Essays on: The Nature and State of Modern Economics

Tony Lawson

• Publisher: Taylor & Francis
• Year: 2015
• eBook ISBN: 9781317530879
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

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.

1 Continuing myths and fallacies of modern economics¹

DOI: 10.4324/9781315724416-1

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 orientation. 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 dominant 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.

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.

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).
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 interpreted 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 neoliberal 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 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 frequently 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 formulations (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 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 volu...

Table of contents

• Cover Page
• Halftitle Page
• Front Other
• Series Page
• Title Page
• Copyright Page
• Dedication
• Table Of Contents
• Preface
• Acknowledgements
• 1 Continuing myths and fallacies of modern economics
• 2 Modern economics: the problem and a solution
• 3 The nature of heterodox economics
• 4 What is this ‘school’ called neoclassical economics?
• 5 The current economic crisis: its nature and the course of academic economics
• 6 Contemporary economics and the crisis
• 7 Mathematical modelling and ideology in the economics academy: competing explanations of the failings of the modern discipline?
• 8 Tensions in modern economics: the case of equilibrium analysis
• 9 Soros’ theory of reflexivity: a critical comment
• 10 Ontology, modern economics, and pluralism
• 11 The varying fortunes of the project of mathematising economics: an evolutionary explanation
• Index of names
• Index of subjects