Tony Lawson On The Definition Of Heterodox Economics
What is it, then, specifically that unites the various streams of heterodox economics?
In his 2005 essay The nature of heterodox economics Tony Lawson attempts to locate an answer, and begins by noting that heterodox economics is doubly diverse. There is diversity of traditions which could be considered heterodox, be they post-autistic, neo-ricardian, Marxist, post-Keynesian, institutional, feminist, social, Austrian or ecological, to name but a few. Within these traditions themselves there is also considerable diversity rather than any particular agreement on basic principles, policy recommendations or methodologies. What they are defined by within a tradition is not by a core set of concrete principles or universally recognised common ground, but rather by their opposition to neo-classical, orthodox economics, and a set of key texts from which they might draw (for example, post-Keynesians draw from Keynes), a fact that the independent traditions tend only to admit “begrudgingly”. Given the fact that these traditions call themselves heterodox, this should come as little surprise. If heterodox economists are untied, at the very least, in their rejection of the orthodoxy of neo-classical, mainstream approaches, what is it specifically about these approaches that they reject, and is there something that unites their objections under a common theme? And do they even understand what mainstream economics means, or neoclassical economists for that matter? Can the two terms be used interchangeably? A common criticism of heterodox approaches is to state that the mainstream in fact far more diverse than they allow and that their criticisms may reflect a previous held positions on such matters, but the consensus has since shifted to methodologies which avoid the major points of their analysis; Heterodox economists shoot at a moving target and miss.
Such a response is exemplified by David Colander’s The Death of Neoclassical Economics. Yes, says Colander, defining a set of factors that define neoclassical economics, such a think called neoclassical economics did exist certainly, and some of the approaches derived from it are still common currency yet the mainstream “is much more eclectic” and “there is significant flexibility, especially at the cutting edge”. For example, methodological individualism and the assumption of “far-sighted rationality” (the idea that economic agents have very good awareness of the future and past) are being challenged from with the mainstream by the work done in experimental economics, behavioural economics and with approaches utilising complexity mathematics and evolutionary game theory. Mainstream economists can therefore evade criticism.
In his essay Lawson rejects two common definitions of orthodoxy, in order to evade the criticism that the assaults on heterodox economics are misplaced. Firstly, mainstream economics as maintaining the current economic situation, as ideology for the status quo. Secondly, mainstream economics as being united by the axiomatic statements of commitment to individualism of economic subject who acts in a rational, utility optimising, self-interested manner in a market that tends towards equilibrium. Indeed, in the case of many analyses of equilibrium, even those of advanced behavioural economics, equilibrium is methodologically assumed: the procedure is not to ask “Will rational agents behave accordingly to the theory’s equilibrium prediction?” as would be the question of any proper psychology, but rather to assume axiomatically that they will and ask “If rational agents are behaving according to the theory’s equilibrium prediction, will they have cause to stop doing so?” – agents can only tend towards equilibrium, or be frustrated from doing so. In short, the drive toward equilibrium models the behaviour of the agent.
In the first instance, the mainstream economic tradition can be defined as an ideology that upholds the current workings of the economic sphere. This is the approach of Mainstream economics is “rigged”, by using its individualistic perspective, maximising rationality and belief in equilibrium, to show that lassiez faire economic policy, that is non-interference in the market system and the opening of this system into all areas, produces “optimal outcomes”. As previously stated, the use of the general equilibrium model would provide the standard proof that only in an unregulated market is one in which fair distribution of goods occur. Yet were this the case, Lawson argues, mainstream economists would, on the whole, support the thesis that equilibrium exists – however, in the case of Hahn and other, despite their rational-individualist assumptions do not believe equilibrium ever comes about – “Equilibrium economics…is easily convertible into an apologia for existing economic arrangements”. Indeed, rational-choice Marxists use the same rational-individualist criteria to demonstrate weaknesses in capitalism, and economists work on such piecemeal and tiny elements of the economy that the idea that they are providing an apologia whole the whole seems rash. If the axiomatics of economics all naturally lead to conclusions which supported the status quo, one might be inclined to believe that it is an ideology. Lawson admits that some may use it to justify capitalism, but the exceptions show it does not lead immediately to this conclusion.
In the second instance, Lawson concurs with the mainstream critics of his and others projects that it is not the case that mainstream economics is committed to a model of the human which involved optimising individual behaviour. Certain perspective of game theory assume no rationality at all on the case of either parties, evolutionary game theory also does not. Economics is capable with working with concepts such as ecology which do not embrace this style. It is also beginning to consider how large groups make economic decisions. It appears that this common characterisation is also misplaced.
Rejecting these common positions, Lawson locates the definition of mainstream economics not in its specific set of fundamental axioms, but in its orientation toward methodology. Mainstream economics is hopelessly committed to a formalistic-deductive mathematical framework, the usefulness and realism of which largely goes undebated, or when it is subject to summary dismissals. For example, despite this commitment to the progressive elements of the mainstream in other areas, Hahn states that any view that questions the use of mathematics in economics is “a view surely not worth discussing“. The commitment to mathematics results in the detachment of economics from the real world, which, in the words of Milton Friedmann, hardly the most radical critic of economics states “economics has become increasingly an arcane branch of mathematics rather than dealing with real economic problems”. Mathematical models build upon other mathematical models each stepping further and further into idealism rather than having grounding in real world analysis. Even the most cutting edge elements of mainstream economics – be it the uses of game theory, computer simulation, evolutionary economics, or the real nitty gritty of controlled experiments – all continue to be constructed around mathematical models – if it doesn’t contain a model, says the mainstream, it is not economics. While passing economic fads might differ from the atomistic model, or question the standard policy recommendations, they never stray from the understanding that the basis for proper economics is mathematical modeling and deductive analysis. Heterodox economics is therefore defined as a rejection of this orthodoxy – “the rejection of the view that formalistic methods are everywhere and always appropriate.”. Note here that this does not imply that is might not be sometimes appropriate, yet that it is not always the case. For Lawson, this unites the various traditions of heterodox economics internally and externally.
Particularly in the case of Lawson’s first objection to common definitions of heterodox economics, is Lawson being far too generous? At the level of policy, or otherwise, at the level of historical genesis of the mainstream approach? Is this definition so absolutely thin that it in fact is useless for anything more than a cursory uniting of hugely diverse approaches?
