Guy Routh's Heterodox Critique of Economic Methodology

Guy Routh was an outstandingly incisive and severe critic of mainstream economic theory's abstraction, class bias, and empirical irrelevance. Routh's The Origin of Economic Ideas (1975 1989), with such chapter titles as “The Preposterous Origins” and “From Propaganda to Dogma”, was described by Robert Heilbroner as “irreverent, original, controversial, and delightful” while J. K. Galbraith expressed his “utmost enjoyment” and “utmost approval” of the book. Routh's trenchant critique of mainstream theorizing and his vision of an empirically-grounded alternative have been largely forgotten since his death in 1993, but deserve the attention of heterodox and especially of institutionalist and social economists.     

The Place of Uncertainty in Heterodox Economics Journals: A Bibliometric Study

Uncertainty is a common theme in heterodox economics. This article investigates how heterodox journals have been dealing with the concept of uncertainty. It relies on a bibliometric analysis to identify the concept of uncertainty in top heterodox journals and the genealogy of different heterodox meanings of uncertainty among those journals.     

整合技术概念及对新古典就业理论的反思

笔者提出整合技术概念，即所有的工人整合在一起操作生产系统；如果任何一名工人缺失，则生产系统不能运行。如果一种技术严格具有整合技术的性质，那么在到达能使生产系统运行之前，工人的边际产品为零。如果增加一名工人生产系统就可运行，则这名工人的边际产品等于总产品。如果再增加一名工人的边际产品为零，则边际产品曲线退化为一条垂直线。新古典边际劳动生产率理论认为，厂商雇闸工人的工资等于劳动的边际产品，但这一理论显然不适合整合技术。因此，要研究在更一般条件下厂商雇用决策的机制。采用整合技术的概念可以对很多经济学的理论问题进行重新思考。     

The transmission mechanism of monetary policy: Microeconomic aspects of macroeconomic issues

The article analyzes the transmission mechanism of monetary policy in light of microeconomic theory. We address the influence of microeconomic factors on the transmission of monetary policy while taking into account the contributions of conventional price formation and competition theory and heterodox microeconomic theories, including work inspired by the post Keynesians. We found a multiplicity of results regarding changes in price levels and inflation derived from shifts in demand and costs. These results challenge the conventional view, which postulates a single behavior in the circuit from changes in interest rates to demand, prices, and inflation. We conclude that microeconomic and macroeconomic aspects should be integrated to properly explain monetary policy and analyze its effects and transmission mechanism.     

The Exchange Rate and Inflation in Argentina: A Classical Critique of Orthodox and Heterodox Policy Prescriptions

In this paper we present an alternative framework to neoclassical theory of international trade and exchange rate determination. Our model, inspired in the classical tradition, provides support for the assertion that an exchange rate policy aiming to improve national competitiveness and to bring about a sustained trade surplus is a viable option. In fact, the success of this strategy does not depend on the effectiveness of monetary sterilization —as many argentinean heterodox authors claim— but on the ability to overcome the boundaries imposed by the evolution of the domestic wage rate and the potential emergence of competitive devaluations. In the particular case of Argentina, the introduction of export taxes on land-intensive commodities, in which the economy has absolute advantages, brings an additional policy tool that can make both the exchange rate target and the workers claims consistent.     

Airline Deregulation: Neoclassical Theory as Public Policy

We present a common analytical framework for evolutionary and institutional economics, conceived as the study of systems that do not tend toward, nor necessarily fluctuate around, a steady state. Using an evolutionary equation, we derive an analytical theory of the relation between resource abundance and the rate of return available under differing institutional structures. We suggest that the recent political and financial turmoil around the world reflects incompatibilities between existing institutional structures and the increasing scarcity of resources. We apply this idea to the most fundamental determinant of any society's prosperity, profitability and even long-term survival, namely its fertility and rate of population growth.     

The Conceptual Flaw in the Microeconomic Foundations of Dynamic Stochastic General Equilibrium Models

First-generation dynamic stochastic general equilibrium (DSGE) models have been criticized for their lack of financial markets but, more perceptively, for their barter properties. This note explains why the second of these criticisms is fundamental. All DSGE models are built on frictionless, perfect barter, Walrasian microeconomic foundations. Introducing money and banks into such models converts them into a ‘friction’ contra the fundamental principle that monetary exchange is more efficient than barter. This insoluble difficulty with the microeconomic foundations of DSGE models arises because theorists ignore the Hahn problem that applies to all monetary models based on Walrasian general equilibrium (GE) microeconomic foundations. The Hahn problem reveals three things. First, a perfect barter GE solution always exists in any ‘monetary’ model erected on Walrasian GE microeconomic foundations. Second, inessential monetary features are easily attached to perfect barter microeconomic foundations but as easily removed, leaving the perfect barter solution intact. Third, attaching such inessential additions leads to logical error; the misuse of language that produces invalid conclusions. A second-generation DSGE model that is intended to increase understanding of financial crises is then examined to show that it suffers from the Hahn problem; it converts banking and financial markets into ‘frictions’, and words and economic concepts take on different meanings. That renders the new DSGE model impossible to interpret or use as a basis for advice on monetary policy.     

The Neoclassical Investment Model and a New Conservation Law

q ratio is derived. We also show that, along the quasi-turnpike path, Tobin's marginal q is equal to the maximum value of average q. But along the turnpike path, marginal q becomes equal to the limiting value of average q. Received September 15, 1999; revised version received January 25, 2001     

The Exchange Rate and Inflation in Argentina: A Classical Critique of Orthodox and Heterodox Policy Prescriptions

In this paper we present an alternative framework to neoclassical theory of international trade and exchange rate determination. Our model, inspired in the classical tradition, provides support for the assertion that an exchange rate policy aiming to improve national competitiveness and to bring about a sustained trade surplus is a viable option. In fact, the success of this strategy does not depend on the effectiveness of monetary sterilization —as many argentinean heterodox authors claim— but on the ability to overcome the boundaries imposed by the evolution of the domestic wage rate and the potential emergence of competitive devaluations. In the particular case of Argentina, the introduction of export taxes on land-intensive commodities, in which the economy has absolute advantages, brings an additional policy tool that can make both the exchange rate target and the workers claims consistent.     

The Recent Critique of Theoretical Economics: A Methodologically Informed Investigation

My purpose is to appraise the recent critique of theoretical economics by applying the methodological perspective. Therefore, I start by identifying the main lines of criticism raised against theoretical economics in the aftermath of the post-2008 global economic crisis: namely, the voices criticizing economics for its unrealistic models, excessive mathematization, and overconfidence in its theoretical claims. First, I show that these issues are interconnected and should be jointly analyzed. Next, I investigate these lines of critique from the perspective provided by the latest achievements in the philosophy of economics (e.g., studies on the epistemic role of economic models). Taking this perspective reinforces some allegations against economics (e.g., these voices accusing economists of treating economic laws as universal laws of nature) and makes some criticisms more nuanced (e.g., the issue of unrealistic assumptions). I conclude by stating that such a methodological perspective is necessary in critically apprising the recent critique of economics.     

Optimal Liquidity Provision Through a Demand Deposit Scheme: The Jacklin Critique Revisited

We derive conditions such that optimal liquidity provisions through a demand deposit scheme can be sustainably implemented in a subgame perfect Nash equilibrium under the assumption that renegade investors have free access to ex post asset markets. As our qualitative main finding we demonstrate that such sustainability is more likely for ‘poor’ than for ‘rich’ scheme participants in terms of future income. By establishing sustainability for low future income populations, our formal analysis therefore offers an important qualification of Jacklin's (1987) influential claim that an optimal demand deposit scheme is not sustainable whenever there exists the possibility of an ex post asset market.     

Beyond the Linearity Critique: The Knife-edge Assumption of Steady-state Growth

The “linearity critique” of endogenous growth models is presented in a general context of an arbitrary growth model and reassessed. It is argued that presence of linearities is not a valid criterion for rejecting growth models. Existence of exponential/geometrical steady-state growth (i.e. of a balanced growth path with strictly positive growth rates) necessarily requires some knife-edge condition which is not satisfied by typical parameter values. Hence, balanced growth paths are fragile and sensitive to smallest disturbances in parameter values. Adding higher order differential/difference equations to a model does not change the knife-edge character of steady-state growth.     

A Critique of Economic Theory

Abstract:

Faced with home foreclosures, a stagnant economy, and weakly-effective federal programs of relief, Richmond, California, considered using eminent domain to acquire mortgages, modify loans to be more affordable, and thus prevent further erosion of the tax base. Strong objections have been lodged against such alteration of property rights, except through bankruptcy and foreclosure processes. The Richmond proposal is considered in the historical context of changes in the use of eminent domain as described by John R. Commons. Just as economic change forced U.S. courts to change the working definitions of property in the late nineteenth century, current contradictions in the way in which we think of households, and the systemic consequences of their management of debt, may produce changes in law and should alter the way in which economists analyze aggregate consumer spending and borrowing.     

The Social Value Theory of Orthodoxy: A Review and Critique

From an institutionalist perspective, we identify five sources of policy conflict. Each may explain why policies intended to obtain particular goals for an institutionalized practice may have unintended consequences. We illustrate by analyzing attempts at introducing market-oriented reform in health care provision.     

Competing Models of Socially Constructed Economic Man: Differentiating Defoe's Crusoe from the Robinson of Neoclassical Economics

Daniel Defoe's Robinson Crusoe has seldom been read as an explicitly political text. When it has, it appears that the central character was designed to warn the early eighteenth-century reader against political challenges to the existing economic order. Insofar as Defoe's Crusoe stands for ‘economic man’, he is a reflection of historically produced assumptions about the need for social conformity, not the embodiment of any genuinely essential economic characteristics. This insight is used to compare Defoe's conception of economic man with that of the neoclassical Robinson Crusoe economy. On the most important of the ostensibly generic principles espoused by neoclassical theorists, their ‘Robinson’ has no parallels with Defoe's Crusoe. Despite the shared name, two quite distinct social constructions serve two equally distinct pedagogical purposes. Defoe's Crusoe extols the virtues of passive middle-class sobriety for effective social organisation; the neoclassical Robinson champions the establishment of markets for the sake of productive efficiency.     

The Facts and the Values of the Lucas Critique

In his influential 1976 paper, ‘Econometric Policy Evaluation: A Critique,’ Robert E. Lucas, Jr. presented the policy non-invariance argument, also known as the Lucas critique (LC). Drawing on the work of Putnam and Walsh, this paper discusses how the LC, like all works of scientific inquiry, contains values entangled with scientific facts, and argues that the Lucas critique devalued and revalued the highest values in macroeconomic science, a process known as ‘transvaluation.’ Most importantly, the LC worked to operationalize a shift in values that undermined belief in economists’ ability and responsibility to make meaningful interventions in the economy. Employing the language and concepts of continental philosophy, this paper discusses the meaning and effect of the LC on the values embedded in contemporary macroeconomic science.     

The individual and the market: Paul Samuelson on (homothetic) Santa Claus economics

Paul Samuelson often used the term “Santa Claus economics” for mathematical models with empirically unrealistic assumptions. I focus on one particular member of the Santa Claus family that Samuelson was very sceptical about: homothetic general equilibrium models (where all agents have identical homothetic preferences). I argue that Samuelson's concerns about these models provide insights into how he viewed the relationship between the individual and the market, a relationship that has implications for not only his economic theorising, but also his broader political–economic vision. His criticisms are also relevant to some ongoing debates within contemporary economic theory.