Yes, There is Something Worth Keeping in Microeconomics

Deirdre McCloskey (University of Illinois at Chicago / Erasmus University Rotterdam)

Bernard Guerrien is severe on Messrs. [and no Mesdames, I note] Varian, Schotter, Kreps, Mas-Collel, Whinston, and Green, and I think he’s quite right to be so. The usual idea of “microeconomics” is, as Guerrien avers, formalism useful only for the generation of articles in the American Economic Review and worse. It’s scandalous that game theory and GE and overlapping generations and other mere existence theorems are taught as “tools.” As we say in American English (with thanks to Yiddish): tools, schmools. No physicist would consider such stuff scientific. She would want tools that can measure.

The problem comes partly from a terminological confusion. “Theorist” has come to mean in economics “guys trained in Mathematics-Department math.” (I note again that this Hilbert/Bourbaki style has nothing, nada, rien to do with the sort of math that physicists and engineers actually use to investigate the world; go have a look at The Physical Review and you’ll see what I mean.) Since the “theorists” so defined can’t do anything else (like give a substantive course in economic history or in urban economics), they get assigned to first-year graduate courses. It’s their comparative advantage, considering that the department has made the mistake of hiring them in the first place.

The result has been a catastrophe for economic education. Most economists arrive on the job without knowing how to think like economists. In fact they’ve been specifically and elaborately trained by the “theorists” not to think like economists, but to think like Hilbert/Bourbaki mathematicians, though of course to a childishly simple standard. (By the way, a distinguished committee of the American Economic Association was some years ago on the edge of doing something about the catastrophe; Bob Lucas vetoed the proposal, since he wants economics to carry on being unscientific.)

So I agree. I highly recommend a pamphlet just published at the University of Chicago Press, The Secret Sins of Economics, which shows how thoroughly I agree.

My disagreement with Guerrien is merely this: if microeconomics were properly taught it would be obvious that it does indeed have numerous scientific uses. Not the Whinston and Green stuff, on the whole. Most of that is useless, unless you think “use” means not “good for grasping the world in a quantitative way” (called “science”) but “good for generating publishable articles.”

Yet there is tons of really useful stuff in, say, (the lamentable George) Stigler, The Theory of Price, or in Steve Landsburg’s or David [sic] Friedman’s similar books; or (if I may) in a wonderful but neglected book published last in 1985, The Applied Theory of Price. (It’s available free in its entirety, diagrams and all, on the web site www.uic.edu/~deirdre2; David Friedman’s is available free on his web site, too.) If graduate courses taught “micro theory” in this sense—namely, ideas about how to show this or that effect in an economy, quantitatively—economists would be good scientists instead of bad philosophers. Some of the economists, admittedly, survive the first-year courses and go on to actually think about economic ideas and to measure their oomph in the world. But so do some children survive households with beatings and sexual abuse.

It just won’t do, therefore, to say as Guerrien does that price theory (as we Chicago types prefer to call it) “obviously contradicts almost everything that we observe around us.” Huh? When OPEC (viz., Saudi Arabia) cut the supply of oil in 1973, didn’t the relative price of oil rise, just as a simple supply-and-demand model would suggest? And when the population of Europe fell by a third in 1348-50 didn’t the ratio of wages to rents double, just as a simple production-function-and-marginal-productivity model would suggest? The point is that both of these can be made as quantitatively serious as you want. They are real scientific ideas. If you want to see hundreds upon hundreds of such examples, see The Applied Theory of Price---or, indeed, the serious scientific work of any serious economic scientist, someone actually trying to measure the oomph of an effect: Robert Fogel, say, or Moses Abramowitz, or Simon Kuznets (their teacher).

Let me put down the following challenge to the people who think they hate, just hate, neoclassical price theory. Go work through a serious book about it—not the “theoretical” micro that Guerrien and I both think is silly---and do the applied problems. If you can’t get inside the hundreds of empirical exercises in, say, my book, or in the applications of price theory as they occur (obscured by nonsensical existence theorems) in the neoclassical literature then you don’t really know what the tradition of Marshall-Wicksell-Friedman-Coase-Alchian is about, and you are not qualified to sneer at it, right? Doesn’t that sound fair? I think so, and I would apply it to my own understanding of Marxian or institutional economics.

Deirdre McCloskey’s books include The Rhetoric of Economics (Rhetoric of the Human Sciences), The Vices of Economists : The Virtues of the Bourgeoisie, and Knowledge and Persuasion in Economics

___________________________

SUGGESTED CITATION:

Deirdre McCloskey, “Yes, There is Something Worth Keeping in Microeconomics”, post-autistic economics review, issue no. 15, September 4, 2002, article 1. http://www.paecon.net/PAEReview/issue15/McCloskey15.htm