ECONOMICS AS AN (IN)DEPENDENT SCIENCE

ESSAYS IN MULTIDISCIPLINARY ECONOMICS, NO.2

Economics as an (In)dependent Science

Introduction

Science has always been heavily influenced by the ideologies and interests of people. Although this phenomenon is unavoidable, it makes sense to reduce it as much as possible.

When reviewing the history of economics, we see that texts were influenced by the interests of the political and clerical powers, and later by the interests of traders and factory-owners, or by the intertests of the workers. During the 17th and 18th century moral philosophers became more independent of private interests, and searched for universal truth. Adam Smith is considered as the first economist, who made economics to an independent science. He was followed by economists, such as David Ricardo, Robert Malthus, and Karl Marx. Now we group these economists under the heading Classical Political Economy.

The question arises of which economics became more independent. There are three possibilities: independent of economic-social-political powers (1), of the subject of the

researcher (2), or of other human sciences, such as sociology, psychology and philosophy (3).

In this essay we will discuss this question, and draw the conclusion that the struggle for independence has failed so far.

Political Powers and Human Science

Schools of thought, such as those of the Physiocrats and the Mercantilists, were inspired by particular private interests. In the first example the relevance of the agrarian sector was stressed, while in the second example the interests of governing powers were pivotal. Some parts of Classical Political Economy were inspired by the interests of traders and factory-owners, such as Ricardo, while others focussed on the position of workers (Marx) or the mass of the people (Malthus). It was an assessment of the value of the upcoming capitalist system, as an instrument to create wealth. Increasingly economists criticized the dependence of the analyses of the dimensions place and time. They began to advocate the development of universal laws, in the way physicists were doing.

Orthodox Economics

The attempt to discover economic universal laws started with a carefully formulated definition of the concept ‘economic’. It refers to the characteristic of the relationship between human needs and their possibilities to satisfy these needs. There will always be scarcity of natural resources to satisfy all needs of all people. As long as goods have price, they are scarce.

On the basis of this definition economists, such as Gossen, Walras, Menger, and Pareto, developed a whole series of universal laws. These laws determine the behaviour of humans, as long as they are only motivated to reduce the scarcity of natural resources as much as possible. They constructed a so-called economic world, which isolates the economic motivation from other categories of motivation. Examples of economic laws are the law of diminishing marginal utility, the law of diminishing marginal returns, the law of demand, and the law of supply.

To isolate the economic motivation from other motivations, economic actors are assumed to be rational and atomistic (non-social). Rationality means that individual persons are integrated; in other words, they are not subject to psychic tensions. Persons agree with their Selves, and are able to act in their true-self interest. When we say that persons are atomistic, we mean to say that they are not clustering into molecules. In other words, they are not forming social groups. The whole idea of ‘social’ does not exist in this economic world. By assuming perfect rationality and perfect atomism, the essence of psychology and of sociology are abstracted.

Neoclassical Economics

From the very beginning many economists considered orthodox economics as a realistic theoretical foundation for empirical application. Especially the functioning of free-markets, was explained by means of the economic world principles. Free markets were seen as competitive. If market participants were irrational or social in their behaviour, they would be competed out by actors, who are rational and non-social. Recent theoretical and empirical research shows that actors, who are irrational and social, are able to disturb market processes significantly. This makes orthodox economics to a bad foundation for empirical research. Since the whole idea of isolated abstraction tells us already that important factors are left out on purpose, the conclusion we draw is actually not surprising at all.

Three developments made it difficult to unmask neoclassical practices. In the first place, the true character of orthodox economics is not taught anymore. In the popular textbooks the orthodox axioms are not even mentioned. In the second place, neoclassical economics has become increasingly materialistic and empiricist. Meta-physics (‘about physics’) has become a taboo. This is a severe problem since meta-physical concepts, such as needs, satisfaction, and utility establish the core problem of economics, which is scarcity. What remains, are statistical data, which can be observed empirically.

In the third place, in the beginning neoclassical practice was to assume that families and other types of organizations, were assumed to be unity. The decisions were made by the head, who altruistically operates on behalf of the interests of the members. Later, neoclassical economics began to operate families and organizations as bundles of individual contracts, thereby further decreasing the realism of the presumptions.

The three developments have transformed orthodox economics, being an aspect-system of real-life situations, into a classical liberal tool of analysis. The world consists of a very large number of atoms, which are not inclined to cluster into molecules. The task of this neoclassical economics is to build empirical models, which can predict the future of our real-life economic systems. This transformation explains why almost all economics students spend barely time to study the foundations of their discipline, but work long hours on mathematics and statistics. We are back to a kind of economics, which is an instrument in the hands of particular powers and ideologies. Capitalism and classical liberalism are advocated. Social-democratically orientated politicians can only ask neoclassically orientated econometricians to calculate the effects of their welfare-state policies. A waste of time, of course.

How to Liberate Human Science from Abuse

The weak link is always the human person, who is unable to abstract from his own subjectivity. Especially in human science, in which the human person is not only the researcher, but also the object of research, this is a key characteristic. It requires a democratic scientific community. It means that no one, who is able to produce a systematic analysis, which is explicit about its presumptions, should be exorcised. At the moment there are many serious schools of economic thought, which do not participate in principal debates, and do not find a respectful place the popular textbooks.

Orthodox economics is a serious attempt to develop an independent science. The founding fathers were explicit about their axioms, and the result was a series of impressive principles of human behaviour. As soon as we understand the axioms, we know how to continue this project. We should also formulate a typical psychic and a typical social world, which show which psychic and social principles rule our behaviour. Since humans are driven by psychic, social and economic motivations, an integration of the three worlds would be a major step in the direction of a more realistic human science[1]. A new idea starts with the formulation of a new paradigm. On the basis of a definition of the essence of a particular object, an analysis is made, leading to a static model. Then the model should be dynamized and made historical. It changes the functioning of the mechanisms, which are analysed, quite fundamentally. The last step could be to open this closed system, and allow bombardments of external shocks to see whether the system has some stability. A last point that must be mentioned is the micro-macro problem. After having analysed the functioning of a market, we must answer the question, whether particular disequilibria on a market are strong enough to create disequilibria on other markets. If so, we need a macro-analysis of the whole of a market economy, which is more than just the aggregate of a series of micro markets[2].

On the basis of a realistic analysis theories could be formulated and empirically tested. At the moment empirical testing takes place without a realistic analytical foundation. Not only the neoclassical school, but also other groups,such as the Institutionalists, the Austrians, the social economists, the behavioural economists, and the economic sociologists – they all design empirical tests of essentially partial analysis. Because all these schools work on a particualr aspect, they all have some success now and then. For economics as a whole, this is very unsatisfactory. All these schools never communicate with each other, and many researchers are not even aware of the partiality of their own approach. Some approaches dominate the scene, and get the most of the budgets available, while other approaches are barely paid by collective means – just voluntary work by inspired people. This undemocratic situation should stop, and scientific discourses between the different schools should be organized. It will definitely lead to a significant quality boost.

Conclusion

Scientists should not work together with people with an interest, which differs from the true scientific interest: a disinterested search for truth. Of course, science will always be an instrument in the hands of people. Of course, the question whether it works, is an important one. But the university is the only place in the world where the very long time common interest should count.

Reference: Piet Keizer (2015), Multidisciplinary Economics, A Methodological Account, Oxford: Oxford University Press.

———————————————————————————

Piet Keizer

Associate Professor of Economic Methodology

Utrecht University School of Economics

17-04-2015.

[1] In Keizer (2015) an attempt is made to formulate these three worlds, including an integration of the three worlds.

[2] In orthodox economics also organizations are considered as markets. It goes without saying that in a multidisciplinary approach organizations have their own distinctive place in the analysis, of course.

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