Sickonomics: Diagnoses and Remedies

In their recent analysis of the alleged decay in modern economics, Ben Fine and Dimitris Milonakis claim to find its source and origin in the “marginal revolution” of the 1870s. They argue that this development led to “methodological individualism” and the detachment of economics from society and history. I contest their account of the marginal revolution and of the role of Alfred Marshall among others. They also fail to provide an adequate definition of methodological individualism. I suggest that neoclassical economics adopted a denuded concept of the social rather than removing these factors entirely. No such removal is possible in principle. It is also mistaken to depict neoclassical economics as the science of prices and the market. In truth, neoclassical economics fails to capture the true nature of markets. I consider some sketch an alternative explanation of the sickness of modern economics, which focuses on institutional developments since World War II.     

From Social Theory to Explaining Sickonomics: A Response to Dimitris Milonakis and Ben Fine

This response shows that, in their reply to my critique of their work, Ben Fine and Dimitris Milonakis generally maintain the impression that there is a single, widely accepted definition of methodological individualism, but they do not identify it. They assert that social structures (undefined but seemingly specified to exclude law and institutions) have ‘analytical priority’ and logically (but tacitly) imply that individuals should have no part in the analysis of social or economic phenomena. They mischaracterise Hodgson's (2011) position on Marshall by quoting just one part-sentence out of context. Fine, Milonakis and Hodgson agree that the intellectual roots of the predominance of technique over substance in modern economics can partly be traced to the 1870–1900 period, but disagree on what they are.     

Schumpeter’s Split Between “Pure” Economics and Institutional Economics: Why Methodological Individualism Was Not Fully Considered

While Joseph A. Schumpeter is classified as a pioneer of evolutionary economics in a wide sense and of entrepreneurship and innovation management in a narrower sense, Schumpeter is less known for his contributions in the area of scientific methodology and history of science. The paper deals with methodological premises in Schumpeter’s scientific positioning. In 1908, in his Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie, Schumpeter developed and pioneered his methodological individualism which is very much acknowledged. However, comparing these early positions with methodological writings in his History of Economic Analysis (1954) shows that he has not really shifted from methodological individualism to an institutional perspective that addresses the academic interplay and sees economic action rooted in historical predispositions, paths and social constraints.     

Foucault on the Marginal Revolution in Economics: Language and the Cartesian Legacy

Scholars have long debated the ‘revolutionary’ character of the ‘Marginal Revolution’ in economics, focusing on theoretical foundations, methodological devices, social context and political aspects. This article offers a new perspective by investigating ontological and epistemological conditions of that intellectual movement. This requires, in turn, a characterization of those conditions, for which purpose we will draw on Foucault's configurations of thought into ‘epistemes’ in The Order of Things. Although not mentioning those conditions, there have been few references in economics to Foucault's approach. They have mainly claimed that he neglected its importance because he did not see it as a ‘revolution’ in The Order of Things. It is argued here that he actually considered it a ‘revolution’ in The Archaeology of Knowledge. A revision of Foucault's account provides some ideas regarding deep philosophical conditions of the emergence of neoclassical theory and defies some usual interpretations of the circumstances that led to the mathematization of economics. The main conclusion is that its revolutionary character did not stem from a change of ontological beliefs, but—just as many historians of economics have defended—it was a methodological revolution. This study suggests a reinterpretation of that event, claiming that it resulted from a new conception of language and a crisis of Descartes's project of a mathematical unifying science. Going beyond that debate, these reflections proffer ideas that deserve an appraisal in economics.     

新制度经济学的边界——三种代表性观点及其比较

在新制度经济学的边界问题上,新制度经济学家(威廉姆森和芮切特)、旧制度经济学家(霍奇森)以及经济思想史家(卢瑟福)不仅边界刻画依据不完全相同,而且他们对新制度经济学智力成果的描述也存在着很大的差异。新制度经济学家认为,某种制度分析是否属于新制度经济学关键是看该理论是否假定环境存在着不确定性、人是否具有有限理性,是否明确地或隐含地以交易费用为正为前提。而新制度经济学的边界在旧制度经济学家和经济思想史家那里被进一步放宽。他们深入到本体论层面,认为某种制度分析只要坚持方法论个人主义,那么它就属于新制度经济学的内容。而新制度经济学家的边界刻画更能准确、客观地反映新制度经济学的智力成果。     

Are We Forgetting Something? Remarks on the Connections Between Douglass North’s Contributions and Original Institutional Economics

Douglass North’s latest works have become central to the current discussion regarding the differences and similarities between new institutional economics (NIE) and original institutional economics (OIE). We seek to contribute to this debate by offering a specific analytical perspective to evaluating North’s contributions. After defining a set of philosophical and methodological principles that specifies OIE, we endeavor to verify if and how North’s work relates to these foundations. We believe that this methodological perspective brings to light a fundamental issue not stressed by earlier analyses: the profound difference between the institutionalisms regarding the role of market order as a mechanism of human sociability.     

Viewpoint: Estimating the causal effects of policies and programs

Estimation, inference and interpretation of the causal effects of programs and policies have all advanced dramatically over the past 25 years. We highlight three particularly important intellectual trends: an improved appreciation of the substantive importance of heterogeneous responses and of their methodological implications, a stronger focus on internal validity brought about by the “credibility revolution,” and the scientific value that follows from grounding estimation and interpretation in economic theory. We discuss a menu of commonly employed partial equilibrium approaches to the identification of causal effects, emphasizing that the researcher's central intellectual contribution always consists of making an explicit case for a specific causal interpretation given the relevant economic theory, the data, the institutional context and the economic question of interest. We also touch on the importance of general equilibrium effects and full cost–benefit analyses.     

Religion and the reception of marginalism in Britain

Did their religious beliefs play any role in the interest British economists took in marginal utility theory in the final third of the Nineteenth Century? I contrast the beliefs of the leading economists—Mill and his followers—who were unsympathetic to marginalism with the beliefs of those economists who embraced it. Mill’s followers were themselves sharply divided on key methodological questions, and I ask whether or not this division, too, may owe something to differing religious beliefs. I conclude, provisionally, that religion may indeed have played a significant role in determining the methodological predisposition of British economists between 1860 and 1900.     

Toward a holistic nonprofit economics: insights from institutionalism and systems theory

The main thrust of the current nonprofit economics literature is that nonprofit organizations exist to correct market failures. However, the methodological individualism of the market failure theories of nonprofit organizations makes these theories unable to take account of the complex institutional embeddedness of the nonprofit sector. To fill this gap, the present paper outlines an approach of holistic nonprofit economics by building upon the insights from Thorstein Veblen’s institutionalism and Ervin Laszlo’s contribution to the general systems theory. From the Veblenian dichotomy, holistic nonprofit economics benefits by recognizing the limitations of the profit motive in ensuring a high quality of community life. From the systems theory conception of the multi-level universe, holistic nonprofit economics borrows the insight that the key to a high quality of community life is in the integration between man, society, and nature. Accordingly, holistic nonprofit economics locates the role of the nonprofit sector in ensuring this integration by counteracting the profit motive. Thus, in contrast to the market failure theories of nonprofit organizations, holistic nonprofit economics generates a research program exploring the embeddedness of the nonprofit sector into the encompassing societal and natural systems.     

A Guide to Paradigmatic Self-Marginalization: Lessons for Post-Keynesian Economists

While many heterodox economists hope that the recent financial crisis will lead to paradigmatic change in economics, we argue that path-dependent processes and institutional factors within the economic community hinder such a change. Focusing on the citation behavior of economists in heterodox journals in general and in Post-Keynesian journals in particular, we discuss structural reasons—connected to positive feedback mechanisms within the institutional framework of the economics discipline—for the marginalization of heterodox economic thought.     

Economic Reforms in Socialist Economics: A Comment on Petr

Abstract:

The pre-WWII approaches to trade unions were mainly based on the theoretical and methodological viewpoints of early institutional economics. Trade unions were conceived of as politico-economic organizations whose members were motivated by relative comparisons, and also were concerned with issues of equity and justice. In the post-war period, there was a major theoretical and methodological shift toward the idea of unions as optimizing economic units with well-defined objective functions, which are optimized subject to purely economic constraints. This conceptual transformation took place mainly through the Dunlop -Ross debate, in which John Dunlop conceived of unions as analogous to business firms, as opposed to Arthur Ross’s institutional and political approach. However, after decades of analytical developments, the current state of trade union theory has not produced very impressive theoretical results. We trace the historical development of the economic analysis of trade unions from a methodological perspective. We also examine the methodological reasons for the dominance of Dunlop’s approach, and the current state of – and the contemporary criticism toward – the established theory. Furthermore, we discuss the contemporary efforts to build a more comprehensive approach to trade union theory and trade union objectives, also incorporating Ross’s institutional and political insights.     

Methodological interactionism: Theory and application to the firm and to the building of trust

Recent insights from the “embodied cognition” perspective in cognitive science, supported by neural research, provide a basis for a “methodological interactionism” that transcends both the methodological individualism of economics and the methodological collectivism of (some) sociology and is consistent with insights from social psychology. It connects with a Mengerian exchange perspective and Hayekian view of dispersed knowledge from Austrian economics. It provides a basis for a new, unified social science that integrates elements from economics, sociology, social psychology, and cognitive science. This paper discusses the roots of this perspective, in theory of cognition and meaning, and illustrates its application in a summary of a social–cognitive theory of the firm and an analysis of processes by which trust is built up and broken down.     

Visualizing the gains from trade,mid-1870s to 1962

Abstract

This paper explores the various personal and intellectual links between Edmund Husserl, Rudolf and Walter Eucken. Our interdisciplinary approach gives an insight into Husserl's transcendental phenomenology, Walter Eucken's Ordoliberalism as well as in the interdependency between phenomenology and economics for which Rudolf Eucken's philosophy of intellectual life plays an important role. Particular affiliations between phenomenology and economics can be found in the following topics: epistemology, the idea of man, the comprehension of liberty and the importance of legal or social orders, institutional rules and frameworks of regulations.     

Deregulation and Women's Employment: The Diverse Experiences of Women in Britain

Tony Lawson (1999) argues that critical realism will facilitate revelatory and emancipatory projects in feminist economics. The strength of Lawson's argument lies in its rejection of social atomism and methodological individualism. Societies are best understood as structurally connected systems rather than as atomistic aggregates. Its weakness lies in its reliance on a humanist conception of human agency, a conception that is increasingly questioned by some feminists.     

Neither Lausanne nor Cambridge: Pantaleoni and the missing boundary between economics and sociology

Abstract

By the turn of the twentieth century, Lausanne and Cambridge were the centres of diffusion of two rival versions of marginalism. This paper focuses on the position of Maffeo Pantaleoni, a leading figure of the late nineteenth century ‘renaissance’ of Italian political economy, with respect to the eminent representatives of the two schools: Pareto and Marshall. Pantaleoni's position is examined with reference to the two main bones of contention between Pareto and Marshall, namely general as opposed to partial equilibrium, and pure as opposed to mixed economics.     

Solving the U.S. Trade Deficit and Competitiveness Problem

We compare the analytical approach of John R. Common and Ronald H. Coase to institutional analysis and social provisioning. In particular, we examine their similarities in (i) the definition and role of institutions in the economy, (ii) the allocative (social provisioning) role of institutions in the economy, and (iii) the inescapable and unchanging role of institutions in shaping the social provisioning process. We contend that Commons and Coase had more in common than did Coase and many of his followers in the “new institutional economics.” In particular, the two had strong similarities in both (a) their insights into the nature of institutions in the legal-economic nexus that is the foundation of the economy and (b) their methods for conducting economics research. Because this role of institutional evolution is, as Warren Samuels noted, an inescapable and unchanging part of an economy’s social provisioning process, it will remain an integral part of any such work in the future, regardless of the “school of analysis” or methodological approach.     

On neoinstitutional theory and preclassical economies: mercantilism revisited 1

How and why do economies grow? This paper surveys recent research into preclassical economies, with particular emphasis on the mercantile period as to the adequacy of an answer of this critical question. Historical, 'ideational' and neoinstitutionalist approaches are analyzed as independent explanations for institutional change. While all of these approaches are found to have value, this survey argues that an unabashedly modern version of Marshallian economics has the greatest explanatory power.     

An Institutional Explanation for Economists’ Theoretical and Methodological Choices

Scientific research in general and economics research in particular is a social act. More specifically, schools of economic thought as well as associations, research groups and conferences are expressions of social organizations within the realm of economics. Historically, studies investigating the methodologies used in economics have focused on the strengths of these social organizations. This study aims to analyze the key roles played by individuals within social organizations in building and reinforcing economics and, in turn, their influence on these individuals. To achieve this goal, we use an institutionalist approach in a broad sense. We show how economics as an academic environment can be presented as an institutional entanglement and how an institutionalist approach can enhance an understanding of why economists adopt a particular theoretical and methodological perspective. It is argued that habits, observations and cognitive abilities should be seriously considered to understand the logic and decision making of economic researchers. We discuss also the importance of forming groups in the process of institutionalizing elements relevant to an economic researcher’s logic and decision making and present an interpretation of mainstream economics in terms of the analytical approach of our study.     

The Optimality of Arbitrary Partial Equilibrium Welfare Analysis

This paper characterizes the general equilibrium foundation of arbitrary partial equilibrium welfare analysis in second‐best economies. While prior theory recognizes the importance of market distortions affected by relative price changes, it offers little guidance about the necessary scope of Marshallian partial equilibrium analysis. The paper determines necessary and sufficient conditions for optima of Marshallian total surplus functions to characterize second‐best Pareto‐optimal allocations. While these conditions confirm much of the traditional approach to applied welfare economics, they bring doubt about its reliability for public policy and concerns over its systematic use to build conventional economic wisdom.     

The Marshallian Market and the Walrasian Economy. Two Incompatible Bedfellows

The aim of this paper is to question a view which is usually taken for granted, namely that the Marshallian partial equilibrium and Walrasian general equilibrium analysis stand in a relationship of continuity. It will be claimed that the contrary is true: the generalisation of the Marshallian market does not lead to a Walrasian economy or, conversely, the Walrasian economy is not composed of Marshallian markets. To bring this point home, the basic methodological choices underpinning the analysis of the Marshallian market and of the Walrasian economy will be compared. The issue of why no full-fledged Marshallian representation of the economy has arisen which might stand as an alternative to the Walrasian account will also be investigated and a series of reasons for this lack of generalisation of the Marshallian market will be considered. Finally, it will be claimed that if the Marshallian economy concept has no explicit existence, it has nonetheless an implicit one. It forms the background against which a series of reasoning about the working of the economy as a whole, which cannot fit the Walrasian economy framework, are developed. No less prestigious names than those of Keynes, Hicks, Patinkin, Friedman, Clower and Leijonhufvud will be adduced as witnesses.