A History of Heterodox Economics

Challenging the mainstream in the twentieth century

Frederic Lee

• Publisher: Routledge
• Year: 2009
• Print ISBN:
  9780415681971
• eBook ISBN:
  9781135970215
• Topic: Business
• Subtopic: Business General
• Index: Business

Economics is a contested academic discipline between neoclassical economics and a collection of alternative approaches, such as Marxism-radical economics, Institutional economics, Post Keynesian economics, and others, that can collectively be called heterodox economics. Because of the dominance of neoclassical economics, the existence of the alternative approaches is generally not known. This book is concerned with the community history of heterodox economics, seen primarily through the eyes of Marxian-radical economics and Post Keynesian economics.

Throughout the 20th century neoclassical economists in conjunction with state and university power have attacked heterodox economists and tried to cleanse them from the academy. Professor Lee, his groundbreaking new title discusses issues including the contested landscape of American economics in the 1970s, the emergence and establishment of Post Keynesian economics in the US and the development of heterodox economics in Britain from 1970 to 1996.

1 Introduction

Scholars generally view the history of economics in the twentieth century as an intellectual history, that is, in terms of the history of economic thought. However, for the past decade, there has slowly emerged research on the social construction of communal activities that promoted and sustained the economic ideas and theories. This type of research generates what can be called community histories. Clearly the intellectual and the community histories of economics are distinct in their subject matter, but they are symbiotically related in that one presupposes the other and changes in one will affect the other. The essays in this book are primarily concerned with community histories not of mainstream economics, but of a non-comparable, alternative economics, specifically heterodox economics. But in saying this, an immediate problem emerges in that most scholars in the history of economics do not believe that heterodox economics has an intellectual history and hence deny that a heterodox economics community existed of which a history can be written. That is, they adopt the position—the continuity-pluralism thesis—that neoclassical economics dominated economics for all of the twentieth century, although there were often periods of internal pluralism. The significance of the thesis to scholars of the history of economics is its suggestion that throughout the last century no theoretical alternatives to neoclassical economic theory existed; only heretical views that enriched the dominant economic discourse and made important theoretical contributions, while the ones that made no contributions deservedly disappeared.¹ Moreover, the thesis dismisses the possibility that heretical ideas could evolve into non-neoclassical ones independently of their heretical originators or that welldeveloped non-comparable theoretical alternatives take time to emerge. Thus the continuity-pluralism thesis effectively makes the economic landscape of the twentieth century non-contestable, thereby rendering alternative economists invisible, the existence of alternative economics implausible, and the writing of its intellectual and community history impossible.

The continuity-pluralism thesis clearly captures the development of neoclassical economics since 1900 if not before. For example, the tools, models, and discourse that comprise and concretely define neoclassical price theory can be identified from the textbooks assigned in introductory, intermediate, and graduate economic courses. Table 1.1 lists the twenty-nine core tools and models included in American neoclassical price theory textbooks in the last one hundred years. It is divided into four time periods, the first being the base period, while the next two represent the supposed periods of pre-1940 pluralism and the post-war ascendancy of neoclassical economics, and the last period represents neoclassical economics at the end of the twentieth century. The first entry in each column represents the number of textbooks that included the tool or model and the second entry in parentheses gives the percentage of textbooks that included the tool or model. What Table 1.1 establishes is that the core theoretical tools of neoclassical price theory circa 1900–10, such as scarcity, maximization, utility and marginal utility, marginal products and the law of diminishing returns, supply and demand curves, and marginal productivity principle of distribution, and the core model of competition have been retained throughout the century. In addition, it shows that the number of core theory components have increased over time, to include, for example, utility functions and income and substitution effects, production functions, monopolistic competition, oligopoly, game theory, and general equilibrium. These two points imply that while there have been significant theoretical developments in neoclassical economics there has been no break—that is a period when neoclassical economics did not exist and a period in which it did exist. Rather neoclassical economics as defined in terms of the tools, models, and discourse of its price theory has always been with us. Finally, the twenty-nine tools and models are currently taught to every mainstream economist in their core graduate microeconomic theory courses as well as taught in undergraduate microeconomic theory courses.² Since the core tools and models and associated discourse (in conjunction with the deductive-formalist methodology) underpin virtually every book, article, and model that utilizes neoclassical microeconomic theory, they constitute the minimum standards of what the profession expects every new PhD economist to know³ (Klamer and Colander 1990; Hansen 1991; Kasper et al. 1991; Krueger et al. 1991; Knoedler and Underwood 2003).

While neoclassical doctrinal continuity existed in American economics throughout the twentieth century, it was not necessarily one of harmony. Within neoclassical economics there was accepted and encouraged contested theoretical knowledge, that is, pluralism. The controversy over the supply curve and the rise of imperfect/monopolistic competition circa 1930, pricing and the marginalist controversy circa 1940s, the controversy over the different theories of the firm circa 1960s, and the rational expectations revolution circa 1970s are well-known examples of this internal pluralism. There were also the not-so-well controversies over demand theory circa 1940s–1960s and the economics of information circa 1950s onwards that involved the Chicago School, Cowles Commission, and the MIT crowd that also demonstrated the existence of pluralism within neoclassical economics (Mirowski and Hands 1998; Mirowski 2007). However, pluralism was not extended to alternative contesting approaches except to one heretical challenger, Institutional economics in the inter-war period (Morgan and Rutherford 1998). Consequently, as far as most scholars are concerned, there existed no real theoretical challengers to neoclassical economics in the twentieth century. What is denied to exist, denied to having an intellectual and community history is what this book of essays is about: non-neoclassical-heterodox economics and its history as a community of non-neoclassical-heterodox economists.

Table 1.1 Neoclassical price theory/microeconomics in the twentieth century as represented in American textbooks^*

Heresy, blasphemy, and heterodox economics

To write the history of non-neoclassical economics is to write about its theoretical ideas and applications, its social system of work, and its activities as a community of non-neoclassical economists. But, in relation to neoclassical economics, what is non-neoclassical economics, a non-neoclassical economist and, moreover, what is a community of non-neoclassical economists? To answer these “comparative” questions, let us take an unusual step and first consider the difference between heresy-heretic and blasphemy-blasphemer in the context of church and the state. A church is a body of religious arguments and ideas that are accepted by a community of believers who have the capability of imposing social penalties, such as shunning or ostracizing, upon members who have strayed from the approved path. While such penalties are unpleasant, they are not life-threatening or involve prison sentences. However, when the church becomes the state’s church, its “infallible” judgments and statements regarding spiritual matters are accepted and supported without question by the state. Therefore a symbiotic relationship emerges where dissenting religious views can be interpreted as an attack upon the state and a criticism of the state can be interpreted as an attack upon the church. Consequently, more severe penalties, such as death or prison terms, can be imposed on wayward members as well as on non-members on the grounds that their errant beliefs are treasonable not just to God but also to the state since they may lead to questioning its legitimacy, and undermine social morality, stability, and the natural order of society. So the entrance of the state into the arena of belief transforms differences of views and opinion with their social-personal implications into a matter of life, death, and imprisonment, thereby creating the issue of non-conformance and tolerance. The state, rejecting tolerance in terms of personal conscious and liberty, becomes the protector of particular religious views, shielding them and their votaries from criticism and ridicule by upholding and perhaps imposing spiritual and participatory conformity and when they fail by establishing that dissenting activities are illegal and hence subject to state-decreed legal penalties.

Heresy, as broadly understood, is partial intellectual deviation from a given body of ideas and arguments. More specifically, in the context of church and state, heresy is theological or doctrinal deviation from the religion of the state church. For example, in Anglican orthodoxy qua the Church of England in the sixteenth and seventeenth centuries, a heretic was an individual who advocated particular theological or doctrinal deviations, such as denying the Trinity of the Father, the Son, and the Holy Spirit, rejecting the baptism of infants and children, or rejecting transubstantiation and even predestination, while still believing in God and other components of Christianity. The spiritual penalty for being an Arian, Socinian, or Anabaptist was excommunication and the secular penalty carried out by the state included imprisonment, death, and the public burning of written works. However, with the growth of religious tolerance—that is the growing perception that heretics such as Quakers, Baptists, Moravians, Catholics, Jews, and Unitarians were moral, peaceful citizens and therefore did not threaten the power of parliament, the sovereign or the established church—the acceptable religious community in Britain became diverse and the still heretical ideas vis-à-vis the church became viewed as erroneous or peculiar opinions to be tolerated and perhaps appreciated but not punished by the state. Yet in a diverse milieu of theological ideas and practices, it is possible for the religion of the established church to evolve over time so that one-time heretical ideas become accepted and heretics become fully accepted into the church’s community.

In contrast to heresy, blasphemy entails the total rejection of a body of ideas and their replacement with ideas that are completely different. More specifically, in the context of church and state, blasphemy is the profaning and denying the truth and value of an established religion, its sacred beings, texts, and institutions to be replaced by their secular counterparts. In short blasphemy is treason against God. Consequently, a heretic is a believer who holds some dissenting views; while the blasphemer is a non-believer who explicitly, through reasoned arguments, wit, and ridicule, rejects the state religion and its sacred doctrines and institutions.⁴ Because the rejection of the state church is viewed by the state as seditious, that is, as inciting a breach in the public order and as attacking its sovereignty, the basis of its laws, and the social morality underlying its legitimacy especially with regard to the lower classes and impressionable societal groups, it has always established and maintained penalties for blasphemers. The penalties, derived from state legislation (since the church’s spiritual penalty of excommunication is ineffective for an individual that already rejects it), are based on what the blasphemer has spoken and/or written. They are also based on the manner in which the blasphemous material is presented as interpreted by the devotee experiencing the material.⁵ With legal penalties at hand, such as death, imprisonment, fines, and loss of civil rights, the defenders of the faith have not fought shy of using the state’s judicial system to endorse their religion and protect their deity. So, through its blasphemy laws, the state rejects tolerance for a segment of its citizens by denying the legal validity and implicitly and subtly denying the social acceptability of a particular form of discourse through restricting freedom of speech and engagement in knowledge. The result is that undesirable ideas and arguments are suppressed. Clearly, one litmus test of how far the state, church, and society embraces diversity and tolerates blasphemous ideas is the extent of its blasphemy laws (or conversely its tolerance laws) relative to the civil rights of its citizens (Levy 1993; Lund 1995a; Nash 1999).

As with a church, there are mainstream, heretical, and blasphemous economists.⁶ In the twentieth century, mainstream economists have generally treated their heretical brethren with tolerance, partly because they ascribed to many of the same theoretical tools and models and accompanying discourse and partly because many theoretical advances in mainstream theory started out as heretical ideas.⁷ Thus often one-time heretical economists become, without selling-out, well-respected mainstream economists. Also, as with church and state, mainstream economists have attempted to suppress the economic ideas and arguments of blasphemous economists, whom they do not generally consider their brethren at all. The methods they used range from social penalties to penalties imposed by academic institutions and the state. The social penalties included shunning, ostracizing, and discrimination, especially when the blasphemous economist was a member of the same professional association. In the latter case, neoclassical economists used organizational power to prevent the hiring of blasphemous economists, to deny them tenure, or to directly get them fired for teaching blasphemous material. They also directly and/or indirectly used the power and the authority of the state to impose penalties, which included denying blasphemous economists government research funds, firing and blacklisting thus preventing blasphemous economists from practicing their trade, and legally sanctioning definitions/descriptions of economics and economic theory that again excluded blasphemous material, with the outcome that blasphemous economists were not allowed to teach their theory and ideas in university classrooms. Although there does not actually exist economic blasphemy laws, the intolerance of mainstream economists combined with power derived from state-embracing professional associations and the latter’s incestuous relationship with state institutions which gives them access to their state-derived power, has in all but name produced them over the course of the twentieth century. So given the intolerant and hostile attitudes of mainstream economists, it is a wonder that blasphemous economists actually existed in sufficient numbers and long enough to produce a blasphemous economic theory and a community of blasphemous economists. But it happened.

Blasphemous economic theory is characterized on the one hand by its disregard and rejection of not some but all the theoretical tools and models and accompanying discourse as well as the methodology that constitutes neoclassical price theory; hence, blasphemous theory rejects and denies the truth and value of neoclassical theory, its sacred laws, methodology, and texts. On the other hand, its explanations of economic events utilize non-neoclassical theoretical tools and models and employ a non-neoclassical discourse and methodology. Thus blasphemous economics and its theory can take on many guises, but the one that is the central concern of this book is heterodox economics. That is heterodox economics refers to specific economic theories and community of economists that are in various ways an alternative to neoclassical economics.⁸ Consequently, it is a multi-level term that refers to a group of economic theories—specifically Post Keynesian-Sraffian, Marxist-radical, Institutional-evolutionary, social, feminist, Austrian, and ecological economics—that hold to various degrees blasphemous positions vis-à-vis mainstream economics; to a community of heterodox economists who engage with and are associated with one or more of the heterodox approaches and embrace a pluralistic attitude towards them without rejecting contestability and incommensurability among the theories; and finally to the development of a coherent heterodox economic theory that draws upon various theoretical contributions by heterodox approaches which stand in blasphemous contrast to mainstream theory and from which heterodox economic policy recommendations can be drawn.

Heterodox economic theory

The discipline of economics is about developing theoretical explanations of the provisioning process, which consists of the real economic activities that connect the individual with goods and services. The mainstream explanation focuses on how asocial, ahistorical individuals choose among scarce resources to meet competing ends given unlimited wants and explains it using fictitious concepts and a deductivist, closed-system methodology. In contrast, heterodox economics differs from mainstream economics not simply because it finds its asocial theoretical explanation of the provisioning process unsatisfactory, but also how it reaches this conclusion. In particular, the heterodox critique and rejection of mainstream theory is not a disparate collection of individual critiques. Rather, it is a concatenation of different heterodox critiques that generate its dismissal; and in doing so, the concatenated critique also provides the basis for making heterodox economics quite distinct from mainstream economics. That is, the demarcation of the conceptual and theoretical boundaries of neoclassical theory is done in terms of core propositions, such as scarcity, preferences and utility functions, technology and production functions, rationality, equilibrium, methodological individualism, and positivist and deductivist methodology. Starting with these propositions, it is well known that it is not possible to generate internally coherent explanations or stories or parables of market activity at either the micro or the macro level; and even if particular stories (represented in terms of models) of market activities are accepted, such as general equilibrium, game theory, or IS-LM, they have been shown, on their own terms, to be theoretically incoherent and empirically unsupported. Although the internal and story-as-a-model critiques show that neoclassical theory is incoherent, they do not by themselves differentiate neoclassical from heterodox theory. This, however, can be dealt with in terms of specific heterodox critiques of the core propositions, such as those noted above and the theoretical stories they promote. In particular, each of the heterodox approaches that are part of heterodox economics has produced critiques of particular core propositions of neoclassical theory, while each core proposition has been subject to more than one heterodox critique; in addition, the multiple heterodox critiques of a single proposition overlap in argumentation. Finally, because of the overlapping and interweaving of the heterodox critiques, they provide a general critique and dismissal of the core propositions that leads to a rejection and denial of the truth and values of mainstream theory, its laws, methodology, and texts. This foundational rejection of neoclassical theory is also the basis for making heterodox economics distinct from neoclassical economics (Rizvi 1994; Lawson 1997; Keen 2001; Ackerman and Nadal 2004; Lee and Keen 2004; White 2004; Petri 2004; Palacio-Vera 2005).

To illustrate this, consider the heterodox critiques of the neoclassical concept of scarcity. The Post Keynesians (Bortis 1997) argue that produced means of production within a circular production process cannot be characterized as scarce and that production is a social process; while Institutionalists (DeGregori 1987) reject the view that natural resources are not socially created to enter into the production process; and the Marxists (Matthaei 1984) argue that the concept is a mystification and misspecification of the economic problem—that it is not the relation of the individual to given resources, but the social relationships that underpin the social provisioning process. The three critiques are complementary and integrative and generate the common conclusion that the concept of scarcity must be rejecte...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• List of tables
• Acknowledgments
• 1 Introduction
• PART I Heterodox economics in the United States
• PART II Heterodox economics in the United Kingdom
• PART III Heterodox economics at the beginning of the twenty-first century
• Appendix
• Notes
• Bibliography