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Symposium on Reorienting
Economics
On the
Problem of Formalism in Economics
Geoffrey
M. Hodgson (University of Hertfordshire,
UK)
© Copyright 2004, Geoffrey
M. Hodgson
Modern Economics is Sick
In his Reorienting Economics, Tony Lawson cites this magnificently
appropriate quotation by Mark Blaug (1997, p. 3):
Modern economics is sick.
Economics has increasingly become an intellectual game played for its own
sake and not for its practical consequences for understanding the economic
world. Economists have converted the subject into a sort of social
mathematics in which analytical rigour is everything and practical relevance
is nothing.
I believe that on this issue, Lawson, Blaug and I are in agreement: the victory of technique
over substance is a chronic problem within modern economics. Although the
victory of formalism can be dated to the 1950s (Blaug
1999, 2003), by the 1980s the problem had become much more serious. Because
mathematics has swamped the curricula in leading universities and graduate
schools, student economists are neither encouraged nor equipped to analyze
real world economies and institutions. Arjo Klamer and David Colander (1990, p. 18) reported a survey
which showed that only 3 per cent of graduate students on top US economics
programmes perceived ‘having a thorough knowledge of the economy’ to be ‘very
important’ for professional success, while 65 per cent thought that ‘being
smart in the sense of problem-solving’ is what matters, and 57 per cent
believed that ‘excellence in mathematics’ was very important.
In 1988 the American Economic
Association set up a Commission on the state of graduate education in
economics in the US. In a crushing indictment, the Commission expressed its
fear that ‘graduate programs may be turning out a generation with too many idiot
savants skilled in technique but innocent of real economic issues’
(Krueger et al, 1991, pp. 1044–5). Alan Blinder (1990, p. 445), a
member of the Commission, commented:
Both students and faculty find economics obsessed with technique over
substance . . . the many macro and micro theory exams the Commission examined
. . . tested mathematical puzzle-solving ability, not substantive knowledge
about economics . . . Only 14 percent of the students report that their core
courses put substantial emphasis on ‘applying economic theory to real-world
problems.’
Alarm bells concerning technique
displacing substance in economics have been sounding for many years (Ward,
1972). However, although mainstream economics has made some significant
theoretical advances in the 1990s, including an increasing adoption of
institutional and evolutionary themes, the situation concerning formalism has
not got any better.
Perhaps the most serious
emerging problem is that the graduate students of the 1980s and 1990s, who
are skilled in technique but who have an impoverished understanding of
economic principles and their history, are now beginning to achieve positions
of seniority and influence in the university departments, associations and
journals of the economics profession. Their growing power and influence will
ensure that formalism further consolidates its overwhelming hegemony, to the
detriment of wider-ranging conceptual and methodological enquiry. This
problem is particularly serious in Britain and America, where formalism has
achieved its earliest and most complete victory. But the process is delayed
rather than absent elsewhere.
Both Blaug
and Lawson face the problem of formalism head-on. But, as I shall elaborate
below, their evaluations differ. Blaug complains
that formalism has been associated with a detachment of economics from
substantial and practical issues. Lawson’s (1997, 2003) attack is more
extensive and radical. He develops at length a methodological critique of
what he calls ‘deductivism’ and identifies this as
the root of the formalist malady. One of my main purposes here is to examine
some prominent aspects of Lawson’s critique of formalism. I shall argue that
his stance is too limiting, with the expected outcome that mathematical and
econometric tools will be illegitimate except under ‘seemingly rare’ (Lawson,
2003, p. 21) conditions.
Tony Lawson’s Critique of Formalism
Lawson affirms that the
systems addressed by the social sciences are open, in that they are subject
to multiple extrinsic and intrinsic disturbances. This makes the task of
prediction either difficult or impossible. For Lawson (1997, p. 288), ‘event
prediction is usually infeasible’ and ‘in any case not required for a
successful science of economics’.
Lawson (1997, pp. 16-17)
argues that ‘deductivism’ presumes ‘event
regularities’ or ‘constant conjunctions of events or states of affairs’ with
regularities of the form ‘whenever event x then event y’. Philosophically,
this is a rather atypical definition of deductivism,
because it refers to empirical regularities concerning events rather than
logical deductions concerning propositions. He seems to suggest that logical
or mathematical constructions, if they are to be of relevance or use, must be
some kind of map of reality at the level of events. For example, Lawson
(2003, p. 22) writes of the importance of a ‘“fit” with reality’.
From this stance, his critique
of the use of formalism in economics readily follows. Social reality is an
open system, generally lacking in ‘constant conjunctions of events’. By
contrast, formal models cannot be open to an indefinite number of additional
relations or variables. In either a strict or a stochastic sense, such formal
models generate regularities in the form: if x then y. Such event
regularities are highly limited in the social realm. Accordingly, there is a
general mismatch between formal models and reality. If economics is to
progress, then formal modelling must be limited those cases where such
regularities pertain, and these appear to be rather rare.
In the absence of formal
models, what does the theorist do? Lawson realizes that no theory (formal or
discursive) can proceed without some degree of abstraction: it is impossible
to consider all elements and interactions at once. Indeed, he develops his
methodological notion of abstraction at length. But here he faces a
difficulty. If abstraction is necessary, and it involves the limitation of
the sphere of consideration and the exclusion of additional relations or
disturbing forces, then doesn’t this too imply the assumption of a closed
system? Stephen Nash (2004) has recently argued in the affirmative,
suggesting that Lawson too must assume conditions or forms of closure. To
some extent, however, Lawson (1997, p. 236) anticipates this objection. He
proposes a distinction between ‘abstraction’ and ‘isolation’ in the following
terms:
When we focus upon varying productivity
performances here, conditions of work there, rising or falling unemployment
rates, and so on, we do not suppose that these features we choose to
emphasise exist in isolation, even as a temporary, heuristic, measure. To do
so is to assume a totally different world from the one in which we live, and
one that has no bearing upon it. … In short, there is literally a world of
difference between leaving something (temporarily) out of focus and treating
it as though it does not exist. The achieving of an abstraction and treating
something as though it existed in isolation are not the same thing at all.
He uses this distinction to protect his
argument against the objection that his method of abstraction also implies
the assumption of closure; he argues that abstraction does not imply closure
but isolation does. With some important nuances and qualifications, Lawson
(1997, pp. 131-3) associates the notion of isolation with the work of Uskali Mäki (1992, 1994) and
contrasts isolation with his own concept of abstraction. However, I shall
argue later below that the distinction is, at least in prominent practical
instances, difficult to sustain. Lawson takes a relatively extreme position
in his attitude to formalism in economics, even among critics of mainstream
economics, and even among the school of ‘critical realists’ to which he
belongs. For example, critical realists such as Paul Downward (2000) have
defended a more frequent use of some econometric techniques. Lawson points to
very few concrete instances where econometrics has been appropriately
deployed; Downward points to several. And the critical realist Erik Olin
Wright (1994, pp, 183-9) has strongly supported the use of ‘explicit abstract
models, sometimes highly formalized as in game theory’ and other ‘rational
choice models’. Although of course an extreme position such as Lawson’s is
not necessarily inappropriate or wrong, it does invite repeated criticism.
Perhaps a consequence, in
Lawson’s later writing, there has been a slight shift of tone and emphasis,
if not substance as well. For example, Lawson (1999, pp. 7-8) proposes that
from the fact that ‘the world is open and structured, it does not follow’
that economists ‘ought thereby not to engage at all in formalistic methods
such as econometrics.’ He continues:
The possibility of successes
with the latter requires local closures. … Critical realism thus cannot and
does not rule out a priori their limited occurrence. Rather, critical
realism adopts an essentially ex posteriori orientation
… the opponent is the advocate of any form of a priori dogma.
With some amendments, Lawson (2003, pp.
xix, 27, 178-9) repeats a similar argument in several places in his latest
book. Again and again he insists that he is not against the use of
econometrics or models in principle, but that they are of highly limited use
given the closure conditions upon which they depend. He writes that ‘a
blanket rejection of econometrics, or indeed of any other method, is not a
stance that is, or could be, sponsored in critical realism.’ What is opposed
is not econometrics but ‘the reduction of economics to formalistic
analysis.’ But he then goes on to say that the ‘application of formalistic
methods requires certain (closure) conditions constituting special
configurations of social reality that (unsurprisingly from the perspective
sustained) have turned out to be rather rare.’ In a recent essay, Lawson
(2004) again repeats his insistence that he is not ‘anti-mathematics’. But
his expectation remains that the conditions for its effective and proper use
would be rare.
In these passages at least two
features are emphasized. The first is a strong, sincere and repeated claim of
anti-dogmatism concerning whether or not mathematics can or should be used. But
he lays down criteria for its use, including the requirement of
(approximated) local closure. As a result of these criteria, the specific
measure of his own anti-dogmatism, in practice rather than in intention, is
how far he would admit that open systems might appear (or be approximated) in
reality. Lawson argues that his critical realist perspective suggests at the
outset that they are ‘limited’ or even ‘rather rare’. Accordingly, the
ontological arguments in Lawson’s critical realism lead him right away to
expect that the possibilities for formalism are highly restricted. This sets
limits on his anti-dogmatist stance, despite his pronounced antidogmatist intentions. Although Lawson imposes no
absolute normative ban on the use of mathematics, his arguments limit its
legitimate use to ‘rare’ circumstances only.
Generally, one can also ask if
a pervasive anti-dogmatism were possible. The need for some dogmatic
presuppositions must be acknowledged by any philosopher or theorist. The
removal of all dogma would mean a disabling nihilism of universal scepticism.
In such circumstances, no theory could be established. Similarly, human
activity would become paralyzed if we ceased to believe in the essential
dogma that most of the natural regularities and social institutions of today
will survive until tomorrow. We often admire anti-dogmatism as a commendable
personality trait, but philosophy of science suggests that some considerable
degree of dogmatism is unavoidable.
The second feature is the
proclamation of ‘an essentially ex posteriori orientation’,
although what precisely is meant by this is insufficiently clear. Critical
realists rightly emphasize the importance and priority of ontological
commitments. Consider fundamental ontological commitments such as ‘ubiquity
determinism’ (Bhaskar, 1975, pp. 70-1), which means
that every event is deemed to have a cause. We have known at least since the
days of David Hume that it is impossible to deduce causes a posteriori from our experience of events. It is in
the very nature of such primary ontological commitments that they are neither
based on nor deduced from evidence or experience. One of the crucial aspects
of the philosophical assault on positivism in the middle of the twentieth
century was the reaffirmation of the importance of such prior ontological
commitments, which cannot be established by appeal to evidence or experience
alone (Quine, 1951; Caldwell, 1982). So one is left
wondering what ‘an essentially ex posteriori orientation’
means, and how it can be reconciled with an insistence on the primacy of
ontology.
Again I detect a slight
post-1997 shift of tone and emphasis when Lawson (2003, pp. 20-1) openly
discusses the possibility that econometrics might be of use in some
instances:
Clive Granger has argued convincingly
that it is possible to use econometrics to provide relatively successful
short-run forecasts of phenomena such as electricity loads and peaks in
regions wherein one factor, temperature, or more specifically the extreme
cold, dominates behaviour. … The point remains, however, that the sorts of
conditions in question appear a posteriori not
to be typical of the social realm. Rather, as I say, social reality is found
to be a quintessentially open, structured, dynamic and highly internally
related system, amongst other things, whilst the conditions for achieving a
local closure are seemingly rare.
This is the only example I can find where
Lawson has pointed to a specific piece of econometric analysis and
acknowledged its legitimacy. Note, however, the strictness of the key
condition involved. According to this passage, for econometrics to be
applicable, ‘local closure’ must be actually achieved, not merely
approximated. However, it is clearly the case a posteriori
that electricity consumption (even in cold regions) is a feature of an
open rather than a closed system. For instance, electricity consumption is
generally affected by its price. Such prices are heavily influenced by global
market conditions. Global markets are far from being closed systems. Granger
did not provide an example which establishes local closure. By the logic of
his own argument, Lawson should have deemed econometrics to be inapplicable
to this situation as well. His single claimed example of the legitimate use
of econometrics turns out to be illicit according to his own key criterion.
Indeed, if we require that
formal models can only be applied in contexts where local closure is actually
achieved, then this would mean that such models were inappropriate in other
sciences and disciplines, such as biology, physics or engineering. Generally,
in multiple contexts, in both the natural and social world, such closures are
absent, as Roy Bhaskar (1975) as well as Lawson
himself have emphasized. If formal models require strict local closure, then
formal models are never appropriate. But this would overlook the achievement
of mathematical models in some sciences. It may be suggested that local
closure is sometimes approximated in physics, and because of this some formal
models can be of use. But models and simulations have also been used with
some success in biology and evolutionary anthropology, which face a degree of
complexity and openness comparable to that found in human societies (Murray,
1989; Boyd and Richerson, 1985).
At least in recent seminar
presentations, Lawson has amended his position still further, by proposing
that econometrics might apply when local closure is ‘approximated in
reality’. This formulation contrasts with that in his two (1997, 2003) books,
which generally insist that local closure conditions must actually apply for
formalism to be viable. From his amended standpoint, admitting a degree of
approximation to closure, it would be possible to admit the Granger example
as a case of the legitimate application of econometric techniques. The
general problem for Lawson in applying this revised criterion more widely is
that the degree of acceptable approximation is left unspecified. In general,
once the insistence on the actual achievement of local closure is removed, and
approximations to closure are admitted, then the door to econometrics is
unlocked and opened.
Some Key Problems and Omissions in Tony
Lawson’s Critique
Much of Lawson’s discussion of formalism
concerns econometrics. He gives insufficient attention to other applications
of mathematical techniques, which serve primary purposes other than the
prediction or explanation of measurable variables. Such additional
applications of formalism include (a) heuristics and (b) internal critiques.
I shall address each of these in turn.
The purpose of a heuristic is
to identify possible causal mechanisms that form part of a more complex and
inevitably open system. Heuristics can be useful without necessarily making
adequate predictions or closely matching existing data. Their purpose is to
establish a plausible segment of a causal story, without necessarily giving
an adequate or complete explanation of the phenomena to which they relate.
An example of a formal
heuristic that has been persuasive in economics is the ethnic segregation
model constructed by Thomas Schelling (1969). Using
a very simple model of housing location, Schelling
showed that ethnic segregation can result even from very small feedback
effects. Even if people only have a very slight preference for their own
ethnic group, this can be enough to cause migration out of mixed ethnic
areas, with the end result of segregated ethnic ghettos. The problem is
extremely simple, and hardly realistic in its detailed assumptions. However,
making the model more complicated and ‘realistic’ would be beyond the point,
partly because it is obvious that similar outcomes might result from a more
complicated model. Instead, the Schelling model
points to a credible mechanism that shows that ethnic segregation does not
necessarily depend upon the actions of bigoted racists. Such racists exist in
the real world, so their inclusion in the model would make it more realistic.
But this would defeat the object of the model, which is to show that
segregation might result even without them. The model abstracts from the more
forceful versions of racism that we find in the real world to establish this
key point. In this case, the power of the model is helped by its unrealisticness. The power of the model lies in its
capacity to abstract a plausible bit hitherto eglected
causal mechanism.
In a very useful discussion of
such ‘credible worlds’, Robert Sugden (2000) asks
probing questions concerning the role and ‘realisticness’
of this and other heuristic models in economics. These heuristic models have
the paradoxical claim that they are literally unrealistic yet they seem to
illuminate important aspects of reality. Using the Schelling
model alongside George Akerlof’s (1970) famous
article on the ‘market for lemons’, which again claims to establish
meaningful propositions about the world on the basis on an admittedly
unrealistic model, Sugden (p. 28) describes these
models as ‘credible counterfactual worlds’ that give ‘some warrant for making
inductive inferences from model to the real world.’
In no case can the
construction of a heuristic or counterfactual model clinch the argument
concerning the causal mechanisms that actually exist in the real world.
However, what they sometimes do show – as in the case of the Schelling model – is that outcomes might not necessarily
result from the causal factors that may be presumed at first sight. To
complete the argument, further theoretical development and empirical enquiry
are always required. I have suggested above that heuristics are appropriate
if they successfully abstract an important causal mechanism in reality.
Accordingly, heuristics relate to the very process of abstraction that Lawson
himself highlights. But Lawson suggests that heuristics are isolations rather
than abstractions. So here I must return to Lawson’s (1997, p. 236) attempted
distinction between isolation and abstraction, as quoted above. According to
him, the key difference is ‘between leaving something (temporarily) out of
focus and treating it as though it does not exist’. Again take the Schelling model as an example. Schelling
himself accepts that bigoted racists exist, yet he leaves them out of his
model. The purpose of the model is not to excuse or deny racism, but the more
severe forms of racism are deliberately removed. Nevertheless, the model is
extremely and worryingly persuasive.
No-one to my knowledge,
including Schelling himself, has suggested that
such as model is a complete or adequate causal representation of the
processes underlying the emergence of ethnic segregation in reality. The
model is simply a heuristic step along the road towards that more complete
end. More generally, no sensible mainstream economist would deny that the
world is open, and no adequate presentation of a formal model would omit to
mention that other (omitted) causal mechanisms exist.
Ultimately, Lawson’s attempted
distinction between abstraction and isolation hinges on the precise meaning
of notions such as ‘treating [that which is left out of the picture] as
though it does not exist’ and the implied distinction between a ‘temporary
heuristic’ and ‘leaving something temporarily out of focus’. Yet Lawson is
insufficiently precise here. If I ‘focus’ on the workings of a national
economy (perhaps without building a mathematical model) and ignore its trade
with other nations, then in what sense might this qualify as a temporary
account, rather than a presumption that such exports and imports do not
exist? Surely, some verbal statement would be required, acknowledging the
existence of international trade, explaining its omission from the current
discussion, and suggesting that further work must be done to incorporate it
into the analysis. But this is also the kind of necessary qualification that
we should expect from the best presentations of heuristic models. On the
other hand, it would be impossible to mention all the things that we have
left out of the account. In this sense all theory is ‘temporary’. But do such
unmentioned omissions amount to treating some causal linkages as though they
do not exist? If this were the cases, then every theory, including
non-formal, discursive theory, by Lawson’s criteria is a failure. Once we try
to apply Lawson’s criteria, then their insufficiency and vagueness become
apparent, and his attempted distinction between abstraction and isolation is
revealed as highly problematic.
A crucial point here is that
in economics we should not and cannot judge models in isolation. Lawson
treats any model as if it were alone an intrinsic claim to be a partial map
of the world. Yet the meaning of any heuristic model depends upon an
interpretive framework that is not contained in the formalities of the model
itself. If heuristic models are suitably hedged and qualified, in the manner
suggested above, then these qualifications form part of the interpretative
apparatus for the model. If heuristic models are treated within an adequate
interpretative context, then such heuristic packages can successfully defend
themselves against they charge that they treat other aspects of reality as
though they do not exist.
By contrast, Lawson himself
isolates formal models from their interpretative contexts, treating these as
if they do not or need not exist, and denies the validity of even ‘temporary’
heuristic models per se. The strictures of appropriate
contextualization that Lawson rightly requires of discursive theory should
apply to his treatment of formal models as well. Bringing the interpretative
framework of a heuristic model into the picture is highly important in
appraising the problem of excessive or misplaced formalism in economics. An
alternative diagnosis emerges, in which the malady is not the use of
formalism as such but the inadequacy and underdevelopment of the
interpretative context in which they are placed. Technique can take priority
over substance as a result of the relative neglect of interpretative context.
An adequate interpretative framework would depend on the discussion of the
genesis, meaning and methodological significance of key concepts that are
involved in the model or its interpretation. This is never a small task, and
if done properly it will be at least as weighty as the formal technique of
the model itself. Yet in modern economics such interpretative and conceptual
matters are often marginalized and underdeveloped. I contend that this is one
of the main problems with formalism in economics today.
While Lawson implicitly treats
formal models as if they were claims to map the world, his explicit metaphor
is more frequently of the model as a tool. For example, Lawson (2003, p. 12)
notes the ontological mismatch between formal models and reality and suggests
that this is grounds to question their use: ‘Few people … would attempt to
use a comb to write a letter … or a drill to clean a window.’ This argument
is not as illuminating as it may seem at first sight. Of course, we would use
a pen to write a letter and a clean cloth to clean a window. Yet the ontology
of pens is very different from that of letters, and likewise there is a big ontological
difference between clean cloths and dirty windows. So there is nothing in
this appropriateness-of-tools argument that rules out, for instance, using
closed models to help understand an open reality.
I now turn to the second use
of formalism that is neglected by Lawson: that of an internal critique.
Generally, the impact of an effective internal critique is negative rather
than positive; it shows the limits of an existing theory rather than building
a new one. It is nevertheless important. Consider the example of the critique
of mainstream capital theory by Piero Sraffa (1960) and others. By developing a model with
disaggregated rather than aggregated physical capital, Sraffa
showed that the measure of capital could not be independent of profits, wages
or prices. Consequently, any attempt to explain the latter by means of an
aggregated capital variable must assume that which it has to explain. The
validity of this argument was later accepted by Paul Samuelson and others
(Harcourt, 1972). It meant that several of the models and arguments used in
the mainstream theory of capital and distribution were either invalid or
dependent on highly restrictive assumptions.
A demonstration that a widely
adopted approach depends on restrictive or even implausible assumptions is a
key feature of many of the successful and significant internal critiques that
we find in economics. Other examples include works by Rolf Mantel (1974) and
Robert Rowthorn (1999). Mantel and several other
theorists showed that even with the assumption of individual
utility-maximization, the excess demand functions in an exchange economy can
take almost any form, and there is thus no basis in standard general
equilibrium theory for the assumption that they are generally downward
sloping. Their work proved very influential in bringing the microfoundations project in general equilibrium theory to
an end (Rizvi, 1994). Rowthorn
showed that prominent models used by governments in macroeconomic
policymaking are based on highly restrictive and unwarranted assumptions.
Such critiques do not
themselves provide new theories, although they may suggest some appropriate
measures and establish some relevant pointers. By their nature, internal
critiques are not claims to map the real world. Instead, they are attempts to
show that that other theories are inadequate or overly restrictive in regard
to the kind of world to which they relate. I have not come across an adequate
discussion of the role of internal critiques in Lawson’s work, despite their
prevalence the Cambridge tradition of economics that used to be well
established in his university department.
Significantly, neither
heuristics nor internal critiques are attempts to map the world with a model.
Accordingly, insofar as they are of some scientific use, severe doubt is cast
on Lawson’s central argument that the adoption of a particular model involves
explicit or implicit assumptions about the ontology of the social world. By
contrast, it would seem that some models are of use, even if there is a significant
misfit with reality. If so, then Lawson’s main argument falls.
Conclusion
In regard to formalism, many economists
propose the extreme view that it is the principal and necessary means by
which economics becomes rigorous and scientific, and thus the dominance of
formalism is a positive sign of success. Lawson takes a position near the
other extreme. He argues that formalism is justified in ‘rare’ circumstances
only, where local closure exists or is approximated. I propose that both
attitudes to formalism are flawed, partly because they both downplay its
necessary interface with interpretative structures.
Yet while Lawson and the
mainstream are at odds, there are some shared presuppositions. Many
mainstream economists assume that their models are sufficient to represent
the world, neglecting the interpretative discourses required to make such a
claim meaningful. Lawson too believes that the adoption of a formal model
intrinsically upholds some substantial claims concerning the nature of
reality. I believe that both positions are false.
If modern economics is sick,
then what is the nature of the sickness? A good answer to this question is
required to help us find an appropriate remedy. Lawson’s medicine is to
require the application of formalism only when local closure is achieved or
perhaps approximated. However this remedy virtually ends up as an inversion
of the disease itself, and I have argued that it is based on a faulty
diagnosis.
Especially in his recent
writing, Lawson has insisted that he is not against formalism as such, and he
has no dogmatic prescription concerning its use. However, I am aware of only
one example of a piece of econometrics which Lawson has deemed as legitimate,
and even here to admit it he has to fudge the criterion of strict closure
declared in his 2003 book. More recently (but until now only verbally as far
as I am aware), he has relaxed this criterion to allow econometrics to be
used when closure is approximated, rather than actually achieved.
The consequent challenge for
Lawson is to be more specific about the degree of approximation and to point
to still further examples of the legitimate use of mathematical models in
economics. Until this is done, Lawson remains in the extreme position of admitting
as legitimate only one specific case, among hundreds of thousands of examples
that are available to us.
Middle ground solutions are
not intrinsically warranted simply because they are middle ground. But part
of the tragedy of modern economics is that they have so far received limited
attention and consideration, with notable exceptions such as a recent article
by Victoria Chick and Sheila Dow (2001).
I suggest that the problem
with formalism is not the general inappropriateness of formalism itself, but
it is the problem identified by Blaug in the
quotation near the beginning of this article. Blaug
sees the kind of formalism in modern economics as ‘an intellectual game
played for its own sake’ rather than for its use in explaining and engaging
with the real economic world. Blaug complains that
in modern economics ‘analytical rigour is everything and practical relevance
is nothing’. Again the solution here is not necessarily to confine formalism
to the very rare conditions of actual or approximated closure, but to ensure
that concerns for practical relevance come to the fore. Formal techniques
should be the servants rather than the masters of scientific enquiry.
It is also worth bearing in
mind that there is an example of a social science in which formal methods and
models have hitherto been put to little use, apart from statistics. Yet this
discipline is widely acknowledged to be in a state of severe disorder,
especially concerning its core presuppositions, its self-identity and
boundaries, and its relations with other disciplines, particularly economics
and biology. This afflicted social science is sociology. The persistence of
its acute scientific maladies alongside its relatively infrequent use of
formalism indicates that additional problems exist within the social sciences
today. These include the postmodernist affirmation that one theory is as good
as another, the frequent choice of a theory on ideological rather than
scientific grounds, and an occasional self-inflicted blindness concerning the
biological aspect of human nature and its significance for the study of human
society.
Despite our differences of
view, I wish to emphasize that both Lawson and myself, and others here cited
including Blaug, Chick, Dow and Mäki,
adopt a realist philosophical perspective. Realism acknowledges that a world
exists beyond our perceptions. Realists uphold that, to be adequate, sciences
including economics should not be self-contained logical games but attempts
to address and understand aspects of the real world. Accordingly, there is no
room for a philosophy of science in which ‘anything goes’. There is a shared
realist imperative: to understand the real world.
However, I argue here that
there is a place for mathematics in economics, even when conditions of closure
are absent or fail to be approximated. I have emphasized the greater
importance of the interpretative structure within which the theory is placed.
The pressing agenda issue for further discussion and enquiry in this area is
to explore the inadequately explored middle ground between the unacceptable
extremes of unreflecting worship and (at least expectational)
denial of formal models and methods.
Acknowledgement
The
author wishes to thank Mark Blaug, Sheila Dow and
Tony Lawson for very helpful comments on an earlier version of this essay.
References
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______________________________
SUGGESTED
CITATION:
Geoffrey M. Hodgson, “On the Problem
of Formalism in Economics”, post-autistic economics review, issue no.
28, 25 October 2004, article 1, http://www.paecon.net/PAEReview/issue28/Hodgson28.htm
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