The Future of Economics in a Lakatos–Bourdieu Framework

Abstract:

The global financial crisis has clearly been a matter of great consternation for the business-as-usual faction of mainstream economics. Will the World Financial Crisis turn out to be that experimentum crucis that triggered a scientific revolution? In this article, we seek to assess the likelihood of a paradigm shift toward heterodox approaches and a more pluralist setting in economics emerging from the academic establishment in the United States—that is, from the dominant center of knowledge production in the economic discipline. This will be done by building the analysis on a combined Lakatosian framework of “battle of research programs” and a Bourdieuian framework of “power struggle” within the academic field and highlighting the likelihood of two main proponents of the mainstream elite to become the promulgator of change.

Keywords::

• Paradigm
• heterodox economics
• scientific revolution

Notes

The orthodox wisdom to which Keynes was referring is neoclassical marginalist theory, which was developed at Cambridge University by the political economist Alfred Marshall and his successor, Arthur Cecil Pigou, and later refined and integrated into general equilibrium theory. Today this theory is known as the mainstream view or the benchmark model.

In the United States, the “old institutionalists” were quite strong (Yonay 1998), and even Cambridge University—at the time, the stronghold of orthodox economics—nearly fell into the hands of the Historical School when it came time to select a successor to Alfred Marshall. That Arthur Cecil Pigou was appointed chair—and not H.S. Foxwell, who closely associated with members of the Historical School—was most likely attributable to Alfred Marshall’s having directly intervened in the hiring process. For more, see Coase (1994: 151ff.).

A number of prominent economists, including Gerard Debreu, Milton Friedman, and John Kenneth Galbraith, spent time as guest researchers at Cambridge University. Cambridge University also boasted a large number of extremely renowned teachers in economics, including Henry Sidgewick, Inglis Palgrave, Herbert S. Foxwell, John N. Keynes, Alfred Marshall, Arthur C. Pigou, John M. Keynes, Joan Robinson, Dennis Robertson, and Richard Kahn.

From the early 1930s to his death in the mid-1940s, Keynes was by far the most cited macroeconomist throughout the world; see Snowdon and Vane (1997: 4–5).

John King (2002: 139) speaks of “the unchallenged authority possessed in the 1930 s by the Economic Journal.”

The most explicit proponent of orthodox theory, Keynes’s colleague Arthur C. Pigou, clung tenaciously to the thesis—despite empirical evidence to the contrary—that nominal and real wages merely needed to continue falling in order to bring about full employment (1941).

See Hutton (1986), who speaks of a “revolution that never was.”

Joining (standard and neo-)Keynesian and neoclassical economics in a single paradigm becomes clearer after closer inspection, which will be done below. As shown by Davidson (1992), the substance of the common paradigmatic placement is unfaithfulness in using the label „Keynesianism.“

Though I prefer Lakatos’s model to Kuhn's, I continue to use the terms “paradigm” and “paradigm shift” because they are more succinct than “research program.” To one referee, my preference for Lakatos over Kuhn was not convincing as he maintains that the Kuhnian approach is better on addressing the incommensurability between paradigms. Although this may arguably be the case, my focus is not incommensurability between paradigms, it is the emergence of a social science possibly involving paradigmatical shifts (and, as has been argued in the case of economics, backward shifts or “counterrevolutions,” which are alien to the Kuhnian concept). I hope to show that the Lakatosian approach of “battling paradigms” goes well with the Bourdieuian approach of “power struggles.”

A theory or approach can generate paradigmatic competition if, by positing alternate assumptions or introducing ad hoc assumptions, it is capable of delivering new, falsifiable prognoses (ex ante) or at least explaining existing anomalies within a research paradigm (ex post).

Looking back historically, the economic crisis of the 1930 s or even the current global financial crisis may well prove to be experimenta crucis for the further development of the field of economics. But they cannot be portrayed as anomalies that necessarily lead to the instant overthrow of orthodox wisdom such as the dynamic-stochastic general equilibrium model.

This is true on the one hand because social reality is also socially constructed, that is, it does not exist independent of our perception, which is merely influenced by economic models. And this is true on the other hand because falsification is not possible in nonexperimental sciences. Ceteris paribus hypotheses can at best be falsified. Ultimately, the Duhem–Quine thesis exposes the methodological limits of the empirical assessment of purely theoretical predictions (see Cross 1982).

If one accepts Feyerabend’s critique of Lakatos—namely, that his categorization into progressive and degenerative research programs is not logical, and that, accordingly, a “rational: selection of research programs cannot deliver an acceptable basis for investigation—then the calls for pluralism become all the more important (Feyerabend 1975: 27–28). This view is particularly prevalent among constructivists who study the sociology of scientific knowledge (see Yonay 1998: 218ff.).

Feyerabend describes this monistic understanding as follows: “More than one social scientist has pointed out to me that at last he has learned to turn his field into a ‘science’—by which of course he meant that he had learned how to improve it. The recipe, according to these people, is to restrict criticism, to reduce the numer of comprehensive theories to one, and to create a normal science with this one theory as its paradigm. Students must be prevented from speculating along different lines and the more restless colleagues must be made to conform and ‘to do serious work’” (Feyerabend 1970: 198).

Here, as well, we find the three necessary conditions for a “counterrevolution”: Milton Friedman as a driving force and influential personality; the University of Chicago as an institutional vehicle; and the stagflation of the 1970 s, which triggered the crisis in Keynesian economics.

The hegemonial ability of elite U.S. universities to similarily advance a scientific discipline and to enforce standardized views in various fields of research is rarely contested (see Graham and Diamond 1997; Lebaron 2006: 92ff; Rosser, Holt, and Colander 2010) and has been put forward as early as the 1970s (see Deutsch, Platt, and Senghaas 1971). Mata (2009) points out the importance of U.S. elite universities (namely, Harvard) in promoting heterodox issues on the one hand and the efforts of the mainstream community to hold these strongholds, on the other. Colander and Klamer (1987) and Colander (2007) demonstrate the mainstream orientation of the elite U.S. universities of which Klamer (2007: 230) writes: “If anything, the discipline has become more homogeneous, more single-minded, more hard-nosed about the science of economics and hence less heterogeneous and arguably less intellectually exiting.”

The terms “saltwater” and “freshwater” refer to the intellectual divide in the field of economics between universities on the East and West Coasts of the United States (Columbia, Harvard, Princeton, Berkeley, Stanford, and Yale) and those around the Great Lakes (particularly the University of Chicago and Carnegie Mellon University). These two geographic poles reflect the lines of tension between the Keynesian and neoclassical perspectives much better than the terms “revolution” and “counterrevolution.”

In addition to the criticism directed at such dualism, the static nature of classificational categories is also regularly reproached, as failing to capture the complex variation inevitably manifest in the field of intellectual endeavor (see Colander, Holt, and Rosser 2009). Yet this accusation cannot be leveled against the classification scheme proposed here.

For the problems surrounding the application of Lakatos’s method to economics, see Cross (1982).

Accordingly, both approaches are found in modern textbooks, where a distinction is made between short-term forecasts (the neo-Keynesian model) and long-term forecasts (the neoclassical model). For more, see Abel and Bernanke (2005); and Blanchard (2006).

When certain assumptions are shown to be invalid (rationality, say), economists confirm their loyalty to the mainstream by asserting that contradictory findings are not universally applicable (see Smith 2003: 505), or by explicitly stating that such findings are intended as a supplement to the mainstream, not an alternative: “The objective [of behavioral economics] is definitely not to criticise the standard economic model, or accentuate the negatives” (Cartwright 2011: 4).

In a tour de horizon, Diane Coyle (2011) portrays the development of mainstream economics from its classical and neoclassical foundations to its newest variations showing that this implied little change in its core assumptions, yet brings back “soul” and “meaning” to an economic science that had been termed “dismal” by others. DSGE dissenters serve as functional bolster against criticism.

On the relationship between the mainstream and its dissenters, see Vernengo (2010: 392).

Critical neoclassicism has a special status in this connection. Heuristically and axiomatically identical to DSGE, critical neoclassicism abandons positivism in favor of normativity (particularly with a view to distribution and the ownership of production factors) (see Vogt 1986). Due to the heuristic, axiomatic, and at least partial methodological proximity to DSGE, this theoretical school is generally not considered a “heterodoxy” (see Hickel 1986). In certain cases, “critical neoclassicism” is so broadly defined that it is difficult to distinguish it from neo-Keynesianism (see Schneider 1988).

One referee claimed that I repeatedly implied that the distinction between orthodox and heterodox approaches boils down to differences in axioms—something he believes to be alien to heterodox economics. Although I tried to make it clear that the classification scheme is based on three dimensions and the epistemological dimension being only one of these three dimensions, where the heuristic dimension is most important as it defines the necessary distinction mark, I would certainly not subscribe to any view that associates economic heterodoxy exclusively with a rejection of an axiomatic core and deductivist reasoning implying that economics as a science ought to still be in a preparadigmatic stage.

The idea that the establishment of a true paradigmatic alternative implies a rejection of Walras’s law was first put forward by Robert Clower (1965). Yet long before, “heterodox” economists such as Karl Marx and Thomas Robert Malthus had questioned the predecessor to Walras’s law, Say’s theory of markets. See Mishan (1963) for more on the relationship between Walras’s law and Say’s theory.

Namely, we would have to have a one-good world (such as Ricardo's corn economy) or make special assumptions about the capital intensity of the subsistence good industry and all of its input producers. But neither of these scenarios is particularly realistic.

On the other hand, some attempt to explain the global financial crisis using the mainstream paradigm; naturally they reject the notion that economics is experiencing an existential crisis. See, for example, Lucas (2009), Cochrane (2011), Minford (2010), and Bernanke (2010).

In this regard, see the numerous contributions published since 2007 in heterodox journals such as the Real-World Economics Review, the Cambridge Journal of Economics, the Review of Radical Political Economics, the Journal of Post Keynesian Economics, and the Journal of Economic Issues.

This covers influential converts from the mainstream to the heterodoxy as well as “prestigious members of the economics profession” who actively support plurality and diversity—without such support, the University of Massachusetts/Amherst could not have become a hub of heterodoxy in the 1970s; see Katzner (2011: 108–21).

This will be done by a brief overview of their lives and achievements in order to account for their respective positions in the field of academic economics. Of course, a deeper Bourdieuian analysis would have to provide much more information in order to descibe more appropriatly their habitus and doxa as in Bourdieu (1990).

De jure, the “Nobel Prize in Economics” is not a “Nobel Prize” as it is not awarded by the Nobel Prize committee in Oslo but by the Swedish Central Bank in Stockholm and is offically called “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.” However, in common parlance, the award’s name has been shortened to “Nobel Prize in Economics.”

On the symbolic capital associated with the Nobel Prize in Economics, see Lebaron (2006).

Actually, Stiglitz was fired from his post as chief economist at the World Bank because he became too critical about the neoliberal politics of the IMF and, indeed, the World Bank itself; see Chang (2001: 3); Pressman (1999: 306ff.).

Interestingly, much of this has been left out in the revised version of his Nobel Prize speech published in the American Economic Review (see Stiglitz 2002c: 486–87).

However, there is a lack of consistency, clearness, and credibility in Krugman’s argumentation, which stems from the fact that he contradicts himself regularly—see, for example, Krugman (1998b) where he defends formal deductivism as a dominant methodology in economics against critics.

Cochrane writes, “Krugman isn’t trying to be an economist: he is trying to be a partisan, political opinion writer … if you do not regard economics as a science; a discipline that ought to result in quantitative matches to data; a discipline that requires crystal-clear logical connections between the ‘if’ and the ‘then,’ … then his writing makes sense” (2011: 39).

Krugman's high opinion of Keynes is particularly evident in his forward to the new American edition of the General Theory.

The only heterodox source that Eggertsson and Krugman cite is Minsky (1986), and here we find only passing mention. As Palley (2013) correctly observes, this approach is all too common among defenders of the mainstream who endorse a heterodox viewpoint but then co-opt the critique by incorporating it into the dominant paradigm. Such economists attempt to establish their heterodox credentials by citing standard sources such as Minsky, yet they fail to acknowledge studies that elaborate on these standard sources, and demolish the mainstream approach. While Krugman's work points toward the need for a revolution in economic theory, closer inspection reveals that this revolution ought to be avoided. Krugman's calls for change might be characterized as “rearranging the deck chairs on the Titanic.” Tellingly, Krugman’s response to a friendly article about the heterodox economist Wynne Godley in the New York Times (see Schlefer 2013) shows little knowledge of his work and takes a rather hostile position (see Krugman 2013).

Christopher Sims and Thomas Sargent, who received the Nobel Prize for their work on cause and effect in macroeconomics, purport to demonstrate that political intervention is ineffective.

Lebaron (2006) shows with reference to Gunnar Myrdal that not even the Nobel Prize safeguards against marginalization in an academic discipline.

In this, both are different from other potential “insider” critics of mainstream economics who are careful about their heuristic affiliation with mainstream economics and whose critique has been labeled as “organized hypocrisy” (Vernengo 2010: 390).

There is some evidence that university regulations advocating diversity were, at least, helpful in hiring the so-called radical package at the University of Massachusetts/Amherst in the early 1970s; see Katzner (2011: 118).

The Institute for New Economic Thinking (INET) funded by George Soros appears to be based on these considerations. However, the very limited resources of INET can certainly not balance the economic capital position of heterodox economics with the mainstream assuming that INET really focuses on what has been classified as “heterodox” here—which has been called into question recently (see Haering 2014).

Additional information

Notes on contributors

Arne Heise

Arne Heise is a Professor, Department of Socioeconomics, University of Hamburg, Germany