This article was downloaded by: [Duke University Medical Center]On: 07 October 2014, At: 13:33Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House,37-41 Mortimer Street, London W1T 3JH, UK

Economy and SocietyPublication details, including instructions for authors and subscription information:http://www.tandfonline.com/loi/reso20

How far should we be afraid of conventionaleconomics? A response to Ben FineGrahame Thompson aa Faculty of Social Science , The Open University , Walton Hall, Milton Keynes, MK7 6AA E-mail:Published online: 08 May 2009.

To cite this article: Grahame Thompson (1999) How far should we be afraid of conventional economics? A response to BenFine, Economy and Society, 28:3, 426-433, DOI: 10.1080/03085149900000012

To link to this article: http://dx.doi.org/10.1080/03085149900000012

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) containedin the publications on our platform. However, Taylor & Francis, our agents, and our licensors make norepresentations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose ofthe Content. Any opinions and views expressed in this publication are the opinions and views of the authors,and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be reliedupon and should be independently verified with primary sources of information. Taylor and Francis shall not beliable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilitieswhatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out ofthe use of the Content.

This article may be used for research, teaching, and private study purposes. Any substantial or systematicreproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in anyform to anyone is expressly forbidden. Terms & Conditions of access and use can be found at http://www.tandfonline.com/page/terms-and-conditions

Econom)~ and Society K~lume 2 8 Number 3 August 1999: 4 2 6 4 3 3

How far should we be afraid ot conventional economicsr' A response to Ben Fine

Grahame Thompson

It is important that there is a debate about the nature and future of economics without this degenerating into an ill-tempered shouting match between com- pletely opposed positions. This is why I welcome Ben Fine's comments on my paper 'Where goes economics and the economies?' (Thompson 1997). My response to him is offered in this spirit. This also provides an opportunity to claborate on the issues I raised in the paper and to which Ben Fine takes excep- tion. It should be remembered that the original article was developed from a talk given at the meeting to celebrate twenty-five years of Economy unll Society. It was meant for a non-specialist audience, one that I presumed would (correctly as it turned out) be generally hostile to conventional economics, and I was not sur- veying the whole field of economic discourse but was being deliberately selec- tive. Given this, I also agree that some of the 'schools' of economics that Beri Fine mentions, and which were not included in my original remarks (like post- Keynesianism), offer very worthurhile and useful approaches.

But it should be stressed from the outset that my position is deliberately plu- ralistic and pragmatic. This is not just a convenience but a genuine position that could be elaborated and defended.' Within this approach a certain intellectual relativity is unavoidable and not something to be ashamed of or to deny. This is not to defend all forms of relativi~rn,~ but it is to defend a particular version of it, a version that accepts the necessity for as rigourous an intellectual pluralism as is possible in the face of the decline in faith in the knowledge certainties associ- ated with any- single intellectual discourse that claims to tell the total Truth about how the social is organized and functions (or even what that 'social' is). This is why I would choose to discuss the relationship between different schools of

Grahame Thnn~pson, Fuculty (J'Suciul Sciences, The Open IJnzzersif)~, Milton Hall, MilLon Ke)~nes MK7 6'4A (E-mail: glf.'thomp.son@open.ac.uk)

Coplright 0 1999 Taylor & Frnncis 1,td 0308-5147

Dow

nloa

ded

by [

Duk

e U

nive

rsity

Med

ical

Cen

ter]

at 1

3:33

07

Oct

ober

201

4

Grahame Thofnpson: A response to Ben Fine 427

economics as an unstable encounter in which none are necessarily right or correct in their analysis; that we should not be totally opposed to, or in favour of, any one school anyway but be pragmatic in how it is used (in the light of the particular 'problem' or pertinence to which the analysis is directed, and the 'level' at which it is being discussed). Since I have elaborated, defended and put in place this way of going about economic analysis elsewhere I will not rehearse it further here (see Thompson 1998a, 1999).

And, under certain circumstances and conditions, I would extend this gesture to neoclassical economics as well. Here is probably where Ben Fine and I part company, and where the disagreement about what economics is doing is great- est. So I concentrate upon this for the rest of my remarks.

I do not see neoclassical economics as such a threat as Ben Fine does on two counts: first, in respect to what is going on in conventional economics itself and, second, in relationship to other social sciences. Now, this is not to say that neo- classical economics cannot be pernicious (even poisonous) in respect to many consequences of its ubiquity among the economics profession and in terms of its policy agenda. But, if pressed, one could say this about any school of econ- omics such that it exercised the intellectual and policy hegemony that neoclas- sical economics clearly does at present within the domain of economic analysis. For instance, I would not like to see Austrianism, Marxism, Sraffianism, post- Keynesianism or any other of the schools of economics 'alternative' to the neo- classical one exercise the unequal authority that the latter does at present. Thus, while welcoming the development of these alternative approaches, none of them should predominate in the same way That would raise its own dangers for another potential intellectual tyranny that we can well do without.

However, let us just concentrate for the moment upon the place of neoclassi- cal economics within the conventional canon of economics and its policy frame- work. Here I make and reiterate a number of points.

The first is that conventional economic analysis is not just neoclassical in form. Perhaps the most obvious alternative involves organizational theories of the firm, which have a perfectly respectable pedigree within the traditional canon. Second, within broadly neo-liberal thought, Austrian economics is not neoclassical in origin. Indeed, there are significant theoretical and policy differ- ences between the two. While both rely upon a certain idea of the rational indi- vidual as the key building block for their respective systems, these individualisms are not identical. The Austrian individual agent does not maxi- mize in the same way as the neoclassical agent does. The Austrian 'entrepre- neur', for instance, is an adaptive agent whose 'preferences' are not fixed in the same way as these are for neoclassical agents. In addition, economists like John Hicks, while 'conventional' in one sense, are by no means fully fledged neo- classical economists (see Thompson 1998a). Thus it is worth bearing in mind that there are significant differences witlzin the conventional canon of econ- omics not all of which can be reduced to the operation of a single neoclassical orthodoxy. I would like to stress the intellectual heterodoxy of the conventional canon, and exploit it as far as is possible (seeThompson 1999). It is in the spaces

Dow

nloa

ded

by [

Duk

e U

nive

rsity

Med

ical

Cen

ter]

at 1

3:33

07

Oct

ober

201

4

428 Economy and Society

between the entrenched positions within economics - involving all schools of economics - that the interesting developments will be found.

Second, neoclassical economics looks a lot less secure than Ben Fine recog- nizes. Indeed, although it is not yet in a crisis it is quietly moving that way. The problem is that the neoclassical paradigm is just not delivering the goods.

Take one of the central elements of conventional macroeconomics, the mul- tiplier. This is taught on every introductory economics course. But there is no agreement among economists as to the actual size and status of this concept for an economy. In the various macroeconomic models of the UK economy, for instance, the 1990 first year GDP multiplier value ranged from 0.9 to1.7 (Church et al. 1993: 90). In a later analysis, when all the adjustments to the economy after an initial fiscal stimulus had been allowed to work themselves through, the models continued to show considerable variation in GDP growth, with some returning negative outcomes and others positive ones (Church et al. 1997: 96, Table A.3, p.99). Clearly, a lot hangs upon this from a policy point of view. Any changes in aggregate demand initiated by a change in government expenditure could be negative or positive depending upon what value the multiplier takes. The failure to properly identify the value of the multiplier is one of a number of reasons why traditional economics is very much on the defensive. Indeed, in the recent round of Economic and Social Research Council (ESRC) funding for economic research, the support for macroeconomic modelling was significantly reduced. The British ESRC is experimenting with interdisciplinary work, in which economists are encouraged to co-operate with those from other disci- plines if they are to receive funding. Now, Ben Fine might reply that this is one of the main means by which the neoclassical economists' particular version of how individualism works is being spread into other disciplines: that economists will only work with others if they adopt its particular techniques of analysis. Time will tell. But I would suggest that, even if this is the case at present, it is not always going to be so; that interdisciplinary work will inevitably affect the kinds of economic analysis that will result, and that neoclassical economics will be affected by this change in funding strategy.

A second and related problem for the neoclassical paradigm is that it has been singularly unsuccessful in modelling the business cycle. This is where the current disarray in macroeconomics is being most acutely felt. For instance, the 1995 EconomicJournal symposium on real business cycles (RBC) demonstrates this clearly (Economicffournal1995). The four main articles included as the sym- posium papers, while all claiming to analyse the cycle in more or less RBC terms, disagree as to its nature and how to measure or model it. And this disagreement among RBC theorists and empirical testers is just the tip of an iceberg, to which I referred in my original article as a more general loss of confidence in con- ventional macroeconomic modelling and econometric testing (on the current status of econometric testing and the relative loss of faith in a strong version of determininsm, see Thompson 1993a).

In case this all looks too much centred on the macro economy, which anyway has always been the least secure domain for the neoclassicals, there is nearly as

Dow

nloa

ded

by [

Duk

e U

nive

rsity

Med

ical

Cen

ter]

at 1

3:33

07

Oct

ober

201

4

Gruhume Thornpson: A response to Ben Fine 429

much disarray at the micro level. Take a fundamental building block for the neo- classical micro foundations of its macroeconomic analysis, notably expected utility theory (EUT). Once again, there is just no agreement among con- ventional economists as to the utility and efficiency of E U T in relation to other approaches to modelling 'individual decision making behaviour under uncer- tainty'. Ironically perhaps, two articles appearing one after another in a 1994 issue of Econornetrzcu (a leading journal of neoclassical thinking) reach almost diametrically opposite conclusions after trying to verify E U T empirically."

Further to this we can point to the recent events in the international sphere as illustrative of the weaknesses of conventional, and particularly neoclassical, economic analysis. Surely after the catastrophic events of the 1997-8 East Asian financial crisis there can be little faith left in the virtues of either neoclassical analysis or its polic) conclusions and programmes, other than among elites in the international economic organizations and their political allies in mainly Anglo-American countries. No doubt these continue to remain two formidable forces, but they are not as assured in their positions as they were four years ago. They have been abandoned by most of the political officials in those countries devastated by the crisis, and by a leading group of (mostly American) academic economists and some business in t e re~ t s .~ Just as the vultures are circling over the corpse of the neoclassical policy programme in these countries, there is unlikely to be a rekindling of life in the neoclassical policy paradigm.

A final sign of the failing neoclassical project can be seen in the numbers of students wanting to study the subject in academic economics departments, to which Ben Fine draws attention. In UK universities there has been a decline in the number entering to study economics, particularly single honours degree pro- grammes. In addition, the numbers studying economics at 'A level' (an indicator of the likely future demand for university places to study economics) is also declining. One interesting feature of this at university level is that the numbers doing at least some kind of economics is probably expanding given the growth of joint degrees, and particularly the growth of economics teaching in business departments and management schools. Thus what actually goes on in economics departments is not necessarily a good indicator of the state of economics overall. The fact is that a lot of the best non-conventional economics teaching goes on . -

in non-economics departments. Some of the most interesting economic analy- sis, an increasing amount of which is non-neoclassical in inspiration, now emanates from other departmental sources. And here I would extend this as far as geography and particularly to politics and international relations. The growth of interest in international political economy among university students, for instance, as registered by the demand for these courses and an expansion of staff testifies, first, to the relative decline of an interest in 'straightforward' economics and, second, to the growth of a different kind of economic analys i~ .~

In connection with all of this I would reiterate the way biological analogies are increasingly invading economics, and have served to open up the discipline to a range of new non-orthodox approaches. There are a number of ways in which biological forms of analysis have inspired economics (Foster 1997), but the two

Dow

nloa

ded

by [

Duk

e U

nive

rsity

Med

ical

Cen

ter]

at 1

3:33

07

Oct

ober

201

4

430 Economy and Society

main ones involve, looking first, for the social equivalent of the genetic structure that is thought to motivate the behaviour of all life forms and, second, at the interactions between life forms as the system that structures their behaviours. The first amounts to an investigation to find the social equivalent of DNA. It is thus a depth structural approach reminiscent of much conventional social theory. The second eschews this kind of theorization in the name of a pure inter- actionism. There is nothing that motivates behaviour other than the behaviour of other 'agents'.

While one might be wise not to embrace either of these fully and to keep a certain distance from both, they have served to produce interesting and original analyses of technical change, for instance (Dosi et al. 1988), and of the business cycle and long-term growth (Ormerod 1998) which are not in any way inspired by neoclassical economics. Indeed, they are explicitly pitched against it. It is just not possible to ignore evolutionary and non-neoclassical institutional approaches to the analysis of technical change, for instance, which is a central object of econ- omic analy~is .~

In fact, it is analyses inspired by the biological analogy that probably repre- sent the most serious challenge to neoclassical economics, one that the neoclas- sical~ have implicitly recognized. Their strategy has been to try to reinscribe the biological analogy back into the mainstream (e.g. Krugman 1996), but at best this remains an ambivalent and tentative project. It is not an easy one to execute given the major differences in analytical approach between the biological and the neoclassical economic universe. Thus we can expect to see more sophisticated and confident analytical results originating from this biological corner in the future.

These issues are basically methodological in character and, while important, such methodological disputes have had a limited impact upon the way economics conducts its business. So we should not, perhaps, attach too much significance to their outcomes. To my mind the key indicator of precisely the lack of confi- dence in the neoclassical paradigm is the shrillness with which it is at present trumpeting its credentials. Thus the 'confidence' of the neoclassicals that Ben Fine finds so unconducive may actually turn out to be a sign of the position's underlying weakness.

The second area around which Ben Fine and I differ is over the relationship between neoclassical economics and other social sciences. There is certainly a drift in the use of neoclassical techniques into other social science areas, which Ben Fine sees as a deliberate imperial strategy on the part of economics to col- onize these other disciplines. I think this is exaggerated, in terms of both extent and effects. There remains a robust set of alternative analytical approaches in use in all the social science disciplines, and, surprisingly perhaps, a lively deploy- ment of these to analyse afresh aspects of the economy in very different and more telling ways than traditional economics does.

But what about that actual use of the neoclassical foundations in the analy- sis of other disciplines? Here one wants to be clear what is at stake in this use. The main issue seems to be the way the notion of an agent is couched in purely

Dow

nloa

ded

by [

Duk

e U

nive

rsity

Med

ical

Cen

ter]

at 1

3:33

07

Oct

ober

201

4

Grahanze Tlzomnpson: .4 refponse to Ben Fine 43 1

individualistic terms. Thus, for the neoclassical paradigm the 'individual' is the undertheorized foundation stone for the system. This individual has a set of pre-given preferences on the basis of which it acts rationally (in a means-ends sense) to maximize its own interests and benefits.

The objections to this are obvious and well taken. Those that criticize the neoclassical conception of an agent want a more elaborate conception of the social cunstruction of the agent and agency, which involves much more than the operation of a set of given preferences. Along with Ben Fine I am suspicious of any kind of approach couched in purel)~ rational agent terms. But there are lots of examples of analyses which, while they might begin along these lines with an opening address that uses this kind of an approach to motivate their analyses, soon complicate this so as to provide useful and insightful results. As examples of this I would cite Elinor Ostrom's (1990) analysis of the problems posed by common resource use and Fritz Scharpf's (1997) analysis of the dynamics of public policy making, but there are many other examples that could also be cited. Both of these operate on the borders of economics with sociology and politics. They are also part of the trend to unite institutional economics with game-theoretic conceptions, to my mind a very fruitful current arena of analysis.

Thus I do not see why one should be totally hostile to the restricted use of an individualistic approach for specific purposes and under particular conditions. This can offer quite attractive analytical possibilities at times. I have found it useful in work on the European economy (Thompson 1993b) and in terms of an approach to analysing the nature of international governance regimes (Thomp- son 1998b). Neither of these deploy totally and unrestrictive individualistic assumptions of the neoclassical type but nor do they avoid the use of some of its intellectual architecture to motivate the analysis. A principled but pragmatic solution is called for.

In many ways I agree with Ben Fine in his critique of the particular way that 'human capital' theory is used within conventional economics. But I am less con- cerned about the use of the term 'social capital'. Indeed, I find this another potentially useful analytical tool that crosses the boundary between economics and other social sciences (Thompson 2000). In part this is the result of an overall pragmatic approach. Rut, while having nothing against this approach in prin- ciple, it is important to recognize quite where it might lead. The strongest cham- pions of the social capital approach in the UK are those looking for a pragmatic 'third way' in Western politics (e.g. Ciiddens 1998). Personally, I \vould argue that one has to buttress arguments about social capital with rather more tra- ditional arguments about 'real capital' or 'financial capital', and have a policy with respect to the macroeconomy, something the social capitalists of the 'third way' type have yet to acknowledge fully.'

Clearly, I am not naive enough to ignore the continued significance and importance of neoclassical economic assumption for the way traditional econ- omics goes about its business, and the way this limits the domain of economics and other disciplines in crucial ways. Nor am I arguing for a totally pragmatic

Dow

nloa

ded

by [

Duk

e U

nive

rsity

Med

ical

Cen

ter]

at 1

3:33

07

Oct

ober

201

4

432 Economy and Society

and eclectic intellectual agenda in response. T h e challenge is to find acceptable ways to combine forms of economic analysis which d o not fall into the either/or categories of hermetically sealed positions that one is forced to take or to leave in total. This is not an easy or comfortable task but to my mind it is a challenge that is perfectly possible to rise to.

Notes

1 For a philosophical justification of pragmatism see Davidson (1985) and Christensen (1994). This position has been most consistently applied to instances of economic analysis by Charles Sabel (see Sabel 1995; Sabel and Zeitlin 1997). 2 In particular, this is not to defend an 'anything goes' form of perspectivalism (see Hirst 1985, 1990). Not all views are of equal worth. 3 See Harless and Camerer (1994) and Hey and Orme (1994). I thank Paul Anand for alerting me to these references. 4 Of course, these American academic economist have not altogether abandoned neoclassical ana!y.~(yszs, but they are adopting more interesting and progressive positions within it. S This is paralleled by the growth of non-orthodox journals and those dealing with the relationships between economics and other disciplines. Recent interesting examples of the general trend for non-orthodox treatments of economic issues, both quite different, can be found in Callon (1998) and Ormerod (1998). 6 On the more general deployment of evolutionary models in the social sciences see van Parijs (1981). 7 Giddens does not suggest that macroeconomics is a key element in the 'third way', inded this is conspicuous by its absence from all 'third way' literature (see Rose 1999), and from one of its main intellectual precursors (Commission for Social Justice 1994). As Rose argues, there are very good reasons for this from the point of view of the 'third way' position that has to do with its concentration on globalization and the undermining of the national economy. But if one is not totally persuaded by this argument (or even if one is), this does not dissolve the necessity for a macroeconomic policy at some level in relationship to the economic (see Hirst and Thompson 1999).

References

Callon, M. (ed.) (1998) The Laws qf the Market, Oxford: Blackwell. Christensen, C. B. (1994) 'Peirce's transformation of Kant', Review of Metaphysics 48: 91-120. Church, K. B., Mitchell, I? R., Smith, l? N. and Wallis, K. E (1993) 'Comparative properties of models of the UK economy', National Institute Economic Review 145(August): 87-107. Church, K. B., Mitchell, P. R., Sault, J. E. and Wallis, K. E (1997) 'Comparative properties of models of the UK economy', National Institute Economic Review 161Uuly): 91-100.

Commission for Social Justice (1994) Socaal3ustice: Strategies for National Renewal, London: Vintage Press. Davidson, D. (1985) 'On the very idea of a conceptual scheme', in J. Rajchman & C. West (eds) Post-Analytical Philosophy, New York: Columbia University Press. Dosi, G., Freeman, C., Nelson, R., Silverberg, G. and Soete, L. (eds) (1988) Technical Change and Economic Theory, London: Pinter. The Economic3ournal(1995) 'Controversy - the empirics of real

Dow

nloa

ded

by [

Duk

e U

nive

rsity

Med

ical

Cen

ter]

at 1

3:33

07

Oct

ober

201

4

Grahalne Thomfison: A response to B e n Fine 433

business cycles', The EconomicJournal 105(November): 1594-648. Foster, J. (1997) 'The analytical foundations of evolutionary economics: from biological analogy to economic self- organization', Structurr~l Change unrl Economic Dynamics 8: 427-51. Giddens, A. (1998) The Third C%,JI: The Renemal oJSociu1 L)emocrucy, Cambridge: Polity Press. Harless, D. W. and Camerer, C. F. (1994) 'The predictive utility of gencralized expected utility theories', Econometricu 62(6): 1251-89. Hey, J. D. and Orme , C. (1994) 'Investigating generalizations of expected utility theory using experimental data', Econometricr~ 62(6): 129 1-326. Hirst, l? Q (1985) 'Is it rational to reject relatik-ism?', in J. Overing (ed.) Reason und Morality, AS4 Monogruph 24, London: Tavistock. ---- (1990) 'An answer to relativism?', N r w Formattons Spring: 13-23. ---and Thompson, G. F. (1999) Globalizatzon in Question: Thr Internationnl Economy and !he Possibilities c$.Co.r?ernccnce, 2nd rev. updated, expanded edn, Cambridge: Polity Press. Krugman, P. (1996) 'What economists can learn from evolutionary theorists - and vice versa', paper given at EAEPE Conference, Antwerp, 5-7 November. Ormerod, P. (1998) Butterfily Economics, 1.ondon: Faber. Ost rom, E. (1990) Gocerning the Commons: The Evolutzon o f Ifzstilulionsjiw Collectine Action, Cambridge: Cambridge University Press. Rose, N. (1999) 'Inventiveness in politics', Economy and Societ)) 28(3): 467-9 3. Sabel, C. F. (1995) 'Intelligible differences: on deliberate strategy and the exploration of possibility in economic life', mimeo, Columbia Law School (available from Sabel's Web-site).

-and Zeitlin, J. (1997) 'Stories, strategies, structures: rethinking historical alternatives to mass production', in Sabel, C. E and Zeitlin, J. (eds) World q f ' Possibilities: Flexible and Ma.s.s Production in ?+$stern Indu.strialization, New York: Cambridge University Press. Scharpf, F. W. (1997) Games RealActors Play: Actor-Centred Institutionalism in Polil:]~ Research, Boulder, CO, and Oxford: Wcstview Press. Thompson, G. F. (1993a) 'Causality in economics: rhetorical ethic or positivist empiric?', Quality and Quunti t )~ 27: 47-71. -- (1993b) The Economic Emergence qf'a Nem Europe? The Political Econom)! of' Cooperatiun and Competition in he IYYUs, Cheltenham: Edward Elgar. - (1997) 'Where goes economics and the economies?', Ecunomy and Societ)~ 26(4): 599-610. --- (1998a) 'Encountering economics and accounting: some skirmishes and engagements', Accounting, Organizations and Societ)~ 23(3): 283-323. - (1998b) 'Globalization versus regionalism?', Journal c$iVorth African Studies 3(2): 59-74; reprinted in G. Joffe (ed.) Perspectives on Development: The Euro-Medzterranean Partnership, London: Frank Cass, 1999. --- (1999) 'Strategy and tactics in the pedagogy of economics: what should be done about neoclassical economics?', in R. E Garnett (ed.) What Do Economists Knom? New Economic Knowledge, Idondon: Routledge. --- (2000) Between Markets and Hierarchies: The Histoql and Sign?jicance qf'Netmork Forms ~f'Organization, Oxford: Oxford University Press, forthcoming. van Parijs, P. (1981) E z ~ o l u t i o n a ~ ~ ~ E.rplanations in the Social Sciences, Tooowa, NJ: Rowman & Littlefield.

Dow

nloa

ded

by [

Duk

e U

nive

rsity

Med

ical

Cen

ter]

at 1

3:33

07

Oct

ober

201

4