Economics, Social Science and Pluralism

A Real-World Approach

Victor A. Beker

• Publisher: Routledge
• Year: 2022
• Print ISBN: 9781032212302
• eBook ISBN: 9781000598858
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

In the work of most classical economists – including Smith and Keynes – theory was often embedded in application. But from the second half of the last century on, mainstream economics styled itself as "pure" economics, where the theory is presented in a very abstract form detached from any application. This book maintains that economics is a social science whose mission is to explain and, when possible, predict, phenomena of the real-world economy. The book argues that the first step to restoring economics as a social science is to define what issues economics should address. Only after this research agenda is established should the appropriate methodology be chosen, not the other way around. In this respect, examples from other social sciences as well as from natural sciences are considered more appropriate models for economics rather than physics. Moreover, the need for a closer interaction with psychology, sociology and other social sciences is required to restore the discipline to that field instead of acting as a branch of applied mathematics. The book also argues for a more pluralist approach to economic education to enable prospective economists to understand real-world economic phenomena and potential policy solution. For this reason, a good economics education should necessarily include the study of economic history and of the institutional environment.

This book is essential reading for anyone who wants to see economics return to its origins as a social science.

1 Why economics went astray

DOI: 10.4324/9781003267393-1

From Adam Smith to Arrow-Debreu

According to the founder of economics, Adam Smith, the original purpose of the discipline was an “Inquiry into the Nature and Causes of the Wealth of Nations,” as the title of his famous book proclaimed.

In 1924, Wesley Mitchell, president at the time of the AEA, remarked that the economist studies “mass behavior.” One decade later, Keynes published his famous General Theory where he focused attention on the study of economic aggregates.

In the work of most economists, theory was often embedded in application. In contrast, from the second half of the last century on, mainstream economics became essentially “pure” economics, where the theory is presented in a very abstract form detached from any application.

Once the discipline was dominated by neoclassical economics, microeconomic theory – defined as working out the consequences of optimizing behavior on the part of individual economic agents – became the core of the discipline. A rational expectations representative agent who solves optimization problems to arrive at competitive equilibria replaced the study centered on mass behavior.

Physics – in particular, classical mechanics¹ – became the desideratum for mainstream economists in search of a scientific approach. This evolution culminated with the Arrow-Debreu general equilibrium model, which became the core body of mainstream economic theory.

The choice of classical mechanics as the source of inspiration for neoclassical economics was not innocent. It was motivated by the idea that the economy is subject to certain regularities that lead it to equilibrium², as in the case of celestial mechanics.

In sharp contrast to Smith’s approach, mainstream economics became a structure of mathematical reasoning erected on a set of axioms, trying to mimic classical mechanics as close as possible. According to this view, the discipline consists of an abstract economic theory at the top and various forms of applied work underneath.

According to Debreu (1991: 3), the goal of current economic theory is to provide “a global view of an economy that wants to take into account the large number of its commodities, the equally large number of its prices, the multitude of its agents, and their interactions.” This was accomplished by the author in a tiny 114-page volume which resembles more a math treatise than an economics book.

For this reason, a philosopher of science like Alexander Rosenberg (1992) maintains that the mainstream version of economics is not an empirical science at all; instead, it should be considered a branch of applied mathematics.

As Nobel Laureate Wassily Leontief (1982: 104) remarked, “page after page of professional economic journals are filled with mathematical formulas leading the reader from sets of more or less plausible but entirely arbitrary assumptions to precisely stated but irrelevant theoretical conclusions.”

What makes a paper to be considered within the field of mainstream economics? Not its substance but its method. As Hodgson and Screpanti (1991: 7) asserted, “amongst economists, the prevailing practice for many years has been to regard this subject as being defined not principally as a study of a real object – the economy – but primarily by a method or type of analysis.”

As Debreu (1991: 5) himself recognizes, “the very choice of the questions to which the economist tries to find answers is influenced by his mathematical background. Thus, the danger is ever present that the part of economics will become secondary, if not marginal, in that judgment.”

That is exactly what has happened: method has gained preeminence on substance. The questions the mainstream economist chooses to answer are those which are tractable with mathematical instruments. Assumptions are chosen with the same criterion, although they may be quite divorced from the real world. Even worse, when applying theory to reality, many practitioners do not check if the model’s assumptions match with the real conditions they are analyzing; they just check whether the predictions match with their own ideological prejudices. Thus, economics is less a science than an ideology.

Mathematics is just a language

The use of mathematics is considered as a guarantee that economics employs a scientific method; however, it is useful to remember that mathematics is just a language, as Samuelson reminded economists, popularizing Gibbs’s sentence. It is no less but no more than a language. It is not the language, even in economics.

Moreover, it is very difficult to express every economic issue in a bunch of equations. There are many economic subjects which have to do with qualitative aspects that cannot be reduced to a quantitative relation.

In this respect, it is worth remarking that it is better to have coherent verbal theories than precisely wrong mathematical ones.

The increasing mathematization of economics has led to the exclusion from the realm of economic theory of every question or puzzle which cannot be mathematically treated.

Mathematics is a demanding master: it ceaselessly asks for weaker assumptions, for stronger conclusions, and for greater generality (Debreu 1991: 4). Mathematical models must be manageable and easy to handle. This requires drastic omissions and simplifications, often at the expense of the models’ ability to capture relevant phenomena. In many cases, the most important real economic problems are excluded from economic analysis for the sake of mathematical tractability. The conclusions are only valid for an ideal world where the traditional neoclassical assumptions fulfill.

What type of science is economics?

In sharp contrast to natural sciences, social sciences face serious difficulties to carry out controlled experiments.³ This makes it too difficult to test predictions and, moreover, to reject any hypothesis. Although potentially falsifiable, most statements in social sciences in general, and in economics in particular, are only imperfectly testable.

For this reason, in economics there is, broadly speaking, nothing like a crucial experiment. For example, given a certain econometric result, in many cases it is enough to just include another variable, or to slightly modify the model assumptions or the estimation method to get different, and even opposite, results. There are many examples in the economic literature in this respect. No matter how sophisticated the economic tools are and how detailed the set of data one deals with, very few robust relationships can be obtained.

Most economic statements are not conclusively testable. If our observation instruments do not allow us to distinguish between a white and a gray swan, we have a falsifiable proposition (“all swans are white”) which cannot actually be falsified.

From a Popperian point of view economics is a science. For Popper, “a theory is ‘scientific’ if one is prepared to specify in advance a crucial experiment (or observation) which can falsify it” (Lakatos 1978: 3). It does not matter if, in practice, that crucial experiment can or cannot be carried out.

However, even in natural sciences, crucial experiments do not play the role that Popper ascribed to them. Lakatos points out that scientists “do not abandon a theory merely because facts contradict it” (Lakatos 1978: 4). Any theory can be saved either by some auxiliary hypothesis or by a suitable reinterpretation of its terms (Lakatos 1978: 32). According to him, there is not such a thing as a crucial experiment after which a refuted theory is discarded. He exemplifies his point of view with the case of the Proutians’ fight against unfavorable experimental evidence which took place between 1815 and 1911 (Lakatos 1978: 43).⁴

Of course, this does not mean that “anything goes,” that “nothing can be established, nothing can be rejected” (Lakatos 1978: 28). What is then the demarcation criterion between what is science and what is non-science?

In this respect his posture is reminiscent of the Kuhnian one about the way paradigms change. A new theory will displace an old one whenever the new one explains the success of the old theory, predicts novel facts, that is, facts not predicted or even forbidden by the old theory, and some of the new content is corroborated (Lakatos 1978: 32). In such a case the new theory is theoretically progressive with respect to its predecessor.

However, in the case of economics, the present situation on empirical estimation is not different from the one described almost 40 years ago by Leontief (1982: 104): “econometricians fit algebraic functions of all possible shapes to essentially the same set of data without being able to advance, in a perceptible way, a systematic understanding of the structure and the operations of a real economic system.”

The lack of controlled experiments in economics differentiates it from evidence-based disciplines such as physics, chemistry, or biology.

Hicks, quoted by Kamarck (2001: 6), expressed his concern that “we have sought to justify our economic concepts in terms of considerations that are appropriate to the natural sciences; not observing that what economic tries to do … is essentially different.” For him, because economics theories can neither be verified nor falsified, economics is a discipline, not a science.

As I have argued elsewhere (Beker 2018: 205),

A peculiarity distinguishing economics from the natural sciences is that theories, in most cases, cannot in practice be falsified (…) Economic theories and models accumulate and remain available inside a big toolbox to be used according to the specific case and the analyst’s expertise. Very seldom they are rejected as a result of empirical confrontation. Moreover, contrasting with physics, no Nobel Prize in economics was awarded for confirmed scientific predictions.

The role of ideology⁵

One of the purposes – if not the main one – of mimicking physics was to argue that economics is a value-free science as it is argued about the natural sciences.

However, the truth is that every researcher starts her work expecting to arrive at some result. The critical issue is if, in the process of investigation, she is open to consider arriving at a different conclusion although it may contradict her own and her colleagues’ a priori beliefs.

Any individual or social group has a certain set of beliefs and values, a certain weltanschauungen, which permeates their ideas and attitudes. Although they seem quite natural for them, they are prejudices in the sense that they are opinions or feelings formed beforehand without a scientific knowledge to support them.

As Irene van Staveren (2020: 108) points out, “economists are just like people. They try to hold on to their worldview and put in much effort to protect their vested interests as academics, policy advisors, and teachers based on the skills they have acquired and invested in.”

Every scholar in social sciences chooses certain questions and expects certain results from her research according to her weltanschauungen.

Scientists are human beings and, as such, they are not exempt from confirmation bias, that is the propensity to stop gathering information when the evidence gathered so far confirms the views or prejudices one would like to be true while ignoring information that casts doubt on them. This particularly happ...

Table of contents

• Cover
• Half-Title
• Series
• Title
• Copyright
• Contents
• Preface
• Acknowledgments
• 1 Why economics went astray
• 2 The scientific method in social sciences
• 3 What can economics learn from other sciences?
• 4 The methodological approach in the classics
• 5 Marshall and Walras
• 6 The Keynesian Revolution
• 7 The Counter-revolution: From Friedman and Lucas to Arrow-Debreu
• 8 From the real business cycle theory to the new Keynesianism
• 9 Economics as a real-world social science
• 10 The need for pluralism in economics
• 11 Normative economics
• 12 Summary and conclusions
• Appendix
• Index