Student Essays on Post-Autistic Economics

posted April 2003

Is there a chance for the dismal science to become more cheerful?
Some reflections on the prospects of PAE

Andreas Reinstaller (PhD candidate, MERIT, University of Maastricht, Netherlands)

Abstract

The Post-Autistic Economics movement has triggered a welcome and much needed discussion about the relevance of contemporary mainstream economics, but the question is how relevant Post-Autistic Economics will actually be to the future course of the dismal science. This essay suggests that there is still a long way to go until any alternative school of thought will be a true alternative to the mainstream in economic teaching and research.

Introduction: Economics as a positive science

Economists, like any other scientist, need a systematic body of knowledge to organise their thinking. But is there a coherent body of knowledge for heterodox economists? Among them there is much agreement of what economics should not be (i.e. it should not be Neoclassical) but much less of what economics ought to be. For sure all heterodox economists agree that economics should not just study the outcome of allocation decisions by rational actors. Perhaps there is some common ground that economics should study the economy as a process and that accordingly economics should be historical, but I fear in many cases that's it. And not even on this idea all of heterodox economists would agree. Different schools have a different scope and also differentiated ideas on the relevant economic factors to study, and even within one heterodox label one finds several schools of thought. So, under the heading Post-Keynesian Economics one finds grouped a very heterogeneous bunch consisting of Kaleckians, monetary Post-Keynesians, Kaldorians, Post-Keynesian Marxists and sometimes even Neo-Ricardians. I have not found a treatise successfully endeavouring to present something like a unified approach to Post-Keynesian Economics. Similar dilemmas are to be found in other heterodox schools. The case of Evolutionary economics is discussed below.

Neo-classical economics as an unrivalled box of tools

The result of the Babylonian chaos in heterodoxy is that there is no clear box of tools available to the graduate student that could be taught in a doctoral coursework, and applied without having headaches regards to the consistency of the framework one chooses to use. Neo-Classical economists consider their framework being rigorous as they claim it draws all its conclusions out of one idealised model of human behaviour. This model is at the centre of never ending debates about its empirical relevance and its philosophical as well as theoretical implications, and heterodox economists agree that it is not the right one. What on the other hand is true beyond doubt is, that its ever adaptive character gives to the practitioners of mainstream economics a routinised way of producing theory that is unequalled. A clear reference model, with clear categories and concepts is given, where a set of convexity conditions on production and preference sets and the postulated existence of atomistically competitive markets for all extant and contingent commodities guarantees the existence of a Pareto optimal equilibrium. Taking that as a starting point one may define a household through a "well behaved" utility function, do the same for the firm, derive equilibrium conditions and do some comparative statics, reformulate the problem in a dynamic context etc. It is clear to the theorist how the economic problem has to be addressed, and no discussion ensues whether a linear homogeneous production function of the Neo-Classical type is the right analytical framework to address problems of aggregate growth, or whether a utility function really reflects human preferences. Of course that's what heterodox people detest, but that's also what makes the Neo-Classics' strength. Shall we believe that 90% of our colleagues are thus simple minded? Not at all. Some just have never heard about the capital controversy or Bourdieu's theory of social distinction, and anyhow after having spent years in trying to master Hamiltonians they're just locked in. Others are just tired of never ending debates with no clear cut outcome, and others again can't see a forest with all the different sorts of trees standing around.

The heterogeneity of heterodoxy: the Babylonic dimension of evolutionary economics

Let's take the example of Evolutionary economics. The interested student may ask at first what makes it different from the stuff he or she have been taught in undergraduate days? But one finds, that this is not easy to answer. So let two distinguished scholars in the field answer the question:

"Sometimes it is barely distinguishable from the very notion of dynamics itself, cum some non-linearities and phase transitions. Elsewhere, it takes a meaning much nearer to that in biological theories involving selection, inheritance and variation. In yet other perspectives, it borrows only part of the biological view, significantly modified to suit the distinctive features of socio-economic processes.", Dosi and Winter [2], p.1.

And they continue, that "notwithstanding possible differences in other more substantive hypotheses, evolutionary theories share the methodological imperative “dynamics first !” (ibid. p.2). The subject matter of evolutionary economics seems to be close to Classical economics, as these different approaches "aim at the interpretation of economic phenomena at different levels of aggregation - including industrial dynamics and macroeconomics growth" (ibid., p. 7). Aggregate growth is driven by technical advances which depend on technological opportunities, the ease of imitation of new technical discoveries, the competitive situation and the way firms process technological knowledge. This would typically overlap with the agenda of Classical economics, with the treatment of income distribution missing.

But what are the precise categories and concepts of Evolutionary economics? What are the "differences in substantive hypotheses"? Dosi and Winter list a series of different approaches ranging from post-Schumpeterian studies à la Nelson and Winter [4] over evolutionary game theory to artificial economies (op. cit. p.2). It is not quite clear what that means methodologically, but remember "dynamics first". Let us examine briefly two different approaches that would perfectly fit this maxim. Stanley Metcalfe has developed a series of evolutionary models over the years and recently a comprehensive framework of industry development [6], which is quite representative for one stream in Evolutionary thinking. This model connects the distribution of heterogeneous firms to the growth of an industry, and presents the mechanisms that account for this dynamics. This mechanism is the replicator, that ensures - in a simplified way - that more profitable firms dominate less profitable ones and drive them out of the industry. A classical case of "big fish eats small fish", and a principle that would make regulators prick up their ears. The replicator principle tells us that there is a natural tendency to monopoly in an industry, even though the causes for the dominance may be manifold and a monopoly may perhaps never emerge. This result comes without any model of individual behaviour. The model together with related literature on technological regimes and technological variety imply, that sometimes it may be wise to intervene in the development of an industry. This is a possible policy implication coming with the use of the replicator principle. The box of tools lies in the realm of Dynamic Systems Theory, and fulfils the postulate of "dynamics first".

Another branch of dynamic models comes also under the Evolutionary heading. These are stochastic network models where agents acting on the market discover slice by slice - through local spillovers from their neighbours on the lattice - the state of the world. Some common knowledge distribution or behaviour emerges which has some small probability to show phase transitions. The most important proposition in this type of models is that individuals do not act independently from each other and that they act boundedly rational. Typically statistical mechanics methods (like Ising models) are used here (e.g. Weisbuch et al. [7]), even though they do not precisely fit the evolutionary paradigm. They borrow from physics and not from evolutionary biology, but they are explicitly dynamic, and even better, they are stochastic. The view is of the economy as a self-organising system, where agents gradually discovery their surroundings. This resembles the Austrian position (see Hayek [3]) on the competition process quite a bit, and with that comes also a similar view on policy: intervention in the market most likely distorts the real information available and hence no intervention should take place. For instance, if economic agents trade information on several designs of a technological innovation government intervention - considered as a global information externality - may lead to premature convergence to one dominant instead of a variety of designs, which may have a better welfare profile. This is of course in some contrast to the implications from replicator dynamics. In "Evolutionary" economics, it seems, everything goes as long as the maxim "dynamics first" is not violated.

Conclusion

Schumpeter [6] conceded that economic reasoning might well be ideologically biased, but that it was the value free box of tools an economist had at hand, that saved economics from the dim prospect of not having the right of being considered "precise" at an equal footing of natural sciences. Of course this is an illusion and Maurice Dobb [1] has clearly underscored the futility of any attempt to declare economics a positive science by simply referring to the box of analytical tools available. Economics may thus well be a positive science, but its results will never be free of normative implications. This is particularly clear in the example given above. But how is it possible that two such distinct views on policy can emerge? I believe it has to do with the casuistic way on how assumptions are brought into Evolutionary models. Unluckily the messy situation I find Evolutionary economics in is not uncommon in other heterodox schools. I guess there is a long way to go until anything competitive to Neo-Classical Economics can emerge. More efforts to integrate the different approaches and develop clear common categories are needed, otherwise heterodox approaches will continue not to be a viable alternative to orthodoxy.

Cited works

[1] Maurice Dobb (1973). Theories of value and distribution since Adam Smith : ideology and economic theory. Cambridge: Cambridge University Press.

[2] Giovanni Dosi and Sydney G. Winter (2000). Interpreting Economic Change: Evolution, Structures and Games. Siena: LEM Working Paper No. 2000/08.

[3] Friedrich August von Hayek (1937). Economics and Knowledge. Economica, 4(NS), 33-54.

[4] Richard R. Nelson and Sydney G. Winter (1982). An Evolutionary Theory of Economic Change. Cambridge, MA: Belknap Press of Harvard University Press.

[5] J. Stanley METCALFE (1998). Evolutionary Economics and Creative Destruction. London: Routledge.

[6] J.A. Schumpeter (1946). History of Economic Analysis. Oxford: Oxford University Press, reprint 1994 by Routledge, London.

[7] Gerard Weisbuch, Alan Kirman, and Dorothea Herreiner (2000). Market Organisation and Trading Relationships. The Economic Journal, 110, 411-436.

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e-mail: a.reinstaller@merit.unimaas.nl