Economics and its soul

I picked up Yuval Yonay’s The Struggle Over the Soul of Economics: Institutionalist and Neoclassical Economists in America Between the Wars in a 2nd hand bookshop, the wonderful Westwood Books in Sedbergh. How could I, the author of The Soulful Science, resist such a title? It’s quite interesting, although you do have to be pretty interested in the history of thought and methodology of economics to read it (cough). It was published in 1998, which I’d say was past the peak of the rational expectations/RBC takeover of economics. Still, there was still plenty of that kind of economic modelling around.

Yonay uses ‘Actor Network Analysis’ to describe the way that particular neoclassical mainstream – which started to take deep root with Samuelson after WW2 – had ousted the institutionalist school in the US. He argues that this latter had remained reasonably strong in the interwar period. (The actor network approach, which is obviously well-known in sociology although not well known to me, is a superior alternative to either Kuhnian or Lakatosian approaches to intellectual history he argues – I leave this to people better qualified than I am.)

I’m not completely convinced by the argument mainly because the book gathers so many people under the umbrella of ‘institutionalist’. Veblen, of course, John Commons and Wesley Mitchell his successors. Both of these were obviously highly influential. Yonay then lists a number of others around the same time whose names were new to me, such as Charles Cooley and Robert Hoxie. He also identifies a later wave of institutionalists, one branch pursuing issues of industrial organisation and labour relations, another the questions of measurement and business cycles: John Maurice Clark, Gardiner Means, Arthur Burns, Simon Kuznets. This category, it seems to me, could be labelled ‘anybody not solely theoretical’.

While it’s certainly true that the status of theory (of a particular kind) in the economics profession grew and grew in the post-war decades, the empirical approaches informed by a deep knowledge of institutional reality were always there, even through the height of the rational expectations, real business cycle revolution. The proportion of top journal articles that were purely theoretical increased until probably around the time Yonay published this book, and has since declined considerably. Institutions now feature big time in economics, economic history and geography are expanding sub-fields, behavioural economics is altering the choice assumptions in economic models, information asymmetries and transactions costs are everywhere. These were the kinds of developments I described in The Soulful Science. Even economic measurement is baaaack now.

Perhaps it will turn out with hindsight 10 years from now that the period from about 1975-1995 was the aberration in economics. It had deeper roots of course – Lionel Robbins gave forceful expression to the ‘neoclassical’ individualist and reductionist approach in 1932 – and it lingers on too, in Chicago and elsewhere. But it would be interesting to see an update of the detailed sociological approach Yonay takes in The Struggle over the Soul of Economics  – as opposed to the usual mud-slinging by some sociology critics of economics who don’t read what most economists themselves do, but assume the bowdlerised version of 1980s and 90s economics still dominant in the policy world remains the intellectual mainstream. Anybody who doubts me should just look at the programmes for the Royal Economic Society or American Economic Association conferences this year. I still contend economics has (regained) its soul.

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Microeconomic theory

A great resource for anyone teaching graduate micro theory – Ariel Rubinstein has updated his text, available for free download if you register your email. I don’t teach such a course but from my less intensive look at the book (I read only the social welfare chapter), it is very clear. And free – good for Princeton University Press for allowing the free e-book download, which is updated annually. For those who really want the physical copy, the 2012 edition is available.

Another of Prof Rubinstein’s books – I liked it so much it won the inaugural Enlightened Economist Prize a few years ago – is Economic Fables, also free to download as an e-book.

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The merit of methodological individualism: individuals count

I’m reading David Olusoga’s Black and British: A Forgotten History, which accompanies the excellent BBC series (& is an amazing bargain at £6 for a big hardback on Amazon at the moment). Just a short way in, I’m delighted to find reference to the true origins of Thomas Carlyle’s description of economics as ‘the dismal science’. Carlyle was, as Olusoga notes, “an apologist for slavery.” He thought economics was dismal because prominent economists were in the abolition campaign, and thereby – in his view – undermining the sanctity of private property rights with their ‘expertise’. This was surely an occasion when the methodology of economics – based on identical, individual agents – was surely on the side of right. There is an excellent detailed essay on this in the Library of Economics and Liberty (in 2 parts).

Cotton Famine Road, above Norden

Cotton Famine Road, above Norden

Among the others on the right side at this time were those Lancashire mill workers who supported the Union blockade of the southern ports in the American Civil War, despite the great personal cost the Cotton famine imposed on them. I hadn’t heard of Cotton Famine Road, despite growing up nearby. Manchester still remembers the episode thanks to the donated statue of Abraham Lincoln. There was a super In Our Time about it a while ago.

Lincoln in Manchester

Lincoln in Manchester

I’ve also enjoyed the book’s demolition of the vile Enoch Powell, a pompous man who prided himself on historical knowledge, as completely unhistorical in his beliefs about the England of yore.

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More on the economics Nobel Prize

A comment on my post reviewing The Nobel Factor by Avner Offer and Gabriel Soderberg asked if the book covers the reasons Joan Robinson was never awarded the prize. There is a passing mention: “In the list of those who were denied the prize, it is difficult not to conclude that Robinson and Galbraith were kept out for ideological reasons.” Other non-winners in contention include, among others, Will Baumol, Zvi Griliches, Albert Hirschman, Moses Abramovitz, Harold Hotelling, Anthony Atkinson, Dale Jorgensen, Partha Dasgupta, Nicholas Kaldor and – the other woman – Anna Schwartz. A mixed bunch, some still alive of course.

I also received an interesting email from Helmut Lubbers, who pointed me to this review of the book from a heterodox perspective. It is of course true that although there has been great variety among the winners, to a degree that you can’t label it 100% mainstream, neither has it rewarded heterodox economists.

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Not so Nobel?

The Nobel Factor: The prize in economics, social democracy and the market turn by Avner Offer and Gabriel Soderberg is quite an interesting read (if for a niche market) but it’s a book of two parts, albeit braided together. One story is about the decline of the solid post-war social democratic consensus in Sweden over the years. The book argues that the creation of the prize by the Swedish central bank was one of the vehicles for ‘the market turn’, which in the UK had the Institute of Economic Affairs and Margaret Thatcher as its institutional vector, and will have had others elsewhere. Perhaps the prize helped the market turn elsewhere. The book concludes: “The existence of a Nobel prize in economics implied that the ‘market turn’ since the 1970s was scientifically grounded, and that it was objectively necessary.”

The other strand of the book looks at the recipients of the economics prize since its launch in 1969. The argument is that the dominance of Assar Lindbeck on the awarding committee meant the kind of economics that was recognised took a market turn of its own in the1990s with the recognition of Robert Lucas, Robert Merton & Myron Scholes, Ronald Coase and Gary Becker. One of the problems with the book’s thesis, however, is that so many of the winners have clearly not been free marketeers. Indeed, the recipients have arguably tended more strongly toward the maverick free thinkers than in the profession as a whole, and there have certainly been many ‘liberal’ (American sense) winners. Think of Herbert Simon, Joe Stiglitz, Paul Krugman, Robert Solow, Robert Shiller, Elinor Ostrom, Amartya Sen, Daniel Kahneman ….. There are a couple of chapters calculating the ideological leanings of the winners, and it shows the left ahead of the right for all but the periond 1990-97. This figures: the high tide of free marketry in the profession was the 1980s, and significant proponents were awarded the prize about a decade later. As the book notes, the character of economics (in the world of research at any rate) has changed substantially since then.

So if anything, these calculations suggest that to the extent the existence of a prize gave economics ‘scientific’ credibility, it was a liberal, institutionalist, historically and psychologically rich kind of economics! The other point is that there are few, if any, winners who would not be acknowledged by other economists (however grudgingly) as significant intellectual pioneers. Even if you disagree with their political leanings or their economic models, the prize is no mickey mouse affair.

In sum, an interesting book for the economics community, but one whose argument did not convince me.

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