Interrogating Sickonomics, from Diagnosis to Cure: A Response to Hodgson

Abstract

Hodgson's review of our books argues against us that marginalism neither adopted methodological individualism nor excluded the social from economics. Thus, he finds a partial solution to sickonomics in abandoning the term methodological individualism and using both structures and individuals as analytical starting point(s), revisiting Marshallian marginalism dressed up in socio-institutional clothing. He also denies any relationship between the current malaise in economics and the marginal revolution, as we claim, focusing exclusively on institutional developments since the Second World War. We show Hodgson is either partial or wrong on all of these counts. Firstly, his alternative to methodological individualism is untenable. Secondly, institutions, although implicitly present in Marshallian and Walrasian economics, play no substantive analytical role and as such are superfluous. Finally, although institutional factors help explain the sickness of modern economics (in addition to socioeconomic, ideological, political, and intellectual factors), the intellectual roots of this decay lie in the conceptual framework established around the marginal revolution.

Keywords:

• methodological individualism
• marginal revolution
• formalism
• institutions
• market

Notes

For other assessments, see Historical Materialism (in press).

Hodgson has abandoned his (Sraffian) deductivist value theory without replacement as if institutionalist evolutionism was sufficient surrogate for an explanation of capitalist commodity relations. See Fine and Harris (1976, 1977), Hodgson (1977), and the following.

See Fine (2011a).

Hodgson (364) is simply wrong to suggest that we do not acknowledge “the hugely varied uses of the term [methodological individualism] by its exponents.” On several occasions, we took care to distinguish among the “psychological” or “instrumental” individualism of neoclassical economics (Milonakis and Fine 2009: 264), the “subjectivist individualism” of Austrian economics (264), the “institutional individualism” of J.S. Mill (28–29), and the methodological individualism of the Schumpeter and Weber varieties (200–202).

As also referenced by us alongside a similar point as made as long ago as in Fine (1980).

Of course, there might be a strategic case for Hodgson's posture, a means of weening neoclassicals off its putatively traditional and unadulterated individualism. This is one way of seeing the conciliatory approach of Colander and others, but it is highly controversial (see inter alia Davis 2006; Colander 2010. For critiques, see Lee, in press; Milonakis 2009; Milonakis and Fine 2009, ch. 15).

For North (1981: 5), in the neoclassical frictionless world “institutions do not exist,” while, for Rosenbaum (2000: 459, drawing on Debreu 1959), the Walrasian general equilibrium theory is “devoid of any institutional, spatial or social features.”

Note, though, that Hodgson's explanation is weak and unconvincing. It avoids the economy and why economics should be different from other disciplines subject to the same influences.

More generally, Hodgson seems to have overlooked our emphasis upon the “historical logic” of economics imperialism. This is founded on the putative universal applicability of the principles of marginalism in principle and in practice following the formalist revolution.

By way of counter-criticism, Hodgson's own institutionalism in addressing markets is deficient for neglect of the capital, class, and value to which they are (or are not) attached. For a striking illustration, see his “institutional and evolutionary perspective on health economics” in which “capital(ism)” fails to appear at all. His critique of neoclassical health economics totally overlooks the longstanding and prominent political economy (and social determinants) of health literature that both focuses on the imperatives of capitalism and does deal in issues that he falsely claims to have been neglected (as well as reducing these himself to bland asocial determinants “a universal need … largely involuntary, varied and idiosyncratic … and the extent of transaction costs in any market-based system” [Hodgson 2008: 235]). See Fine (2011b), including an account of where this leads when social capital is the institutional form putatively underpinning health.