post-autistic economics review
Issue no. 17,  4 December 2002
article 6

 

 

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Economics Outside the (Edgeworth) Box

Robert Scott Gassler
   (Vrije Universiteit Brussel, Belgium)

© Copyright 2002 Robert Scott Gassler

 

Away from Autism


A couple of years ago I went to a European conference on heterodox economics, and I made three mistakes. First, I wore a blue suit. Second, I admitted to the session chairperson that I was from Texas. Waco, even. Third, within the first two minutes I accidentally said something about neoclassical economics that fell short of a complete condemnation. The audience fried me. Next year I plan to go again. I’ll wear a tweed jacket with no tie, I’ll tell everyone I was born in Ohio (which is true), and I’ll start by trashing neoclassical theory big time.


To avoid that problem here, I shall state my position as clearly as I know how. Pluralism is good; too much mathematics is bad. Any decent doctoral program should include methodology, history of economic thought, economic history, and plenty of heterodox theory. I was one of the first three
signers of the PAE petition in Belgium.


What should we keep from neoclassical economics?

 

After twelve years as an American teaching in Belgium, I have developed a great appreciation not only of Belgian culture in particular and European culture in general, but also of the things about America that I think are worth emulating in the rest of the world. Interestingly, they are not at all the things that others might think. By the same token, I believe that there are certain things worth keeping from neoclassical economics, but they are not at all what others have listed in this journal.

 

The most important thing about neoclassical economics is that it has developed a relatively complete set of categories which can be used to classify concepts and facilitate communication with other disciplines. The fact that these particular concepts are undervalued by neoclassical economists whose communication with other disciplines is notorious for its one-sidedness is no reason to throw them out.

 

From Walras and others at the turn of the last century, under the influence of the logical positivists, is the threefold categorization of positive economics, normative economics, and applied economics. It is important to distinguish the first two precisely because they are so easily conflated and virtually impossible to disentangle. Positive economics is invariably subjective (which is not the same as normative: astronomers of any value orientation can see other parts of the universe only from our location and their time). It is also infused with values from the time a researcher chooses what variables to measure to the time he or she draws “policy implications.” In order to make progress in determining what the universe is like, however, we must do what we can to avoid seeing only what we want to see due to our values.

 

The distinction between theory and “empirics” should be maintained for similar reasons, though pedagogically it may be better to mix them as they do in the natural sciences. We should perhaps avoid telling our students that an earlier meaning of the term “empirical” was “fraudulent”. We should however note that the most zealous guardians of the inner core of neoclassical theory (located in Chicago, Illinois, not Cambridge, Massachusetts) refer to themselves as “empirical economists”.

 

The important thing for both theory and empirics is to be pluralistic. For theory the meaning has been discussed extensively in this journal.  For empirics it means taking an interest in techniques not taught in econometrics courses. For example, my old micro professor dismissed survey research with an apocryphal anecdote: someone once asked CEOs whether they maximize profits, and they said no, we also look to help the community. Then they asked whether the CEOs could be doing more to make money, and they said no, they were doing all they could. End of story. He neglected to mention that virtually all the statistics used for number-crunching are based on data gathered by surveys.

 

From the field of industrial economics, we should adopt the concepts of structure, conduct (or behavior), performance, and practice. The latter is called “policy” in the literature, but “practice” includes firms and other nongovernmental actors. Never mind the esoteric debate over whether causality runs from left to right or whether we can skip any of the steps in between: the universe is complex and causality is mutual and simultaneous. Get used to it.

 

From public economics, we should keep the distinction among the economic activities of government developed by Musgrave: allocation of resources (public goods, externalities, imperfect competition, social rates of discount, excessive risk), distribution of income, and macroeconomic stabilization. Do not yield to the temptation to use the word “function” instead of “activity” for fear of inducing unnecessary debate by sociologists and even biologists. To complete the list, we should add the two used in the underrated theory of economic systems: the natural and societal environment (taste, technology, resources) and the economic system itself (ownership, economic information, transactions).

 

Together these constitute as close to a mutually exclusive and exhaustive set of categories as anyone would want in as complex a subject as this. One wants an open-ended science, like biological taxonomy or library classification. Therefore too much rigidity is bad, as is the construction of a closed system, even if a taxonomic one. But so is too much confusion.

 

A Suggested Framework


The whole scheme would fit together in a systematic way, while leaving room for miscellany and growth in unexpected directions. (I elaborated on this in Gassler, 1998) It helps us if we were to draw analogies with the pure and applied biological sciences; these are given in parentheses. It also helps us make sense of the suggested curriculum for economics proposed here earlier (“Two Curricula,” 2000). These are indicated in quotation marks.


Structure (positive, analogous to anatomy)Descriptive economics: history of economic and social phenomena, actors and institutions”
 

  1. The natural and social environment: tastes, technology, and resources.
  2. The economic system itself: the rules of ownership, the pattern of economic information, costs of different transactions. 

 

Conduct or Behavior (positive, analogous to physiology)

  1. The allocation of resources, including: public goods and externalities, coordination (through market or nonmarket means under perfect or imperfect competition), choice over time, risk and uncertainty.
  2. The distribution of income: in cash or in kind.
  3. Macroeconomic stabilization: employment, prices, growth.

 

Performance (positive in using performance measures; normative in choosing which ones to use; analogous to pathology when used to mean the study of disease)Applied economics and quantitative methods; economic and social policies” 

 

Criteria that correspond roughly to the categories given above: efficiency, equity, stability for the last three, things like “propriety” or “information symmetry” for the others.

 

Practice (applied, analogous to clinical medicine) “Theories and issues”

 

Corporate strategy, nonprofit strategy, government policy, etc. This is the purview of the professional schools: business, international affairs, law, library and information science, nonprofit administration, public administration, social work.

 

Arrow-Debreu and the fundamental theorems of welfare economics are a rather simple special case of positive and normative economics, a fact not lost on Arrow, Debreu, and others. Assume maximization of exogenous tastes, exogenous technology, fixed resources, private ownership, full information, costless transactions, no public goods or externalities, parametric prices (which some say could mean competitive equilibrium), no social discount rate, and no excessive risk, and the allocation of resources is efficient for whatever equitable or lopsided distribution your economic model started with. The Edgeworth boxes “prove” it. Stabilization is automatic, since everything runs smoothly. Performance is perfect. Application is impossible. This is worth a week or two in class sometime in an economic student’s career in order to show how neoclassical theory fits together and to show how silly it is for economists to be flippant about things like free trade.

To be sure, the neoclassical model has been amended and extended to relax some of the assumptions in each category; whole fields of economics have been started that way. But the fun part comes in when we look at the heterodox approaches. Most of them attack on all fronts, but as a first approximation some of their attacks are stronger in certain categories. For example, the assumptions about tastes have been attacked by several schools: feminist (attacking the assumptions of exogeneity and selfishness), behavioral (attacking maximization), and humanistic and socio-economics (attacking the assumption that all things enter preferences the same way). The Marxist and Post-Keynesian schools attack the assumptions underlying neoclassical theories of stabilization (macroeconomics). Of course Marxist, evolutionary, and institutional economics go way beyond the list, but that fact should be stressed in order to keep us from thinking the list is a closed system, not in order to discard the list.

 

Conclusion


To restate my position: neoclassical economics, especially mathematical neoclassical economics, is okay if you do not take it too seriously. It should be only a small part of the economics of the twenty-first century. If you think that makes me anything other than a post-autistic economist, then I’ll swat you with my tweed jacket.

 


References

Gassler, Robert Scott, "The Theory of Political and Social Economics: Beyond the Neoclassical Perspective,"               Journal of Interdisciplinary Economics, Vol. 9, No.2, 1998, pp.93-124.

Two Curricula: Chicago vs. PAE, Post-Autistic Economics Newsletter, Issue no. 4, article 3”; 29 January 2000.

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SUGGESTED CITATION:
Robert Scott Gassler, “Economics Outside the (Edgeworth) Box”, post-autistic economics review, issue no. 17, December 4, 2002, article 6.. http://www.paecon.net/PAEReview/issue17/Gassler17.htm