dani
Rodrik (2015) takes the critics seriously and recognizes the importance of their questions.
The book has been written based on the premise that there is much to be gained from an
informed discussion of how economics works and improved communication between
economists and others. Moreover, Rodrik understands that it is to everyone’s advantage that
how economics works is widely understood and appreciated. After all, economics dominates
the policy scene, and politicians and citizens need assurance that economics is not a flawed
science.
1
http://evonomics.com
3
3 Following the tradition of ‘philosopher economists’
It might be fair to say that most economists are unmoved by philosophical theorizing about
economics, but it is not true that economists have ignored the questions concerning
economic methodology altogether throughout the history of economics. In fact, debates
concerning economic methodology are nearly as old as the science of economics itself. John
Stuart Mill’s (1844) On the Definition of Political Economy; and on the Method of investigation Proper
to It, Nassau Senior’s (1836) An Outline of the Science of Political Economy, John Cairnes’ (1875)
The Character and Logical Method of Political Economy, John Neville Keynes’ (1890 [1917]) The
Scope and Method of Political Economy, and Lionel Robbins’ (1932) An Essay on the Nature and
Significance of Economic Science are prominent examples of works that dive deep into
methodological questions. The history of economics is full of methodological debates—such
as the Methodenstreit, the cost-controversy, the marginalism debate, and the realism-of-
assumptions debate—that played important roles in shaping how economics is practiced
today.
2
Whether abstraction and idealization are proper methods for the science of
economics was an important question in these debates.
The best-known essay in the history of these debates is Milton Friedman’s (1953) The
Methodology of Positive Economics. Friedman argued that ‘realism’ of assumptions does not
matter, and that a model/theory should be judged by the success of its results or predictions.
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Most economists found comfort in this and took him to say that assumptions do not matter
as long as the model works (Mäki, 2009). Friedman’s article sparked a major debate. Ten
years after Friedman’s essay, a philosopher of science, Ernest Nagel (1963) targeted
Friedman’s argument in The American Economic Review in a section entitled ‘Problems of
Methodology’. This section also contained articles by Fritz Machlup, Andreas Papandreou,
Sherman Krupp, and commentaries by G. C. Archibald, Herbert Simon and Paul Samuelson.
The exchange between Nagel, Samuelson and Machlup made it clear that justifying the use
of unrealistic assumptions was much more difficult than it appeared in Friedman’s essay
(Archibald, Simon and Samuelson, 1963; Nagel, 1963; Machlup, 1964; Samuelson, 1964).
The ‘realism’ of assumptions debate continued. A late comer to the debate was the economist
Hal Varian, who teamed up with philosopher Allan Gibbard to try to answer the fundamental
question: “Can models with unrealistic assumptions, then, be of any use in understanding
the world?” (1978, p. 665). Their answer involved three key ideas: i) (theoretical) models are
caricatures that tell simple stories that can be useful because they isolate certain aspects of
reality and depict tendencies in the real world, ii) confidence in a model depends on the
robustness of its results, and iii) economists often use models to answer what-if questions.
Gibbard and Varian’s article was an overture to the later work on models in the philosophy
of economics and all three of their key ideas since have been elaborated on and improved by
philosophers of economics.
4
2
For comprehensive reviews of past methodological debates the reader should consult surveys such as Wade
Hands’ (2001) Reflections without Rules, Mark Blaug’s (1992) The Methodology of Economics, and Bruce Caldwell’s
(1994) Beyond Positivism.
3
In fact, Friedman’s argument was relatively nuanced, but also messy. It contained realist flavors (Mäki, 1986)
as well as instrumentalist ones (Boland, 1979).
4
Early philosophers of economics were mostly interested in applying general ideas from philosophy of science
to economics (e.g., see Blaug, 1992; Caldwell, 1994). Nevertheless, some of them the focused specifically on
the epistemic value of unrealistic models (Hausman, 1992; Mäki, 1992, 1994b, 1994a). For a review of the earlier
work see Wade (2001). For a critical review of the research on models and representation see Morgan and
Knuuttila (2012). For a review of the recent trends in economic methodology see Mireles-Flores (2018). The
4
Rodrik’s attempt to overcome the difficulty of justifying the use of unrealistic assumptions
in economics could be considered to be the most recent contribution to the ‘realism’ of
assumptions debate. His account clearly contains hints of Friedman, Samuelson, Machlup,
Gibbard and Varian. It also carries flavors from the works of philosophers of economics
such as Uskali Mäki and Nancy Cartwright (Aydinonat, 2015, 2016). Rodrik follows them in
seeing the value of models in their ability to isolate and focus on certain causal mechanisms,
and conceptualizing models as thought experiments. He thinks that the critical assumptions of
a model must approximate reality. He also entertains the idea that models help us answer
what-if questions and depict tendencies. Along with these recognizable essences, he introduces
an important idea and argues that the strength of economics comes from its diversity of models.
In Rodrik’s account, models are like fables in that each model carries a context-specific message
about the real world. The trick is to choose from among these models when needed. Thus,
according to Rodrik, both explanation and policy making requires model selection: selecting
the right (set of) model(s) for the task at hand. Economic Rules tries to show how economists
work with a diverse set of models and how they select from among them in explanatory and
policy contexts. Because Rodrik emphasizes the context specificity of models, the book pays
attention to the history of economics as well as the context of explanation and policy making
to make sense of the uses and abuses of models in economics.
4 Reorienting the discussion
We have come a long way since Friedman (1953). Thanks to philosopher economists and
philosophers of economics, we have a better understanding of the use of unrealistic
assumptions and the epistemic value of models. Nevertheless, there are important topics that
have received relatively little attention in the literature. First, most of the discussion focuses
almost exclusively on how a model relates to its real-world target. The context of modelling,
history of a model and how a model relates to other related models and explanations have
not received enough attention (however see Mäki, 2011; Morgan, 2012; Ylikoski and
Aydinonat, 2014). Second, most accounts simply ignore the complexity of moving from the
model world to the real world; i.e., applying a model, explaining with a model, and using a
model for policy purposes, etc. Third, neither economists nor philosophers of economists
have paid much attention to how models are misused (or abused) and to model failures
(however see Hutchison, 1994; Mäki, 2012b, 2017; Fernández, 2018). And finally,
derivational robustness analysis has not yet received enough attention (however see
Kuorikoski, Lehtinen and Marchionni, 2010, 2012; Odenbaugh and Alexandrova, 2011;
Lehtinen, 2016, 2017).
Although it does not directly delve into these issues, Economics Rules delivers an opening to
reorient the discussion on economic models in the right direction. First, its arguments
concerning the diversity of models and the context-specificity of each model underscore the
need for more attention to the context and history of modelling as well as to the relation
between models, explanations and policies. Second, Rodrik shows that moving from
theoretical models to explanations and policy suggestions is not a simple matter. Economics
Rules makes it clear that we cannot ignore the complexity of these processes. Third,
throughout the book Rodrik tells us that one should not confuse a model with the model.
That is, one should not forget the limitations of individual models, nor interpret a given
following collections are also useful resources: de Marchi (1992), Backhouse (1994), Davis, Hands and Mäki
(1997), Hausman (2007) and Mäki (2012a). For an overview of the old and new philosophy of economics see
Kincaid and Ross (2009).
5
model as the only model of a phenomenon of interest. He considers the latter to be a misuse
of models. Moreover, his examples illustrate that going beyond a general understanding of
model failures requires close attention to be paid to how particular models fail in achieving
a given task. In short, Economics Rules encourages us to study the uses and misuses of models
as well as their failures. Finally, although Rodrik does not pay much attention to robustness,
clarifying what he means by critical assumptions requires a closer study of robustness
analysis. So, the book is inviting in this respect too. Of course, Economics Rules is a book for
the general reader. It neither goes deep into the philosophical questions about these matters,
nor does it solve all the problems it addresses. Nevertheless, it provides many inspiring ideas
that require further work and an opportunity for us to engage in a debate that could lead to
a better understanding of models and modelling in economics.
5 Opening the communication channels
Finally, Economics Rules opens the communication channels between economists and their
critics, and between economists and philosopher of economics. It also encourages us to
improve the communication between historians of economics and the rest (economists,
critics, and philosophers of economics). The first is obvious, so let me focus on the latter. In
the previous section I said that philosopher economists and philosophers of economics
improved our understanding of the epistemic value of unrealistic models. After reading this
you might have wondered why you do not see this in the discussions on economic
methodology. One might in fact be surprised because most of what is written on economic
methodology does not build on what we already know. Curiously, it includes work done by
philosophers of economics too. However, perhaps one should not be surprised, because
lately the communication channels between historians of economics and the rest have not
been hale and hearty. This needs to change. Economists, their critics, and philosophers of
economics all need history of economics. If we are going to build on what has been already
said, we need to know it. Because Rodrik’s discussion spans from history of economic
thought to economic methodology, it also provides an opportunity for us to open a channel
for more history of economics.
6 The symposium
The present symposium aspires to make further progress by taking Rodrik’s ideas seriously,
and scrutinizing and refining them critically. In what follows you will read closer analyses of
important aspects of Rodrik’s account. I hope that this symposium will stimulate your
curiosity and facilitate further work on these topics with special attention to the context of
modeling, history of models, diversity of models, model selection, the relationship between
models and explanation/policy, justification of unrealistic assumptions, misuse of models
and appropriate disciplinary behavior in economics, model failures, and derivational
robustness analysis.
Acknowledgements. I would like to express my thanks to John Davis, Wade Hands, Uskali
Mäki and Jack Vromen for their helpful comments and suggestions.
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