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What Is Neoclassical Economics? Are Many Heterodox Economists Actually Neoclassical?

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Posted on 01 April 2021 by Philip Pilkington Article of the Week from Fixing the EconomistsAfter my recent post on a paper by Tony Lawson I was corresponding with the author and he suggested that I might want to take a look at a paper he has written from the September issue of the Cambridge Journal of Economics. The paper is entitled What is this ‘School’ Called Neoclassical?Please share this article - Go to very top of page, right hand side, for social media buttons.In the previous post on Lawson I wrote the following:I should say that while agree with Lawson’s arguments against the ideology crowd, which I shall lay out shortly, I do not agree that the term “neoclassical" does not denote a tendency in economics that has fed into the very formalism that, as we shall see, Lawson

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posted on 01 April 2021

by Philip Pilkington

Article of the Week from Fixing the Economists

After my recent post on a paper by Tony Lawson I was corresponding with the author and he suggested that I might want to take a look at a paper he has written from the September issue of the Cambridge Journal of Economics. The paper is entitled What is this ‘School’ Called Neoclassical?

What Is Neoclassical Economics? Are Many Heterodox Economists Actually Neoclassical?


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In the previous post on Lawson I wrote the following:

I should say that while agree with Lawson’s arguments against the ideology crowd, which I shall lay out shortly, I do not agree that the term “neoclassical" does not denote a tendency in economics that has fed into the very formalism that, as we shall see, Lawson despises. I think that a great deal of the problems with modern economics is its marginalist and, ultimately as I have shown before, teleological tendencies. These are hallmarks of the neoclassical approach and it is these tendencies that accommodate to the problems that Lawson identifies.

The present paper can be seen, in some sense, as a response to that comment. Of course, Lawson was not actually responding to me directly but it seems that others have made similar comments and this is what Lawson is dealing with in the present paper.

Lawson starts by making the point that, as is at least somewhat well-known, the term “neoclassical economics" was coined by Thorstein Veblen in a 1900 paper entitled The Preconceptions of Economic Science. The paper deals, interestingly enough, with the metaphysical preconceptions of economics - something that I deal with quite often on this blog (many can be found here) and in other writing (see here, for example). Lawson highlights that Veblen’s target is much like that which is found in his own work except that what Veblen calls “metaphysics" Lawson generally refers to as “ontology".

This, as we shall see, is extremely important because Veblen, in coining the term “neoclassical", is not actually taking aim at the marginalists - if we may call them that - because of anything to do directly with utility theory or perfect markets or anything like that; more important for Veblen is their underlying metaphysics. Veblen sees this as being caught between two different paradigms: what he calls the “taxonomic" and the “evolutionary".

Veblen is contrasting this contradictory stance of what he calls the neoclassicals with that of the classicals. In the classicals Veblen finds an animistic, teleological metaphysics in its most crude form which he then contrasts with the newer neoclassical view. He writes:

The earlier, more archaic metaphysics of the science, which saw in the orderly correlation and sequence of events a constraining guidance of an extra-causal, teleological kind, in this way becomes a metaphysics of normality which asserts no extra-causal constraint over events, but contents itself with establishing correlations, equivalencies, homologies, and theories concerning the conditions of an economic equilibrium. (Veblen, 1900, Pp255)

What Veblen is referring to as the “orderly correlation and sequence of events a constraining guidance of an extra-causal, teleological kind" is basically Adam Smith’s “hidden hand" which exerts a teleological pull on the direction of economic development. Veblen recognised in the hidden hand the teleological pull of God’s Will; something which I have noted elsewhere before.

In the newer neoclassical tradition, however, Veblen noted that much of this “archaic" religious or animistic metaphysics becomes instead a “metaphysics of normality" that tries to ground itself without any reference to an “extra-causal, teleological" force. The reason Veblen notes this is because he finds in the work of certain British neoclassical authors a recognition of what he calls the “evolutionary" approach - something Post-Keynesians may more readily understand if we say that this is an approach that recognises the presence of historical rather than logical time. Lawson summarises:

In identifying this specific strain (which shows unmistakable adaptation to the historical or evolutionary approach) Veblen proceeds merely by illustrating it with reference to two of its developers. One is the philosopher of science John Neville Keynes (the father of John Maynard Keynes), the other is the economist (and Keynes family friend) Alfred Marshall. (Lawson, 2013, Pp21)

In this approach Veblen finds the modern neoclassicals to be gradually moving away from the archaic, animistic tradition of the classicals and toward something more fruitful. Lawson again summarises:

It is precisely this tension, which is first illustrated using the contributions of [John Neville] Keynes and Marshall that I take to be the essence of neoclassical economics, according to Veblen. In other words, the defining feature of all neoclassical economics is basically an inconsistent blend of the old and the new; it is in effect an awareness of the newer metaphysics of processual cumulative or unfolding causation, combined with a failure break away from methods of the older taxonomic view of science that are in tension with this modern ontology. Neoclassical economists are classical in their acceptance of a taxonomic orientation to science that does not rely on the design of God, albeit a taxonomic stance now primarily revealed at the level of method. But at that level of explicit ontological or metaphysical preconception, neoclassical economists reveal unmistakable adaptation the viewpoints of the evolutionary sciences, warranting the qualifier ‘neo’. (Lawson, 2013, Pp23)

This is the underlying tension apparent in what Veblen calls the neoclassical school. It has little to do with clearing markets, an automatic tendency to full employment or anything else - indeed, these are to be properly seen as mere symptoms of a more fundamental sickness - rather it is the fact that these neoclassicals do recognise that they are dealing with “processual" historical time while nevertheless retaining methods that are only suited to the study of logical time. In more familiar lexicon this is usually identified as the Marshallian partial equilibrium approach which was recognised by such economists as Joan Robinson as having moved away somewhat from the ahistorical Walrasian approach but which nevertheless retained problems of its own.

At the time Veblen thought that such a contradiction would prove short-lived and it was only a matter of time before the neoclassicals adopt the correct “evolutionary" ontological position in their study of the economy. Lawson points out, of course, that the exact opposite has been the case. He argues that this was in large part due to changes that were taking place in the field of mathematics at the time. Here I will quote Lawson at length as it is a very important argument and draws on previous work:

However, in the early part of the twentieth century changes occurred in the interpretation of the very nature of mathematics, changes that caused the classical reductionist programme itself to fall into disarray. With the development of relativity theory and especially quantum theory, the image of nature as continuous came to be re-examined in particular, and the role of infinitesimal calculus, which had previously been regarded as having almost ubiquitous relevance within physics, came to be re-examined even within that domain. The outcome, in effect, was a switch away from the long-standing emphasis on mathematics as an attempt to apply the physics model, and specifically the mechanics metaphor, to an emphasis on mathematics for its own sake. Mathematics, especially through the work of David Hilbert, became increasingly viewed as a discipline properly concerned with providing a pool of frameworks for possible realities. No longer was mathematics seen as the language of (non-social) nature, abstracted from the study of the latter. Rather, it was conceived as a practice concerned with formulating systems comprising sets of axioms and their deductive consequences, with these systems in effect taking on a life of their own. The task of finding applications was henceforth regarded as being of secondary importance at best, and not of immediate concern…

This emergence of the axiomatic method removed at a stroke various hitherto insurmountable constraints facing those who would mathematise the discipline of economics. Researchers involved with mathematical projects in economics could, for the time being at least, postpone the day of interpreting their preferred axioms and assumptions. There was no longer any need to seek the blessing of mathematicians and physicists or of other economists who might insist that the relevance of metaphors and analogies be established at the outset. In particular it was no longer regarded as necessary, or even relevant, to economic model construction to consider the nature of social reality, at least for the time being. Nor, it seemed, was it possible for anyone to insist with any legitimacy that the formulations of economists conform to any specific model already found to be successful elsewhere (such as the mechanics model in physics). Indeed, the very idea of fixed metaphors or even interpretations, came to be rejected by some economic ‘modellers’ (albeit never in any really plausible manner)…

The result was that in due course deductivism in economics, through morphing into mathematical deductivism on the back of developments within the discipline of mathematics, came to acquire a new lease of life, with practitioners (once more) potentially oblivious to any inconsistency between the ontological presuppositions of adopting a mathematical modelling emphasis and the nature of social reality. The consequent rise of mathematical deductivism has culminated in the situation we find today. (Lawson, 2013, Pp27-28 - My Emphasis)

This, of course, will strike many of us as familiar; especially those who have read recent criticisms of the mathematical method as applied to economics that I have published on this blog (here and here). Indeed, on this view it would appear that if we wish to stick to the proper use of the term we must reserve “neoclassical" for those who exhibit a tendency to at once recognise that economics is the domain of historical time and thus largely not conducive to mathematical modelling and at the same time use said mathematical modelling as a tool to understand the economy. Lawson summarises this conclusion nicely:

Somewhat ironically, then, albeit particularly advantageously, if the suggested interpretation of the term ‘neoclassical’ is accepted, usage of the category would serve to draw attention to precisely that inconsistency (of preconceptions of certain modelling practices with otherwise revealed ontological commitments) which the manner of its current usage helps obfuscate. The effect, in short, would be to reverse the term’s current role in the discipline; its usage would contribute to identifying, revealing and/or signalling the tension in question, rather than, as at present, serving to mask or otherwise divert attention from it. (Lawson, 2013, Pp28-29)

The implications of this, of course, are enormous, as anyone familiar with the heterodox community and their use of the term “neoclassical" will realise. It means that any heterodox economist who admits that economic processes take place in historical rather than logical time but who nevertheless utilise improper mathematical modelling methods should be identified as “neoclassical" because this is precisely the group that the term was coined for.

So, is this really Lawson’s goal? Does he really want to tag those in the heterodox community that use mathematical modelling extensively and unreflectively as neoclassicals? Yes and no. Here I will again quote Lawson to allow him to make his own case.

To return to a question already posed but not really answered, am I seriously suggesting that we employ the term ‘neoclassical’ to refer to the third of the identified groups of economists, which will clearly include many who self-identify as heterodox? I repeat that I am certainly suggesting that to use the term ‘neoclassical’ in this fashion is the most appropriate, and a coherent, use of the category for the reasons already given; although a better categorisation might be non-dogmatic taxonomists or non-dogmatic deductivists, in contrast with the dogmatic (mathematical) taxonomists/deductivists that are the mainstream… All things considered, however, in the end I do not really think it reasonable to distinguish or identify any group on the grounds of a shared fundamental inconsistency. My aim here, in reporting my findings, is, in the end partly rhetorical, namely, to point out that if coherence in use is required, then according to the seemingly most sustainable conception, many of those who use the term ‘neoclassical’ as an ill-defined term of abuse can be viewed ultimately as engaged in unwitting self-critique. But I am hoping, more fundamentally, that it is enough in this manner to communicate (in a yet furtherway) that in modern economics there prevails largely unrecognised a basic tension between ontology and method, one that hinders serious attempts to overcoming the real problems of the discipline. (Lawson, 2013, Pp33)

The implications of this are nothing short of enormous. If one agrees to stick to a clear and well-defined meaning of words then Lawson is wholly correct in his use of the term “neoclassical". (That said, I think for other reasons there is good reason to hold discussions about the shortcomings of the marginalist approach). So, today if we want to be consistent we must use the term neoclassical to refer to a group of economists who at once recognise that economic processes take place in historical time but nevertheless use inappropriate mathematical modelling tools to try to capture this.

Given the recent trends toward econometric research a good deal of working heterodox economists fall under that heading; not to mention anyone using extensive mathematical modelling techniques. Food for thought, at the very least.


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