Modern Economics and its Critics, 1
First Version: September 1996
Revised: February 1998
I have benefited greatly from the comments I received on an earlier draft from Kenneth Arrow, Avinash Dixit, Frank Hahn, Geoffrey Harcourt, Ira Katznelson, Wolf Lepenies, Assar Lindbeck, KarlGöran Mäler, James Mirrlees, Paul Seabright, Gavin Wright, Stefano Zamagni and, most especially, Robert Solow.
*The author is the Frank Ramsey Professor of Economics at the University of Cambridge and Fellow of St. John’s College.
Mailing address: Faculty of Economics, Sidgwick Avenue, Cambridge CB3 9DD, U.K.
Most economists I know have little time for the philosophy of economics as an intellectual discipline. They have even less patience with economic methodology. They prefer instead to do economics. If they are involved in serious methodological discussion at all, it is during the process of conducting economics research or preparing their findings for publication. They do so in the latter stage, for example, and they do so often unashamedly, when commenting on the weaknesses of previous work before saying why they feel their own work is superior.
There is much to be said for this habit. Far and away the most effective criticisms of currentpractice economics that I have read have come from those who themselves have been engaged in research in economics, rather than in its philosophy or, more narrowly, in its methodology. Indeed, I know of no contemporary practising economist whose investigations have been aided by the writings of professional methodologists.
Why has this been so? One reason may be that people who do economics usually know more about the strengths and weaknesses of current-practice economics than those who have neither acquired nor sifted data, nor experimented with alternative theoretical constructions so as to judge which construction is likely to improve upon that which has been explored and which is unlikely to do so. It would have been of no moment, for example, to tell those econometricians in the 1950s who developed the linear-expenditure system for studying consumer behaviour in the United Kingdom that it is a restrictive system: they already knew it, but nevertheless had good reasons for adopting it. This said, I think there is a wider reason, having probably to do with the fact that economic philosophers and methodologists find it difficult to keep abreast of the professional literature in economics. For example, it is a commonplace criticism of modern economics voiced by those who are uncomfortable with it that the subject is becoming increasingly mathematical, indeed, that the gap between economic models and "reality" is ever-increasing. My own experience has been quite otherwise. When I was a graduate student in the mid-1960s, economics appeared far more compartmentalised into the "theory" and "applied" categories than it is today. The cutting edge of theory then consisted of problems of a seemingly esoteric and transparently mathematical kind.1 In saying this I don’t imply criticism. Those investigations yielded technical tools. Training in the use of such tools enabled young economists to work on problems of the "applied-theoretic" kind the analysis of which dominate leading economics journals today.
If my reading of the shift in economics research over the past quarter-century or so is even
For example, even among economic theorists who were not mathematicians, there was much interest in the existence of optimum programmes in infinite-horizon economic models, and in the kind of fixed-point argument that would be required for establishing that a particular economic system possesses a general equilibrium.
approximately correct, it should be a puzzle that modern economics has recently come under attack often virulent attack - from both without and within the profession for its lack of contact with "reality".2 External attack on current-practice...
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