Recharting the History of Economic Thought

Kevin Deane, Elisa van Waeyenberge, Kevin Deane, Elisa van Waeyenberge

• Publisher: Bloomsbury Academic
• Year: 2020
• ISBN:
  9781350306165
• Edition: 1
• Topic: Economia
• Subtopic: Teoria economica

This ground-breaking new textbook takes a thematic approach to the history of economic thought, introducing current economic issues and examining the relevant arguments of key economists. By taking this innovative approach, the book sets these pivotal ideas in a contemporary context, helping readers to engage with the material and see the applications to today's society and economy. Based on courses developed by the authors, the text introduces a range of perspectives and encourages critical reflection upon neoclassical economics. Through exposure to a broader spectrum of sometimes conflicting propositions, readers are able to evaluate the strengths, weaknesses and relevance of different economic theories. Recharting the History of Economic Thought is an invaluable companion for those taking courses in the History of Economic Thought, the Development of Economic Ideas, Developing Economic Thinking or Economic Thought and Policy. It will also appeal to anyone looking for an introduction to pluralist approaches to economics.

1 INTRODUCTION

Kevin Deane and Elisa Van Waeyenberge

Background

The 2007/08 financial crisis marked an important moment in the recent history of economics. The dominant Neoclassical school that had successfully purged academia of rivals over the preceding decades was increasingly called into question by policymakers, academics, students, the general public and even the Queen of the United Kingdom! Neoclassical economics was accused of failing to predict the crisis and had little to say about why the crisis occurred or how its fallout could be remedied. The dramatic exposure of its limitations opened up a (perhaps temporary) space for the (re)consideration of alternative economic approaches and revitalised demands for the introduction of pluralist teaching into higher education economics curricula from academics and students alike. Yet, whilst a vibrant student movement developed from the Post-Crash Economics Society in Manchester and a small number of economics departments in the UK engaged in curriculum reform, overall the pace of change has been slow.

Those calling for the introduction of pluralist teaching in economics face numerous challenges. Chief amongst these is that mainstream economics departments remain strongly resistant to change, often displaying little interest in transforming the discipline so that it provides tools to engage meaningfully with actual existing economies. Indeed, despite the turmoil in the global economy, the majority of undergraduate economics curricula and, in particular, core courses of microeconomics and macroeconomics, have barely changed. Students continue to be presented with a particular version of economics (what we refer to as Neoclassical economics) with little acknowledgement that there are other approaches that contest some of its main tenets. These alternative approaches seek to accommodate better core features of contemporary capitalism, including, for instance, but not exhaustively, finance, internationalisation of production and trade, income and wealth distribution, etc.

Mainstream economists remain opposed to the introduction of pluralist teaching, often arguing that economics is a technocratic field within which students should focus on specific mathematical concepts and tools (despite their rejection by many policymakers in the messy world of the real economy) and that the introduction of alternative perspectives is best left to the postgraduate level. Occasionally they advocate for the inclusion of optional courses, including on the History of Economic Thought (HET) (the latter itself marginalised in many economics curricula) as a way to accommodate discontent. A course on the HET can then be offered as an add-on, with little implication for the substantive content of the rest of the curriculum. As such, the challenges that the HET could pose for mainstream economics through the critical light it could cast on its methods and scope remains carefully warded off.

Beyond resistance to pluralism within mainstream economics departments, other factors such as the capture of elite economics journals by the mainstream provide institutional disincentives for the introduction of pluralist economics research and teaching. Moreover, when opportunities to introduce pluralism into the classroom arise, academics face further challenges. These include pressures on time and the lack of pluralist teaching resources, including core texts suitable for undergraduate teaching. This book, then, is a response to this challenge and seeks to contribute to academic teaching materials in support of pluralist teaching.

Whilst the notion of pluralism in economics can take many forms, the approach embedded in this book is that students should be exposed to a range of different economic perspectives which are grounded in different assumptions about the world. It is our contention that the economics curriculum should not be dominated by one school of thought. Through exposure to a broader spectrum of sometimes conflicting propositions, students are encouraged to evaluate the strengths, weaknesses and relevance of different theoretical propositions. Evidence from a small number of studies reports positive feedback from students when pluralism is introduced into the curriculum (Deane et al., 2019; Harvey, 2011). Furthermore, the student movement that has given rise to Rethinking Economics, a student organisation campaigning for greater pluralism in economics curricula, suggests that there is strong appetite for change in economics teaching.

Origins of the book

Recharting the History of Economic Thought originates in the redesign by one of the editors of a course on the HET. Having started a new role at the University of Northampton in 2013, Kevin Deane was asked to teach a new HET course that sat alongside a primarily standard mainstream economics curriculum. Following a failed initial attempt at teaching the course in the conventional (chronological) way, discussions with co-editor Elisa Van Waeyenberge led to a complete overhaul of the course. Instead of material being presented chronologically, the new teaching approach followed a thematic approach. An important economic question, such as, for instance, Are we all rational optimising agents?’ or ‘What is the role of the state in economy?’, provided the starting point for each lecture which then proceeded to engage with the question following a set of steps. First, what answers does Neoclassical economics provide? Second, what are the critiques of this approach? And, third, how have other schools across the HET sought to answer the question?

This approach uses the HET as a vehicle through which pluralist teaching can be introduced into a mainstream curriculum without the need for broader curriculum review. It has the benefit of covering the ‘canonical’ economists and ideas, but now through the critical lens of the HET. Embedded in this approach is an explicit rejection of the cumulative view of the development of economic thought, in which theory is viewed as building on and improving past iterations (whilst throwing out ideas that were invalid or disproven) in a process of theoretical refinement (Kurz, 2006). Rather, the approach subscribes to a competitive view of the HET which seeks to ‘confront students with the idea that there are different approaches to economics, and providing them with some notion of the conceptual foundations of such approaches’ (Roncaglia, 2014, p. 7). The new approach was well received by students who had never previously been exposed to economic theories that went beyond their standard microeconomics and macroeconomics textbooks.

This book formalises the teaching approach developed by Kevin Deane, which was trialled at a UK university over a period of five years (2013–2018). It presents a set of chapters organised thematically which discuss a set of perspectives, including of Neoclassical economics, that can be brought to bear on the topic. Whilst to some extent the historical context in which different ideas arose is lost, we opted for this trade-off to support pluralist teaching. The main aims of the book are then as follows:

• To provide an overview of the different ways in which economic issues and ideas can be thought about, drawing from the HET.

• To create a resource that will enhance the relevance of HET courses, especially those taught in mainstream environments.

• To develop critical thinking skills of economics students.

This book complements other recent work that compares and contrasts different schools of thought, such as Chang’s Economics: A User’s Guide, the Introductory Pluralist Economics Textbook by Rethinking Economics, and the Exploring Economics website (https://www.exploring-economics.org/en/). Our focus is on the exploration of different perspectives on specific economic questions through the HET, rather than a focus on the critique of Neoclassical economics. The latter can be found in greater detail in Keen’s Debunking Economics (2001) and Myatt and Hill’s Economics Anti-Textbook (2011).

Considerations

Writing and editing this book encountered two main challenges. The first was to clarify what we understand by Neoclassical economics, a term which we use interchangeably with mainstream economics. A main concern is not to present a ‘straw man’ when criticising Neoclassical economics by way of the HET. This is to an extent easier for topics that are more closely aligned with microeconomics, where undergraduate textbooks are uniform and have coalesced around an approach that focuses on optimising choices by different economic actors, specifically the individual and the firm. This contrasts with macroeconomics textbooks which draw more heavily on concepts from other economists, such as Keynes, although their original scope and meaning have often disappeared in a mainstream approach organised around optimisation and the individual economic agent.

To resolve this conundrum, we opted for a general definition of Neoclassical economics which refers to those contributions to the discipline that reconstruct the economy on the basis of optimisation by independent individual economic agents. Agents can be households, individuals, firms, governments, etc., and their optimising behaviour is argued to be an expression of their rationality. These optimisation exercises are subject to a number of constraints and differences emerge within mainstream or Neoclassical economics as to how these constraints are specified. The agents are also endowed with a set of features, which again may differ depending on which school of mainstream economics you consider (a clear distinction in mainstream economics relates to the availability of perfect as compared to imperfect information, or agents being characterised by bounded or unlimited rationality). Equally, differences within mainstream economics exist regarding the description of the economic environment within which economic agents optimise. Is exchange characterised by imperfect competitive markets instead of perfect competition or is production subject to increasing rather than constant returns to scale. The way in which these questions are resolved divides Neoclassical economics into different schools of thought.

The underlying methodological principle characterising all mainstream or Neoclassical economics, however, is that economic outcomes are understood to emerge as a result of optimisation exercises (under whichever constraints) of individual agents (with whatever characteristics). This core methodological tenet of Neoclassical economics is referred to as methodological individualism. At its heart it implies that there are no structural features in the economy that produce systemic relations or effects that should be taken into account when trying to understand economic outcomes (and the behaviour of agents within the economic system). It also implies that relations between agents or their interdependencies do not need to be taken into account as we try to move from the analysis of the unit (micro) to the analysis of the whole (macro). And, finally, with economic outcomes understood as the result of (possibly boundedly) rational behaviour of agents, these outcomes are not affected by context or historical trajectories. For Neoclassical economics, context and history are incidental to optimisation efforts and not fundamental to our understanding of economic phenomena.

This characterisation of Neoclassical economics focuses on its distinct methodological features and implies a broad landscape of mainstream economics that, nevertheless, includes some strong divides between those that align themselves more to paradigms in support of perfect working markets (often referred to as more Classical schools of thought) and those that seek to theorise the imperfections of the market (often referred to as more of a Keynesian inclination, even if this is somewhat of a misnomer as will transpire across the various chapters of this book). Traditional definitions of Neoclassical economics tend to imply the inclusion of the former, while often placing the latter contributions outside of its realm. An example is provided by a popular definition of Neoclassical economics as offered by (Weintraub, 2002), for whom Neoclassical economics is characterised by three core fundamental assumptions about the world:

1. People have rational preferences among outcomes.

2. Individuals maximise utility and firms maximise profits.

3. People act independently on the basis of full and relevant information.

Such a characterisation would imply that contributions drawing on, for instance, imperfections in information are not considered as part of Neoclassical or mainstream economics. As clarified above, we diverge from this characterisation and opt for a more fundamental (and hence broader) definition, that identifies what is mainstream or Neoclassical economics on the basis of its first principles of theorising which we distinguish as methodological individualism and rationality.

Neoclassical or mainstream economics is then characterised by a deductive logic, where the deductive logic proceeds from an initial axiom which is taken to be true (like, for instance, optimisation) to more concrete propositions (such as how resources are distributed in the economy). The idea is that logic prevails over evidence and evidence is consulted, in the pure deductive tradition, to falsify an original (axiomatic) proposition. Rather than taking empirical observations as the starting point, propositions regarding the workings of the economy are derived via reasoning or logic (which is often formalised by way of mathematics). This contrasts with an inductive logic which takes observations as point of departure and seeks to derive more general and theoretical propositions from the evidence (rather than from an initial a priori proposition or axiom).¹

Mainstream economics’ deductive logic combines with particular ontological assumptions. These are assumptions regarding the way in which the world is organised and, for mainstream economics, these are best captured through the concept of ‘atomism’ ‘Atomism’ as an ontological position implies that the world in itself is understood to be constituted of a set of elements that are randomly ordered, meaning that their relation to one another is incidental and that recognising these relations is not necessary for the different elements that constitute the world to acquire meaning. This contrasts with an ontological position that argues that the world is ordered in particular ways and that we need to recognise its internal relations (or structural features) to make sense of it. It is often also proposed that, for Neoclassical economics, the world is a ‘closed system’, which means that it obeys law-like regularities which themselves derive from the adoption of the principles of rationality and optimisation. These regularities are assumed to hold across time and space, making the theory universal and ahistorical. Another way to capture these features is to refer to the ‘ergodic’ nature of the assumptions of Neoclassical economics. This contrasts with the proposition of the world as an ‘open’ system, where a certain degree of regularity or ‘closure’ is possible but, because of the interplay between human agency and structures, these regularities are partial and not necessarily predictable nor universal. The world as an ‘open’ system lacks ‘event regularities’.²

These broad set of observations seek to capture the essence of what we refer to as the Neoclassical (or mainstream) school in economics. It contrasts with other approaches, often grouped together under the umbrella of ‘heterodox’ economics, that recognise systemic features and historical trajectories when accounting for economic outcomes.³ In short, as summed up by Brown and Spencer (2014, p. 945), heterodox economics, while encompassing distinct theoretical traditions, including those drawing on Marx, Keynes, the Old-Institutionali...