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What Is Neoclassical Economics? The three axioms responsible for its
theoretical oeuvre, practical irrelevance and, thus, discursive power Christian
Arnsperger (University of Louvain,
Belgium) Yanis Varoufakis (University of Athens,Greece)
© Copyright: Christian Arnsperger
and Yanis Varoufakis 2006 1. Introduction There is nothing more frustrating for critics of neoclassical economics than the argument that neoclassical economics is a figment of their imagination; that, simply, there is scientific economics and there is speculative hand-waiving (by those who have never really grasped the finer points of mainstream economic theory). In this sense, neoclassicism resembles racism: while ever present and dominant, no one claims to be guided by it. Critics must find a clear definition of neoclassicism if only in order to liberate neoclassical economists from the temptation to barricade themselves behind infantile arguments viz. the non-existence of their school of thought. Then, the good debate may begin. In this chapter, we offer a definition of neoclassical economics which turns on three crucial axioms and which, in conjunction with one another, as we shall claim, underpin all (and only) neoclassical theory.1 Later, we argue that these very axioms are simultaneously responsible for: (a) the difficulty mainstream economics faces when it comes to illuminating economic and social reality, and (b) the discursive success of neoclassical economics which gives it an effective (politically driven) stranglehold over alternative modes of economic reasoning. We think our definition of neoclassical economics is important because critics are often caught off-guard by sophisticated neoclassicists (see Dasgupta, 2002) who take advantage of gaps in existing definitions in order to turn criticisms on their head. In short, the critique of neoclassical economics is bound to be as effective as sophisticated is its definition of the opposition. For instance, criticism that neoclassical economics necessarily posits hyper-rational bargain-hunters, never able to resist an act which brings them the tiniest increase in expected net returns, is apt but not telling. There are plenty of neoclassical models featuring boundedly rational agents; even utterly irrational ones (e.g. evolutionary game theory; for a critical review in the spirit of this chapter, see Hargreaves-Heap and Varoufakis, 2004). Similarly with criticism focussed on ‘neoclassical features’ like market-clearing, selfish individualism or Pareto optimality. None of these cut ice because, though these features are usually present in neoclassical modelling, they are not necessary features of some neoclassical model. Thus, as long as critics’ slings and arrows are directed against features of neoclassical economics that the latter can shed strategically, like a threatened lizard ‘loses’ its tail, they shall miss their target. Nevertheless, we do believe that there are at least three features of neoclassical economics that cannot be so shed; and, therefore, if the critics concentrate on them they shall, at the very least, force neoclassicists to engage in a fruitful dialogue. The single most promising prize from such a development ought to be the clarification of the origin and nature of the greatest paradox in social science: that mainstream economics is as dominant as it is unappetising (even to some of its own practitioners). In this sense, our axiomatic definition of neoclassicism, rather than being an idle methodological exercise, aims at exposing the root-cause of mainstream economics’ failure to say much that is helpful about the contemporary economic world. And it throws useful light on the reasons why such failure, instead of weakening neoclassicism, has reinforced its hold over the imagination of both the elites and the public at large. However, this is a longer argument which we shall only touch upon here (see Arnsperger and Varoufakis, 2005, for more). Once upon a time, it could be
argued that neoclassical economics is typified by a familiar melange of
theoretical practices: positing an equilibrium in the labour market, the
habitual recourse to Say’s Law, the assumption that the interest rate will
adjust automatically so as to equalise investment and savings, the depiction
of capitalist growth a la Robert Solow and company, the imposition of Cobb-Doublas or CES production and
utility functions etc. Nowadays, any attempt to define neoclassicism by
reference to these practices is music to the neoclassical ear: For there is
an endless list of mainstream models which distance themselves from some, if
not all, of the above. One of two conclusions appear in front of us: Either
the mainstream has moved on from neoclassicism (as neoclassical economists
claim) or the definition of neoclassicism needs to be re-thought and
abstracted from a list of neoclassical practices like the one above. We
choose and latter. So, the remainder of this chapter concentrates primarily
on the three axioms which we think lie at the heart of neoclassical economic
theory, old and new alike. 2. The first axiom of neoclassical
economics: methodological individualism Unsophisticated critics often identify economic neoclassicism with models in which all agents are perfectly informed. Or fully instrumentally rational. Or excruciatingly selfish. Defining neoclassicism in this manner would perhaps be apt in the 1950s but, nowadays, it leaves almost all of modern neoclassical theory out of the definition, therefore strengthening the mainstream’s rejoinders. Indeed, the last thirty years of neoclassical economics have been marked by an explosion of models in which economic actors are imperfectly informed, some times other-regarding, frequently irrational (or boundedly rational, as the current jargon would have it) etc. In short, Homo Economicus has evolved to resemble us more. None
of these brilliant theoretical advances have, however, dislodged the
neoclassical vessel from its methodological anchorage. Neoclassical theory
retains its roots firmly within liberal individualist social science. The
method is still unbendingly of the analytic-synthetic type: the
socio-economic phenomenon under scrutiny is to be analysed by focusing on the
individuals whose actions brought it about; understanding fully their
‘workings’ at the individual level; and, finally, synthesising the
knowledge derived at the individual level in order to understand the complex
social phenomenon at hand. In short, neoclassical theory follows the
watchmaker’s method who, faced with a strange watch, studies its function by focusing
on understanding, initially, the function of each of its cogs and wheels. To
the neoclassical economist, the latter are the individual agents who are to
be studied, like the watchmaker’ cogs and
wheels, independently of the social whole their actions help bring
about. So, the first feature of the ‘body of theory’ we think of as neoclassical is its methodological individualism: the idea that socio-economic explanation must be sought at the level of the individual agent. Note two things: First, this was not the method of classical economists like Adam Smith and David Ricardo. Or, indeed, of Keynes. Or Hayek. Secondly, this proclivity is fully in tune with the mid-19th Century angloceltic liberal individualism (though the opposite does not hold) as it imposes axiomatically a strict separation of structure from agency, insisting that socio-economic explanation, at any point in time, must move from agency to structure, with the latter being understood as the crystallisation of agents’ past acts. We shall argue later that this strict separation is central in not only defining but also undermining the most recent claims of neoclassicism. It is, we think, indisputable that all the new manifestations of what we term neoclassicism still subscribe to methodological individualism. While it is true that mainstream economists have, during the last few decades, acknowledged that the agent is a creature of her social context, and thus that social structure and individual agency are messily intertwined, their models retain the distinction and place the burden of explanation on the individual. Individual worker effort is nowadays often modelled as a function of sectoral unemployment (e.g. efficiency wage models), and the firms’ micro-strategies reflect the macroeconomic environment. Nevertheless, and despite these interesting linkages between the micro-agent and the macro-phenomenon, the explanatory trajectory remains one that begins from the agent and maps, unidirectionally, onto the social structure. 3. The second axiom of neoclassical
economics: methodological instrumentalism We
label the second feature of neoclassical economics methodological
instrumentalism: all behaviour is preference-driven or, more
precisely, it is to be understood as a means for maximising
preference-satisfaction.2 Preference is given, current, fully
determining, and strictly separate from both belief (which simply helps the
agent predict uncertain future outcomes) and from the means employed.
Everything we do and say is instrumental to preference-satisfaction so much
so that there is no longer any philosophical room for questioning whether the
agent will act on her preferences. In effect, neoclassical theory is a narrow
version of consequentialism in which the only
consequence that matters is the extent to which an homogeneous index of
preference-satisfaction is maximised.3 Methodological instrumentalism’s
roots are traceable in David Hume’s Treatise
of Human Nature (1739/40) in which the Scottish philosopher famously
divided the human decision making process in three distinct modules: Passions, Belief and Reason. Passions provide
the destination, Reason slavishly steers a course that attempts to get us
there, drawing upon a given set of Beliefs regarding the external constraints
and the likely consequences of alternative actions. It is not difficult to
see the lineage with standard microeconomics: the person is defined as a
bundle of preferences, her beliefs reduce to a set of subjective probability
density functions, which help convert her preferences into expected
utilities, and, lastly, her Reason is the cold-hearted optimiser whose
authority does not extend beyond maximising these uilities.
However, it is a mistake to think that Hume would have approved. For his
Passions are too unruly to fit neatly in some ordinal or expected utility
function. It took the combined efforts of Jeremy Bentham
and the late 19th Century neoclassicists
to tame the Passions sufficiently before they could initially be reduced to a
unidimensional index of pleasure before turning
into smooth, double differentiable utility functions. During
the tumultuous 20th Century, neoclassicists
invested greatly in bleaching all psychology out of the rational agent’s
decision making process. All hints of a philosophical discussion regarding
the rationality of homo economicus were thus removed. People could, and
‘should’, be modelled as if they
possessed consistent preferences which guide their behaviour automatically.
The question of whether all rational women and men are condemned to maximise
some utility function all the time became…nonsensical. Thus, instrumentalism
lost its connection to the philosophies of Hume, Bentham
or Mill and became a technical move that economists made instinctively with
the same nonchalance as that of an accomplished artist preparing his oils and
canvass before getting down to business. However,
it is false to claim that this state of affairs, even though ubiquitous in
economics departments the world over, is essential
for neoclassical economics. The first signs that it need not be came with the
literature on endogenous preferences. Neoclassical economists increasingly
sought to distance themselves from the assumption that preferences are fixed
and exogenous. During the past twenty five years or so, homo economicus has developed a
capacity to adapt his preferences in response to past outcomes (see Bowles,
1998). However, while the assumption that current preferences are exogenous
was dropped, they remained fully determining. Thus, instrumentalism was
preserved albeit in a dynamic context. A
more recent development has taken neoclassicism, and homo economicus, onto higher levels of
sophistication. The advent of psychological game theory (see Rabin, 1993, and
Hargreaves-Heap and Varoufakis,
2004, Ch. 7) has brought on a reconsideration of the standard assumption that
agents’ current preferences are separate from the structure of the
interaction in which they are involved. Suddenly, what one wants hinged on
what she thought others expected she would do. And when these second order
beliefs (her beliefs about the expectations of others) came to depend on the
social structure in which the decision is embedded, the agent’s very
preferences could not be linked just with outcomes: they depended on the structure
and history of the interaction as well. In
view of the above, there is no future in criticisms of neoclassicism based on
the charge that the latter must take for granted preferences which are either
exogenous or independent of the agents’ socio-economic relationships. Critics
toeing that line will be met with the scornful rejoinder that they criticise
out of ignorance. However, our point that neoclassicism is still rooted in
methodological instrumentalism cannot be so dismissed. For even in the latest
reincarnation provided by endogenous preferences and psychological game
theory, homo economicus
is still exclusively motivated by a fierce means-ends instrumentalism. He may
have difficulty defining his ends, without firm beliefs of what means others
expect him to deploy, but he remains irreversibly ends-driven. 4. The third axiom of neoclassical
economics: methodological equilibration The
third feature of neoclassical economics is, on our account, the axiomatic
imposition of equilibrium. The point here is that, even after
methodological individualism turned into methodological instrumentalism,
prediction at the macro (or social) level was seldom forthcoming. Determinacy
required something more: it required that agents’ instrumental behaviour is
coordinated in a manner that aggregate behaviour becomes sufficiently regular
to give rise to solid predictions. Thus, neoclassical theoretical exercises
begin by postulating the agents’ utility functions, specifying their
constraints, and stating their ‘information’ or ‘belief’. Then, and here is
the crux, they pose the standard question: “What behaviour should we expect in equilibrium?” The question of
whether an equilibrium is likely, let alone probable, or how it might
materialise, is treated as an optional extra; one that is never central to
the neoclassical project. The
reason for the axiomatic imposition of equilibrium is simple: it could not be otherwise! By this we
mean that neoclassicism cannot demonstrate that equilibrium would emerge as a
natural consequence of agents’ instrumentally rational choices. Thus, the
second best methodological alternative for the neoclassical theorist is to presume that behaviour hovers around
some analytically-discovered equilibrium and then ask questions on the likelihood
that, once at that equilibrium, the ‘system’ has a propensity to stick around
or drift away (what is known as ‘stability analysis’). It
is quite remarkable that the above has been with us since the very beginning.
When A.A. Cournot
constructed the first model of (oligopolistic)
competition in 1838, he immediately noticed a lacuna in his explanation
regarding the emergence of an equilibrium. Rather cunningly, instead of
discussing this difficulty, he studied what happens when we begin from that
equilibrium. Would the system have a tendency to move away from it or was the
equilibrium stable? The proof of its stability secured his place in the
pantheon of economic theory. Moreover, it established this interesting
practice: First, one discovers an equilibrium. Second, one assumes
(axiomatically) that agents (or their behaviour) will find themselves at that
equilibrium. Lastly, one demonstrates that, once at that equilibrium, any
small perturbations are incapable of creating centrifugal forces able to dislodge
self-interested behaviour from the discovered equilibrium. This three-step
theoretical move is tantamount to what we, here, describe as methodological equilibration. Note
that methodological equilibration
is equivalent to avoiding (axiomatically) what ought to be the behaviourist’s
central question: Will rational agents behave according to the
theory’s equilibrium prediction? Instead, the question becomes: If rational agents are behaving according
to the theory’s equilibrium prediction, will they have cause to stop doing
so? Note also that methodological
equilibration has remained intact since 1838 and Cournot’s
first use of it. To see this, consider the two great success stories to have
come out of neoclassical economics since WW2: General Equilibrium Theory and Game Theory. In neither case does the equilibrium solution spring
naturally from the models’ assumptions. In
General Equilibrium Theory its best
practitioners state it quite categorically: convergence to some general
equilibrium can only be proven in highly restrictive special cases. More
generally, it is not just difficult
to demonstrate that a system of theoretical markets will generate an equilibrium
in each market, on the basis of rational acts on behalf of buyers and
sellers; rather, it is impossible!
(See Mantel, 1973, and Sonnenschein, 1973,1974.) In
Game Theory the same result
obtains: in the most interesting socio-economic interactions (or games)
common knowledge that all players are instrumentally rational seldom yields
one of the interaction’s Nash equilibria. Something
more is required to bring on an equilibrium. That something comes in the form
of an axiom that the beliefs of all players are consistently aligned at each stage of every game (see Hargreaves-Heap and Varoufakis,
2004, Chapters 2&3). This assumption is, of course, yet another
reincarnation of methodological
equilibration: for once we assume
that agents’ beliefs are systematically and consistently aligned, they are assumed to be in a state of (Nash)
equilibrium. Yet again, equilibrium is imposed axiomatically before stability
analysis can test its susceptibility to perturbations. Cournot’s
spirit lives on… 5. Three axioms, one neoclassical
economics It is hard to imagine how any standardly trained economist could deny that her theoretical practices digress from the three methodological moves mentioned above: Methodological individualism, methodological instrumentalism and methodological equilibration. For simplicity we shall henceforth refer to them as the neoclassical meta-axioms. Whether it is general equilibrium theory, evolutionary game theory, non-Walrasian equilibrium theory, social choice theory, industrial economics, economic geography, new political economy, analytical Marxism, public choice economics etc., all mainstream approaches in these fields remain loyal to the three meta-axioms above. In fact, the meta-axioms are beginning to develop much closer, almost symbiotic, links with one another than was the case until fairly recently. Take for instance, the attempts by psychological game theorists to create a sophisticated model of men and women, capable of drawing utility not only from socio-economic outcomes but also from the means that bring them about. When homo economicus learns that the ends do not necessarily justify the means, he develops a welcome capacity to ponder, prior to acting, what others expect of him so that he can decide how much he values the various alternative outcomes. For example, when deciding on whether to act bravely in defence of someone in need, his second order beliefs (i.e. his beliefs regarding what others expect of him) influence his estimate of the (psychological) cost of acting selfishly. To put it simply, his utility function cannot be defined independently of (a) the structure of the strategic interaction and (b) the beliefs that all participants would have in equilibrium. In this sense, methodological equilibration is no longer prior to methodological instrumentalism (as is the case in standard consumer or game theory): the axiomatic imposition of equilibrium is not only necessary in order to predict the interaction’s outcome but it is also essential in order to define the instrumentally rational agents’ preferences! (See Hargreaves-Heap and Varoufakis, 2004, Ch. 7 and Fehr and Gächter, 2000) It is, therefore, uncontroversial to state that every aggregate phenomenon scrutinised by neoclassical minds is explained increasingly and exclusively as some axiomatically imposed equilibrium emerging from the interaction of instrumentally rational individuals who are either optimising consciously (as in rational choice or game theory) or are drawn to such behaviour through a process of ‘natural selection’ (as in, for instance, evolutionary game theory). The bottom line, then, is clear: despite all denials, there is such a thing as a body of social theory that subscribes to the three meta-axioms above and which we can legitimately, for want of a better term, label neoclassical. At this juncture, there is one move open to neoclassical economists who still insist that what they are doing ought not be labelled as anything other than scientific economics: they need to persuade us that the neoclassical method, i.e. models based on the three meta-axioms, is the only proper method; which obviously implies that there is no distinctly neoclassical method after all, even once that method has been characterised as above. Effectively,
they would have to adopt a rather extremist defensive posture: to claim that
the combination of the three meta-axioms above is indispensable to any
economic theory worth its salt; that the neoclassical method, as founded on
the triptych of individualism, instrumentalism and equilibration, is not just
one possible analytical strategy but that it is somehow uniquely and
ontologically grounded in social reality. It would amount to a claim to
the effect that all other economic approaches, including for instance Adam
Smith’s, is not in the same scientific league as their own. Undoubtedly, many
neoclassical economists think that (although few would state it in polite
conversation.) Nonetheless,
the truth status of that defence must be an empirical matter rather than a
methodological one, and the defender of neoclassisism
has to provide hard evidence concerning the actual, material processes of (a)
how preference orderings determine actions uniquely, and (b) how their
reasoning skills, or social/natural selection, slice through indeterminacy to
bring about an equilibrium. Needless to say, such extreme naturalism has no
chance of being empirically supported. Even sophisticated empiricists like
Karl Popper rejected the idea that the joint hypothesis of individualism and
equilibrium can be tested empirically; they are, he rightly claimed, preconditions
for knowledge rather than objects of knowledge. Hence there is no
such thing as a ‘natural method’. The very thrust of the Enlightenment
project rules it out of court. The
last resort of the mainstream economist, who wants to defend the presumption
that the three neoclassical meta-axioms are essential to any scientific
analysis of the social economy, is to argue that the neoclassical method of
explanation, while not being a ‘natural method’, has nevertheless evolved historically as the most adequate method for
studying a society of free, enlightened individuals. That it is, in short,
the only non-contradictory embodiment of the Enlightenment project itself.
That, just as representative liberal democracy is a bad system of government
but remains the best one available, neoclassicism has evolved as the best
economic analysis that is consistent with the liberal human condition. However,
such a rhetorical strategy can only work if it is accompanied with a sound
evolutionary argument depicting the three meta-axioms as the unique
‘attractor’ of liberal social science. Unfortunately, no such argument seems
to be forthcoming. Instead, mainstream economics is perpetually reproducing
itself through a series of metamorphoses that Ovid would have been jealous
of. The resulting models gain in complexity, expand in scope, and move into
areas hitherto untainted by the economist’ inquiring gaze. Nonetheless, all
these models, in all their multiplying guises, share a well hidden, and
almost completely unspoken of, foundation: the three meta-axioms above. The
radical absence of a debate about them is, we shall argue below, essential to
the discursive power of neoclassical economics. As for the latter’s aversion
to pluralism, it is a natural by-product of this dance of veils whose purpose
is to maintain neoclassicism’s discursive edge by keeping our eyes off the
theory’s meta-axioms. 6.
Some thoughts on neoclassicism’s discursive power and its aversion to
pluralism What
does an intelligently dispassionate observer of neoclassical economics see?
She sees an ever expanding technical literature, most of which she cannot
comprehend. She sees an almost infinite series of mathematical models that explain
diverse socio-economic phenomena as part of some equilibrium scenario which
posits autonomous actors bringing on the phenomenon under study, often
supra-intentionally, through choices that are rational given everyone’s
beliefs (even when the actions are self-defeating). She sees a series of
career paths that are made generously available to those who participate in
this global research project. She sees economists the world over being taken
seriously only to the extent that they speak this particular ‘language’. She
sees the powers-that-be speak this very ‘language’. Finally, she sees
enterprising academics in other social sciences adopting this ‘language’, in
a transparent bid to share into neoclassicism’s discursive success. In short,
the onlooker sees, correctly, power oozing out of the mainstream economists’
theoretical practices. There is only one thing she does not see: the three meta-axioms, none of which are visible to the
naked eye. Note
how instrumental to the discursive power of neoclassicism is the fact that
its three foundational axioms are hidden from our onlooker’s view. For if
they were evident, she might start asking difficult questions for which, as
we argued above, neoclassicism has no real answers (except to re-phrase its
axioms). This helps explain, in more than one ways, the authoritarian
dynamics and the disdain shown toward pluralism of Economics Departments
which have either managed to rank highly within mainstream economics or are
striving to do so. We
suggest that there are two equally important types of explanation of
neoclassicism’s evolution into an authoritarian research project that
discourages pluralism: One is a type of intentional
explanation while the second is a functional
explanation. The intentional explanation is simple enough and runs as
follows: When an inquisitive graduate student, or academic, who has mastered
neoclassical technique but has started developing doubts, starts questioning
the meta-axioms, she is effectively questioning the hegemony of her profession.
At best, her queries and arguments are met with sympathetic nods, at worst
with a great wall of dogmatic put down lines and an avalanche of advice to
the effect that these are matters that she ought to worry about after
retirement. Publishing in the ‘good’ journals is hard enough. Publishing
articles which question the meta-axioms is even harder. Indeed, it takes a
foolhardy young soul to jeopardise a hard-earned career path in pursuit of
the truth-status of one or more of the meta-axioms which allow the profession
to flood the journals with mathematical models that are so highly regarded
and so little discussed. And as is so often the case with dominant paradigms,
self-censorship is the predominant vehicle for neoclassicism’s unimpeded
march. The
functional explanation adds an interesting twist to the same tale of
intellectual authoritarianism. If phenomenon X is functionally to explain the
occurrence of phenomenon Y, this explanation has merit if and only if the
following four conditions are met (see Elster,
1982): (1) Y must be beneficial for some group of agents Z. (2) Members of
group Z must be responsible for the practices that cause X but must not
intend to bring Y about through practices that result in X; indeed, Z members
must remain innocent of the causal link between X and Y. Lastly, (3)
phenomenon Y, which is caused by X, must be shown to reinforce X through a
feedback mechanism involving, unintentionally, members of group Z. In our case, Y is the discursive
power of neoclassical economics, X are the practices which keep
neoclassicism’s meta-axioms hidden, and Z is the set of neoclassical
economists. Can a convincing functionalist explanation of how X causes Y be
built along the lines sketched above? If it can, then we shall have an interesting
(and possibly correct) explanation of why pluralism is absent from Economics
Departments: its radical absence, which is guaranteed when an eerie silence
engulfs the three neoclassical meta-axioms, emerges as a prerequisite for neoclassicism’s dominance. Let us now put
together the basic elements of such an explanation. Before
we proceed further, it is important to note that the merit of this functional
explanation is that it is entirely consistent with a distaste for conspiracy
theories. As it will transpire shortly, the offered explanation does not presume neoclassical economists in cynical pursuit of discursive power; no
theorists are imagined who silence subversive voices within the profession so
as to preserve the power vested in them by their models [see part (2) of the
argument above which rules out such intentional cynicism]. In fact, our
explanation works better when most neoclassical economists would have been
(honestly) appalled at the thought that we suspect their practices as driven
by anything other than scientific rigour. From experience, we can confirm
that most neoclassicists believe strongly in the
theoretical superiority of their models and may even have a moral commitment
to pluralism. Nevertheless, even if we accept that these fine sentiments are
all pervasive in the economics profession, our argument still stands. To render coherent the functional
explanation of neoclassicism’s discursive power as the result of a general
‘silence’ regarding the three meta-axioms at the bottom of all neoclassical
theory, we needed three arguments: The first [see (1) above] is that
neoclassicism’s power is beneficial for neoclassical economists (this is self
evident). The second [see (2)] is that neoclassical economists are innocent
of the charge that they are keeping quite on the three meta-axioms
intentionally, so as to enhance their method’s discursive power (we accept,
therefore, their own denials that they would have conceivably done such a thing).
The third piece of the jigsaw [see (3)] is the crucial one: we must now
demonstrate that “phenomenon Y, which is caused by X, reinforces X through a
feedback mechanism involving, unintentionally, members of group Z”. In other words, it must be argued
convincingly that the enhancement of neoclassicism’s discursive power, which
is largely due to the hidden nature of its three meta-axioms, makes it even less likely that neoclassical
economists will be open to a pluralist debate on their meta-axioms. Anyone
who has worked in an Economics Department has surely experienced such a
feedback mechanism. Research funding in economics is vast compared to the
trickle that finds its way to the ‘other’ social sciences. It would not be
forthcoming if economists regularly experienced philosophical angst regarding
the axiomatic foundations of their wares. Naturally, the bulk of the
profession’s funding goes to practitioners who do not indulge in
methodological debates; who simply ‘get on with the job’. No one wants to keep
quite on the meta-axioms. They are just too busy building magnificent
edifices on top of them, and being magnificently rewarded for it. Nobel laureate Vernon Smith almost
apologised, in a recent article (see Smith, 2002), for entering into a
methodological discussion of the work he devoted an extremely productive life
to. This is typical of the fear of methodological discussion instilled in the
best and even the most liberal minds in the economics profession. By whom? By no one is the honest answer. The death of
pluralism in economics is a crime without a criminal. It died long ago as a
result of a particular dynamic within the profession which, operating behind
the backs of even neoclassical economists, encourages them to produce all
sorts of models (even of altruism and revolution, see Roemer, 1985) but
surreptitiously penalises any deviation from, or
even explicit discussion of, the three meta-axioms. Of course, the pressing question
is: Why are public and private funds so
uncritically lavished upon what turns out to be no more than a religion with
equations? Alas, this is a question that the present chapter cannot
answer within a purely methodological context. For such an explanation we
need to venture into political economy (see Arnsperger
and Varoufakis, 2005, for an attempt). Epilogue Neoclassical
economics, despite its incessant metamorphoses, is well defined in terms of
the same three meta-axioms on which all
neoclassical analyses have been founded since the second quarter of the 19th
Century. Moreover, its status within the social sciences, and its capacity to
draw research funding and institutional prominence, is explained largely by
its success in keeping these three meta-axioms well hidden. The radical lack
of pluralism in mainstream economics is, on this account, not to be blamed on
illiberally minded practitioners. Rather, it is to be explained in
evolutionary terms, as the result of practices which reinforce the
profession’s considerable success through diverting attention from the models’
axiomatic foundations to their technical complexity and diverse predictions.
A pluralist economics will remain impossible as long as the social economy
rewards economists in proportion to their success in keeping their models’
foundations opaque. Footnotes 1. See Aspromourgos, 1986, for a history of the term ‘neoclassical economics’. 2. Not to be confused with actual, psychological satisfaction. In this sense, homo economicus may maximise his preference satisfaction while feeling suicidal. 3. Once upon a time, we could have instead talked of methodological
rationalism as the dominant narrative centred on agents acting
rationally. But since ordinal utilitarianism took over, there is no sense in
narrating behaviour in terms of agents acting rationally. Instead,
rationality is reduced to the consistency of one’s preference ordering which,
by definition, determines that which agents will do. References
Arnsperger, C. and Y. Varoufakis
(2005). ‘A Most Peculiar Failure: How neoclassical
economics turns theoretical failure into academic and political power’, Erkenntnis, 59, 157-188. Aspromourgos, T. (1986). ‘On the Origins of the Term
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