Sunday , January 17 2021
Home / Real-World Economics Review / Historic Perplexity

Historic Perplexity

Summary:
From Peter Radford A week or so ago I wrote that I was in the midst of reading Robert Skidelsky’s book “What’s Wrong With Economics”.  His account is complete and balanced, he clearly has a great deal of respect for the discipline, but his critique is well worthwhile the time it takes to read.  At the end the reader might well ask what is left of the mainstream line of theorizing after all the holes Skidelsky punches through it. The problem that many of us might have is that this ground is all too familiar.  The absurdities of the neoclassical method are well known and have been shredded time and time again.  Yet the discipline plods its merry way forward apparently oblivious to the farce that it appears to those on the outside.  It applauds itself endlessly and ignores the steady

Topics:
Peter Radford considers the following as important:

This could be interesting, too:

Dan Crawford writes Open thread Jan. 15, 2021

Dan Crawford writes Covid related deaths to accelerate

Dan Crawford writes How is the distribution of the covid 19 vaccines going in your neighborhood?

Asad Zaman writes A new definition of “probability”

from Peter Radford

A week or so ago I wrote that I was in the midst of reading Robert Skidelsky’s book “What’s Wrong With Economics”.  His account is complete and balanced, he clearly has a great deal of respect for the discipline, but his critique is well worthwhile the time it takes to read.  At the end the reader might well ask what is left of the mainstream line of theorizing after all the holes Skidelsky punches through it.

The problem that many of us might have is that this ground is all too familiar.  The absurdities of the neoclassical method are well known and have been shredded time and time again.  Yet the discipline plods its merry way forward apparently oblivious to the farce that it appears to those on the outside.  It applauds itself endlessly and ignores the steady accumulation of demerits that history provides us as its predictions founder endlessly on the rocks of reality.

History itself one of the main bases of attack that Skidelsky deploys.  History both of the development of economics and then the ignorance of history within economics.

A primary feature of modern economics is that the current generation of its exponents assume that the development of the subject represents a steady progression of finer, more rigorous, and formal exposition: the sloppy less formal errors of the past have all been expunged so that the modern corpus is a distillation rather than a compendium.  All the proper thoughts of the past are suitably incorporated in the language acceptable to the modern ear, whilst all the wrong headed stuff has been sloughed off along the way.  Thus there is no need at all to study the history of economics.  What needs to be learned is what exists at the moment.  Many of the luminaries of economics take this position and express pride in the modern edifice as being the best of the best.  Any residual controversy is dismissed as evidence of intellectual sloppiness on the part of the heretics, or when the critique is sufficiently damning, a small and deliberately sidelined spot is reserved for curios and oddities to be taught as insignificant exceptions to the magnificent mainstream rule.

This hubris was not always evident.  Take, for example, the infamous Lionel Robbins whose fingerprints are all over what economics has become and who who narrowed economics to the study of scarce resources with alternative uses.  His series of lectures on the history of economics thought are iconic, but they are also deeply Robbinsian.  So they focus intently on allocation, they err constantly towards a neoclassical interpretation, and they end early in the twentieth century with Marshall, Fisher, and Wicksell.  Whilst it was tradition for lectures on history to avoid contemporary controversy, it is a shame that Robbins ended when he did.  So much of the modern arrogance developed as the subject became more and more dominated by American based thinkers and as its ideological basis was altered to suit modern American prejudice.  Indeed this latter aspect of the history of economics is well demonstrated by the fact that Robbins refers to only one American economist — Fisher — whilst a more modern history would be littered with them.

This is not say, of course, that the history of economic thought is completely eradicated from modern teaching.  It continues to exist in the same margins that all the other non-mainstream ideas inhabit.  It is increasingly marginalized and taught much less often than it deserves.  But the main point made by Skidelsky warrants attention: far too many modern economists are blissfuly unaware of how the subject they purport to master came into being, and how often its central claims have been challenged and overthrown in the past only to bob back up zombie like as if nothing had happened.

The second ignorance of history Skidelsky draws our attention to is that of context.  The question is about the universality of the claims economics makes about its insights.  Just how universal are they?  Most committed neoclassical economists would argue that the discipline is applicable in all contexts of time and place.  So an ancient cave dweller can be thought of as a utility maximizing calculating machine equipped with all the cognitive power and information economists routinely ascribe to a modern city dweller.  This universality is a consequence of the so-called scientific calculus central to mainstream economics thought.  Economics has been reduced steadily into a sort of applied mathematics that extends logically from a set of axiomatic starting points.  This method is assumed to be applicable anywhere at any time with its conclusions being similarly timeless.  That much of the body of economics was conceived in reaction to events or episodes in economics history is not considered a hindrance to the ability to generalize beyond that moment.

This universality has been challenged vigorously in the past.  The German Historical school in particular criticized classical economics for making such a claim.  Surely, the reasoning goes, the prescriptions flowing from economics ought to relate to or be anchored in the specifics of the moment.  What was appropriate in Britain in 1900 might not be appropriate in somewhere else at the same time.  To uphold such a criticism, though, requires economics to be something other than applied mathematics.  It has to be a discipline rooted in its social and political context cognizant of cultural, institutional, and network influences that might hinder the pure playing out of its equations.  Simple things such as the conception of a good price might be more culturally or traditionally based than modern economics allows.  So the claim to universality is highly suspect if the range of assumptions take into account the relevant milieu.  Mainstream economics contends, counter to this, that  just as the laws of physics defy time and place, so do the “laws” of economics.  By claiming to have discovered the science underlying the development of prices, economics feels able to rely on its claims without references to context.

One consequence of this universality is the ability to expunge moral or ethical considerations.  Economics becomes simply a method or a form of logic that, if applied properly, will produce optimal results.  With both “properly” and “optimal” being defined carefully to fit in with the method.  Economist thus insulate themselves from the social results of the application of their method.  It is what it is.  So what a villager in Medieval England might consider to be the natural price of corn, is not necessarily the “proper” price for corn, and the entire supply, demand, and allocation of corn might need to be very different from what the villager has long thought appropriate.   It is not surprising that modern economists have acquired a reputation for having an overly clinical, almost pathological, inability to consider the more general outcomes of their methods.  Such an ability has been gained out of them.  Their belief in their method prevents them from seeing beyond their conception of the optimal.

So history, in one form or another, bedevils economics.  The lack of self-awareness, of the way in which ideas have competed and still compete, prevents many economists from having a more modest notion of the capabilities of their discipline.  So too does their heavy handed commitment to a set of pseudo-scientific methodological procedures that they see as universally applicable.  It isn’t as if these problems haven’t been raised repeatedly in the past.  Skidelsky’s critique is depressingly familiar.  What is equally familiar is the tone-deaf and insular response.

I assume that few economists are familiar with ethical concept of a fitness peak which is ccommonplace in evolutionary biology.  A species climbs a fitness peak in order to flourish in its landscape.  It gets successively more and more specialized as it hones its ability to occupy a specific niche.  The problem with this is that the speciality that was the core of its ability to survive might become a hindrance if, or when, the landscape changes.  Some of the adaptations might need to be forgotten and new ones learned.  This implies crawling down the peak and beginning anew.  But all the new niches might be occupied.  What happens then to what was a highly adapted species?  Its old successes become its modern failures.  It is no longer adaptive.  It is likely to die off.

Economics met this fate when it failed miserably to describe and/or predict the financial failures of 2008.  It was overly committed to a wrongheaded schema.  Can it adjust to locate a new relevance?  We have to wait and see.  Right now it seems to be old, tired, and increasingly irrelevant.

Do we consign it to history?

Peter Radford
Peter Radford is publisher of The Radford Free Press, worked as an analyst for banks over fifteen years and has degrees from the London School of Economics and Harvard Business School.

Leave a Reply

Your email address will not be published. Required fields are marked *