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Part I
The Current Orientation of the Discipline and the Proposed Alternative
This first part of the book is concerned with setting out my basic position and providing a framework that is drawn upon in Parts II–IV. It contains three chapters which to a significant extent systematise arguments that I have made elsewhere. A central aim here is clarification and consolidation. But there is also some development of my previous argument.
The first of the three chapters is the most critical. Here I note the less than satisfactory state of modern economics. I concentrate on those features of the discipline which I regard as its most problematic, and which can be shown to contribute significantly to its current unfortunate situation.
In the second chapter I urge a particular reorientation of the discipline as a way forward. Here the focus is on ontology. In particular I outline an approach to ontological theorising, discuss the sorts of results that are achieved, and also indicate very briefly something of the consequences of these results (a more detailed account of the latter is provided in the rest of the book).
The third chapter, a relatively brief note previously published in Economics and Philosophy, addresses the specific question as to why it is appropriate to identify my project as realist.
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1
Four Theses on the State of Modern Economics
How might we characterise the state of modern economics? In this opening chapter I advance four basic ‘theses’ which bear quite fundamentally on this question. Because I have defended each one to some degree before I will not go into very great detail here. My purpose in reconsidering them side-by-side at this point is to systematise and clarify relevant background preconceptions. For the picture they collectively convey is taken as given (if further developed) in most of the chapters which follow. These four theses are quickly stated:
1 Academic economics is currently dominated to a very significant degree by a mainstream tradition or orthodoxy, the essence of which is an insistence on methods of mathematical-deductivist modelling.
2 This mainstream project is not in too healthy a condition.
3 A major reason why the mainstream project performs so poorly is that mathematical-deductivist methods are being applied in conditions for which they are not appropriate.
4 Despite ambitions to the contrary, the modern mainstream project mostly serves to constrain economics from realising its (nevertheless real) potential to be not only explanatorily powerful, but scientific in the sense of natural science.
Let me consider each of these assessments in turn.
Thesis 1: Academic Economics is Currently Dominated to a very Significant Degree by a Mainstream Tradition or Orthodoxy, The Essence of which is an Insistence on Methods of Mathematical-Deductivist Modelling
There can be little doubt that modern economics is dominated by a project that attempts to apply mathematical methods to all areas of study. Currently, graduate programmes in university faculties of economics concentrate on the use of mathematical methods1 and often consist in little more than micro (mathematical) modelling, macro (mathematical) modelling and econometric modelling.2 And most journals regarded as core or prestigious publish almost only articles formulated in mathematical terms.3
So dominant is this mathematising project in economics, in fact, that many of its modern perpetrators (unlike their predecessors4) hardly (or are not willing to) recognise that there are alternative ways of proceeding. For most members of the project, indeed, categories like ‘economic theory’ or even just plain ‘theory’ have become synonymous with mathematical modelling.5 For a contribution even to be counted as economics (or to gain an audience) in mainstream circles, it is requisite that the author takes a mathematical approach and ultimately produces a formal model. Consider Richard Lipsey’s observation:
to get an article published in most of today’s top rank economic journals, you must provide a mathematical model, even if it adds nothing to your verbal analysis. I have been at seminars where the presenter was asked after a few minutes, ‘Where is your model?’. When he answered ‘I have not got one as I do not need one, or cannot yet develop one, to consider my problem’ the response was to turn off and figuratively, if not literally, to walk out.
(Lipsey 2001: 184)
To recognise this situation is not to deny that the project in question is always, in some way, also concerned with social phenomena, or at least with social categories. Economists do not usually deal abstractly just with the properties of (mathematical) operators and elements of sets, but concern themselves with variables labelled ‘consumption’, ‘income’ and so forth.6 Although some, like Debreu (1959), profess attachment to the Bourbaki ideal of a framework free of any interpretation (see Chapter 10), this ideal seems never to be realised in its entirety. It does serve the function of loosening up the project from achieving immediate contact with reality (as again we shall see in Chapter 10). But practitioners of modern economics appear never to abandon all concern with social categories, or the hope of illuminating social reality sooner or later. Ultimately the aim, it seems, is to render aspects of the social world intelligible. There is a sense, then, in which the project always remains in essence an explanatory endeavour.
The point to emphasise here, though, is that this project’s conception, or mode, of explanation is necessarily one that facilitates the widespread usage of mathematical formalism including formalistic modelling.7 That mode of explanation called into play is deductivism.
Deductivism
By deductivism I mean a type of explanation in which regularities of the form ‘whenever event x then event y’ (or stochastic near equivalents) are a necessary condition. Such regularities are held to persist, and are often treated, in effect, as laws, allowing the deductive generation of consequences, or predictions, when accompanied with the specification of initial conditions. Systems in which such regularities occur are said to be closed.8 Of course, a closure is not restricted to the case of a correlation between just two events or ‘variables’; there can be as many of the latter as you like. Nor is a closed system avoided by assuming a non-linear functional relationship or by pointing out, as in chaos theory or some such, that what happens may be extremely sensitive to initial conditions. If, given the exact same conditions, the same outcome does (or would) follow (or follows on average, etc., in a probabilistic formulation) the system is closed in the sense I am using the term.
Notice that it is the structure of explanation that is at issue here. The possibility that either many of the entities which economists interpret as outcomes, including events or states of affairs, are fictitious, or claimed correlations do not actually hold, does not undermine the thesis that deductivism is the explanatory mode of this project. In other words, by deductivism I refer only to forms of explanation for which closed systems are an essential component; no commitment to the realisticness of any closures or regularities posited is presupposed.
Observe, too, that it does not make any difference whether an inductive or a priori deductive emphasis is taken. If mathematical methods of the sort economists mostly fall back on are to be employed, closures are required (or presupposed), whether they are sought-after in observation reports or ‘data’ or are purely invented. Deductivism is an explanatory form that posits or requires such closures whether or not any are actually found. And deductivism, so understood, clearly encompasses the greater part of modern economics, including most of modern microeconomics, macroeconomics and econometrics.9
So characterised, the modern mainstream project might be labelled in various ways. In the sections which follow I refer to its activities interchangeably as mathematical-deductivist modelling, formalistic closed-system modelling, or just as formal (or mathematical) modelling, amongst other things. Such descriptions amount to the same thing and can be loosely systematised under the head of (modern) mathematical economics.10 It is this approach, however we label it, that now pervades the discipline. And it is an insistence on this approach, I am suggesting, that characterises the highly dominant modern mainstream component within it (see also Dow 1997; Setterfield 1997).
If the mainstream mathematising endeavour is so dominant that its contributors often take it to be the whole of the discipline, this nevertheless is a mistake. Though marginalised, there are not only dissenting individuals but also various highly productive heterodox traditions that pursue understanding in economics whilst rejecting the mainstream insistence on mathematical modelling methods. Amongst the more prominent of the latter traditions we find, for example, Austrianism, feminist economics, (old) institutionalism, post Keynesianism, Marxian economics and social economics. Although sub-groupings or individuals within these projects do sometimes turn to formalistic modelling, there is not a reduction of economic method to techniques of formalistic modelling. Let me quote Diana Strassmann, the editor of Feminist Economics, who very well captures the orientation of the modern mainstream project as viewed from a heterodox perspective:
To a mainstream economist, theory means model, and model means ideas expressed in mathematical form. In learning how to ‘think like an economist,’ students learn certain critical concepts and models, ideas which typically are taught initially through simple mathematical analyses. These models, students learn, are theory. In more advanced courses, economic theories are presented in more mathematically elaborate models. Mainstream economists believe proper models – good models – take a recognizable form: presentation in equations, with mathematically expressed definitions, assumptions, and theoretical developments clearly laid out. Students also learn how economists argue. They learn that the legitimate way to argue is with models and econometrically constructed forms of evidence. While students are also presented with verbal and geometric masterpieces produced in bygone eras, they quickly learn that novices who want jobs should emulate their current teachers rather than deceased luminaries.
Because all models are incomplete, students also learn that no model is perfect. Indeed, students learn that it is bad manners to engage in excessive questioning of simplifying assumptions. Claiming that a model is deficient is a minor feat – presumably anyone can do that. What is really valued is coming up with a better model, a better theory. And so, goes the accumulated wisdom of properly taught economists, those who criticize without coming up with better models are only pedestrian snipers. Major scientific triumphs call for a better theory with a better model in recognizable form. In this way economists learn their trade; it is how I learned mine.
Therefore, imagine my reaction when I heard feminists from other disciplines apply the term theory to ideas presented in verbal form, ideas not containing even the remotest potential for mathematical expression. ‘This is theory?’ I asked. ‘Where’s the math?’
(1994: 153–4)
Although Strassmann here recognises the close association of mathematical modelling with the current mainstream project, there are some economists who have sought instead to characterise the modern mainstream in terms of features of its substantive theorising. Such endeavour, though, has not proven successful. Most typically, it has associated mainstream economics with theories of human rationality or conceptions of equilibrium, or some such. The problem here is that such features as are identified are found not to survive across the numerous (and consequential) flits in fads and fashion that the project in question repeatedly experiences at the level of its substantive interests.11
On recognising this situation, critical observers conclude that the current mainstream is just too slippery a project to pin down. Some even wonder if there is any continuity to, or commonality to the various strands of, the mainstream project at all. In Mirowski’s view,
the historian is forced to concede that, in fact, it is best described as a sequence of distinct orthodoxies, surrounded by a penumbra of quasi-rivals; and that it is this, more than any deductive or inductive ‘successes’, which accounts for its longevity.
(1994: 68)
Overlooking the mainstream project’s continuous reliance on methods of mathematical-deductivist reasoning, Mirowski feels we must question whether this project can be said to ‘consist of anything more than a bold assertion of continuity in the face of repeated ruptures every two or three generations?’ (ibid.: 69).
Those who reason in this sort of manner take the mathematisation of modern economics (if not necessarily any specific form of mathematics12) for granted. No doubt the common tendency to do so is reinforced by the widespread failure of most within the mainstream itself to defend or even comment on the mathematical emphasis. In consequence, I think it is worth recalling Whitehead’s warning when considering philosophy more generally:
When you are criticising the philosophy of an epoch, do not chiefly direct your attention to those intellectual positions which its exponents feel it necessary explicitly to defend. There will be some fundamental assumptions which adherents of all the variant systems within the epoch unconsciously presuppose. Such assumptions appear so obvious that people do not know what they are assuming because no other way of putting things has ever occurred to them. With these assumptions a certain limited number of types of philosophic systems are possible, and this group of systems constitutes the philosophy of the epoch.
(1926: 61)
In any case, in the face of the seemingly unquestioned acceptance of the reliance of modern economics on methods of mathematical deductivist reasoning, it is worth emphasising over and again that mathematical modelling is certainly not essential to social theorising and understanding. This is a point I establish under the heading of thesis 4 below, where I argue, in fact, that the current formalistic emphasis is likely often debilitating of explanatorily insightful social analysis. My concern at this stage, though, is to emphasise that with mathematical methods being insisted upon by the mainstream but regarded as inessential by heterodox traditions and others, we can see that the various strands of orthodoxy have not only a common, but also a distinguishing, feature after all. This, as I say, just is the insistence that mathematical-deductivist methods be used in just about all endeavour to advance knowledge of phenomena regarded as economic (for further discussion see Lawson 1997c; 2002).
Thesis 2: This Mainstream Project is Not in too Healthy a Condition
A second assessment of the current situation I want to advance is that this mainstream project, when viewed as an endeavour concerned with social explanation (as opposed to being considered under its aspect of seeking to maintain its dominant position within the academy), is actually not too successful.
In fact the problems of the modern mainstream project are sufficiently widely recognised (and recorded) by those who reflect on the issue that I need say very little indeed here. Heterodox economists have for a long time pointed to the failings of the project (see, for example, Ferber and Nelson 1993; Fine 2001; Hodgson 1988; 1993; Kanth 1997; Srassmann 1993a) as have close observer...
