File spoon-archives/bhaskar.archive/bhaskar_2003/bhaskar.0309, message 9

Date: Sat, 13 Sep 2003 20:55:48 -0500
Subject: BHA: Re: Why Neoclassical Economics Explains Nothing At All

It has been nearly 10 months, and I am finally renewing this. My 
initial approach was not the most efficient way to critique the 
essay. I am trying another.

Fleetwood's essay "Why Neoclassical Economics Explains Nothing At 

gets off on the wrong foot and does not recover.

Neoclassical economics (NCE) provides a theory of price. In the long 
run, according to NCE, price is determined primarily by supply and 
demand, but also by other variables. Price in the labor market is no 
exception. NCE practioners claim the ability to predict prices, given 
knowledge of certain other variables. The accuracy of predictions 
based on NCE has empirical support.

Fleetwood says that this is of no importance, so long as explanation 
is concerned. Explanation is special. Beyond the ordinary, common man 
usage of the word "explanation," Fleetwood insists that an analysis 
that properly suffices for explanation cannot provide merely 
efficient causality, is not prediction, and does not allow known 

The term "explanation" has many definitions, including that 
maintained by Fleetwood. People who are never exposed to modern 
science may believe that during an eclipse, the moon is eating the 
sun. Albeit false, such a statement would constitute an explanation 
in the most general sense of the word, if not in Fleetwood's. Even if 
NCE were thought to be pure mythology, it could provide explanations.

Thus, NCE may indeed be explanatory, even if it is not explanatory in 
the special sense required by Fleetwood. It is tempting to say that 
Fleetwood's analysis is merely academic gamesmanship, but it is not. 
His larger, if unstated, point is that alternatives to NCE exist that 
purport to explain related subject matter, and may be explanatory in 
the special sense of "explanation" maintained by Fleetwood. These 
heterodox economic theories address a subject matter related to that 
of NCE, to wit, political economy. 

In that heterodox economics is poorly funded, and NCE richly funded, 
a fundamental unfairness has arisen, he implies. This unfairness is 
only explainable as a terrible political bias that must be rectified 
as a matter of justice.

But NCE's crown jewel is its theory of price, not its theory of 
political economy. The heterodox theories do not directly address the 
theory of price. Where they both do address the theory of price, as 
anyone skilled in both arts would say, NCE's theory of price is 
superior. No one educated in both NCE and heterodox theories would 
rely on any heterodox theory or theories to "explain" why a 
basketball player who scores 30 points per game is paid more than one 
who scores 5 points per game. The answer is obvious, and provided by 
NCE. The higher-scoring player is paid better because market demand 
for his services is greater than that for the lower-scoring player. 
No economist would refer to the history of the three-point line or 
the labor struggles of the player's union to understand this.

Thomas Kuhn said that an old and grizzled academic paradigm, riddled 
with holes and fallacies, would continue to predominate until a 
better paradigm of the same subject matter were introduced. At that 
time, the old paradigm would be replaced with the newer. 

Perhaps it is right to say that NCE is old, grizzed, and riddled with 
holes and fallacies. It is wrong, however, to say that some other, 
better theory that concerns itself with the same subject matter has 
been introduced. It is true that heterodox economics offers insights, 
historical and otherwise, that NCE does not provide. Heterodox 
economists usually concern themselves with different subject matter 
than their neoclassical brethren.

This commentator feels it is highly improbable that heterodox 
economics will ever evolve to concern itself with the same subject-
matter that NCE concerns itself with. Specifically, price will never 
be anything more than an incidental concern to heterodox economists. 
NCE and heterodox economics are not truly rivals.

Conclusions and inferences may be drawn from Fleetwood's paper. 
First, heterodox economics is valid "explanation" in a sense that NCE 
is not, even though heterodox economics is not a replacement paradigm 
for NCE. Second, heterodox economics, to be better funded, should 
seek to create a new academic department, entirely separate from that 
of NCE. Many have stated that devoting more attention and resources 
to heterodox economic study would prove worthwhile. Carving out a new 
department would achieve that goal.

There is no use in attempting to attack NCE with heterodox economics. 
Heterodox economics should stand down from that battle and undertake 
a direction all its own. In this way, the funding and resources of 
institutions may be secured.

One final point. In my estimation, it would be easier to secure 
status as a new department by dropping the word "economics." Calling 
the new discipline something like "sociohistory" might work.

Andrew Hagen

On 19 Dec 2002 at 14:51, Andrew Hagen wrote:

From:           	Andrew Hagen <>
To:             	"Fleetwood, Steve" <>,
Date sent:      	Thu, 19 Dec 2002 14:51:40 -0600
Subject:        	Re: BHA: RE: Re: Why Neoclassical Economics Explains Nothing At All
Send reply to:

> Thank you for your excellent commentary. Please excuse my extreme
> sluggishness to respond. I still plan to. 
> Andrew
> On 10 Dec 2002 at 18:22, Fleetwood, Steve wrote:
> > Dear Andrew
> > 
> > Thanks for your comments. I am quite happy about receiving critical 
> comment -
> > in fact, I wish other NC economists would actually bother to reply 
> to heterodox
> > economists more often. Their preference seems to be to just ignore 
> it. Anyway,
> > I hope you allow me to sketch a couple of replies.
> > 
> > First, this is a very short article that reproduces many arguments 
> that have
> > been made by myself and many others in more depth elsewhere. I can 
> supply the
> > references if you are really prepared to develop an elaborate 
> critique.
> > 
> > Second, I do not mention whether NCE is scientific or not. This 
> would entail a
> > discussion of what constitutes science. I criticise NCE for being 
> rooted in a
> > positivist philosophy of science and a deductivist method because 
> this
> > philosophy and method are flawed.
> > 
> > Third, I do not require perfect accuracy (whatever this really 
> means). 
> > 
> > Fourth, whilst I do want a theory to be descriptively adequate, I 
> have no
> > requirement that  such a description will reflect the world in all 
> its infinite
> > detail. What I object to are models (be they neoclassical, 
> Austrian, Marxist,
> > Institutionalist, Post-Keynesian or whatever)  that are 
> descriptively
> > inadequate. By this I mean models that are so jam-packed with (self 
> evident,
> > and known) fictitious claims, that they bear no resemblence to the 
> reality thay
> > are meant to 'describe'. Some economic theories do possess 
> descriptive adequacy
> > but, to the best of my knowledge, they are not rooted in positivism 
> and
> > deductivism and so are free to pursue other goals. Whilst one does 
> not have to
> > agree with all the theoretical pronouncements of the following 
> theory, Hayek's
> > theory of the market, is a case in point. If  a 'scientific' theory 
> does not
> > (a) explain and (b) describe the slice of reality it deals with, 
> then surely we
> > can, legitimately ask: What is it for? 
> > 
> > Fifth, I do not argue that NCE has a few problems and these amount 
> to it
> > lacking explanatory power. I do argue that it lacks explanatory 
> power and this
> > is a big problem. All theories, of course, have problems vis-a-vis 
> anomolies
> > and unsolved puzzles.
> > 
> > Sixth, you assert that NCE has successes but don't indicate what 
> these are.
> > When NC economists say things that are reasonable, it us usually 
> when they are
> > 'on their holidays' as it were, that is, they say things that are 
> not derived
> > from their theoretical position. Robert Solow,  for example, in his 
> book The
> > Labour Market as a Social Institution, makes many sensible points. 
> The problem
> > is, however, the moment his 'holiday' is over and he gets back to 
> NC work, he
> > has to leave all these points behind because they cannot be 
> accomodated within
> > his meta-theory. A theory that has weak predictive power (which I 
> am just
> > asserting here for reasons of time), weak explanatory power, and 
> weak
> > descriptive power is a candidate for being labelled a failure. 
> > 
> > Seventh, I am not sure why my claim that NCE is rooted in 
> deductivism is an
> > inductive 'argument'. I am not sure if it is an argument at all. It 
> is an
> > observation. In one paper I surveyed the literature on trade union 
> modelling,
> > and concluded that almost all of the papers on TU modelling are 
> rooted in
> > deductivism. This is an observation not an argument. It would be an 
> inductive
> > argument if I went on to say ....and because of this, all future TU 
> models will
> > be rooted in deductivism, but of course, I don't say this.
> > 
> > Eighth, I don't get the point abut the 504 equations in an obscure 
> book.
> > 
> > Ninth, I fully endorse your pluralistic approach to economics. The 
> only problem
> > is, it does not work for heterodox economists. For reasons related 
> to the
> > sociology of the academic community, a gate-keeping process is now 
> in place.
> > Those who are not prepared to use formal techniques, econometrics, 
> game
> > theoretica approaches or other positivist/deductivist 
> paraphernalia, simply
> > will tend not bet published in mainstream journals. Because of 
> this, (a feature
> > exaccerbated by the RAE) they tend not get hired in economics 
> departments. To
> > show that this is not just 'bad eggs' on my part, ask your self 
> this: Would
> > Hayek, or Kaynes get published in today's 'top' journals? They 
> eschew
> > formality, econometrics and game theory etc. 
> > 
> > Tenth, your point on tendencies is the most serious charge you 
> level against
> > me, so let me address it at length with a comment on Marx's use of 
> tendencies -
> > which I defend against the loose understanding of tendency as a 
> kind of rough
> > and reagy empirical regularity.
> > 
> > It is well known that Marx conceives of laws in terms of 
> tendencies. In
> > discussing the tendency for profit rates to equalise, for example, 
> he suggests
> > that this equalisation be 'viewed as a tendency like all other 
> economic laws'
> > (1984: 175 emphasis added). Moreover, the conception of law as 
> tendency has
> > permeated much Marxist economics ever since. The problem, however, 
> is that the
> > exact meaning of the term 'tendency' within the Marxist canon is 
> ambiguous.
> > Marx himself left few clues, and whilst latter day Marxists have 
> discussed
> > tendencies, most discussions have taken the form of (often not un-
> illuminating)
> > asides to other issues. As MacBride puts it: 
> > 
> > 		These laws [i.e. tendencies] are, presumably, nothing but
> > accurate high-level generalisations concerning a wide range of 
> phenomena
> > (although, to be candid, the failure to say very much about the 
> meaning of the
> > term 'law' as he uses it is one of the most gaping lacunae in 
> Marx's all too
> > brief discussions of methodology.
> > (1977; 59. See also 123-6)
> > 
> > Whilst it will become clear below that it is misleading to refer to 
> tendencies
> > as 'high level generalisations', MacBride's instinct is essentially 
> correct:
> > there has been a failure to develop a systematic, explicit and 
> unambiguous
> > conception of tendency in Marxism. Ruben sees no future in the 
> critical realist
> > attempt to disentangle law from tendency, being:
> > 
> > 		genuinely worried that the tendency v. empirical regularity
> > debate, if pushed hard enough, might well collapse into little more 
> than a
> > quibble about the use of the term 'law'. 
> > (1979: 207)
> > 
> > Far from a mere 'quibble', the tendency v. empirical law debate is 
> instructive
> > in illuminating just how critical realism can place the notion of 
> tendency on a
> > more secure footing than it is now, and therefore, demonstrate how 
> critical
> > realism can add to Marxist theory without taking anything away. To 
> do this, I
> > take the following issues as read. 
> > 
> > Critical realists reject (a) event regularities, and hence (Humean) 
> laws styled
> > as 'whenever event x then event y', as most unlikely features of 
> social reality
> > and (b) the (Humean) notion of causality as event regularity. The 
> critical
> > realist is, therefore, free to (i) seek the cause of an event in 
> something
> > other than the event with which it is (allegedly) conjoined, and 
> (ii) to employ
> > a notion of causation as powers of forces. Attention thus turns 
> away from the
> > flux of perceived and actual events towards the mechanisms, social 
> structures,
> > powers and relations that causally govern these events. Thus is the 
> ontology
> > referred to as stratified: underlying the domain of the empirical 
> are the
> > domains of the actual and the 'deep'. Because of the openness of 
> socio-economic
> > systems, results, consequences, or outcomes cannot be successfully 
> predicted
> > but the mechanisms, social structures, powers and relations that  
> causally
> > govern the flux of events can, however, be uncovered and explained. 
> Explanation
> > usurps prediction, as the goal of science. Explanatory content 
> provides a
> > criterion for evaluating theories. One can now understand my reason 
> for calling
> > the method 'causal/explanatory'. To explain a phenomenon is to give 
> an account
> > of its causal history (cf. Lipton 1993; 33). Significantly, this 
> account is not
> > couched in terms of the event(s) that just happens to precede the 
> phenomenon to
> > be explained, but in terms of the underlying, mechanisms, social 
> structures,
> > powers and relations that causally govern the phenomenon. The 
> following section
> > puts these critical realist categories to work to elaborate a 
> sophisticated
> > notion of tendency.
> > 
> > Structures, powers, mechanisms, relations and tendencies
> > A complex entity possesses an intrinsic structure (or combinations 
> of
> > structures) which makes it the kind of thing it is and not another 
> thing. The
> > structure also endows the entity with dispositions, capacities, 
> potentials,
> > abilities to act in certain ways. In short, the structure endows 
> the entity
> > with powers to do certain things, but not others. And powers may be 
> possessed,
> > exercised or actualised.
> > 
> > a)	A power is possessed by an entity in virtue of its intrinsic 
> structure,
> > and this power endures whether or not it is exercised or 
> actualised. The power
> > acts transfactually.
> > 
> > a)	A power exercised is a power that has been triggered, and is 
> generating
> > an effect in an open system. Due to interference from the effects 
> of other
> > exercised powers, however, one can never know a priori, what the 
> outcome of any
> > particular power will be. The exercised power acts transfactually.
> > 
> > a)	A power actualised is an exercised power generating its effect 
> in an
> > open system. The power is, however, not deflected or counteracted 
> by the
> > effects of other exercised powers. The actualised power does not 
> act
> > transfactually but factually in the sense that the power generates 
> its effect
> > constantly.
> > 
> > Let us consider these distinctions in a little more depth via the 
> simple
> > example of a bicycle.
> > 
> > a)	Once structures such as wheels, frame, saddle and handlebars are
> > combined to form a bicycle, this entity possesses the power to 
> facilitate
> > transportation. This power endures even if the bicycle remains 
> locked in a
> > garden shed.
> > 
> > a)	A person may exercise the power by bringing the bicycle out of 
> the shed
> > and mounting it - i.e. a person triggers the power. However, due 
> (say) to
> > excessive alcohol consumption, strong head winds or steep 
> gradients, the effect
> > may not be the transportation of a cyclist from A to B. In this 
> situation, the
> > bicycle's exercised power is being deflected or counteracted by 
> interference
> > from other exercised powers.
> > 
> > a)	A person may actualise the (exercised) power and successfully 
> cycle
> > from A to B. The bicycle's power is not being counteracted by any 
> other powers
> > such as alcohol, strong head winds or steep gradients.
> > 
> > With this understanding of structures and powers, let us move on to 
> the related
> > issue of mechanisms. According to Lawson (1998: 21):
> > 
> > 	A mechanism is basically the way of acting or working of a 
> structured
> > thing... Mechanisms then exist as the causal powers of things. 
> Structured
> > things...possess causal powers which, when triggered or released, 
> act as
> > generative mechanisms to determine the actual phenomena of the 
> world.
> > 
> > The key to understanding the critical realist conception of a 
> mechanism (and
> > eventually tendency) lies not with the notions of a power possessed 
> or
> > actualised, but with the notion of a power exercised. A possessed 
> power is
> > (relatively) uninteresting because it generates no effects. An 
> actualised power
> > is (relatively) uninteresting because it is only in special 
> circumstances that
> > an exercised power is not interfered with. A power exercised, 
> however, is one
> > that has been triggered, is generating effects, is acting 
> transfactually, and,
> > as will become clear in a moment, is involved in generating 
> tendencies. Being
> > triggered is, typically, a complex process requiring that the 
> entity enters
> > into a web of relations with other relevant entities. A bicycle 
> exists in
> > relations to a shed wall, a road, sky, grass, wind, hills, gravity, 
> cyclists
> > (drunken and sober) and so on. If the bicycle enters into 
> appropriate
> > relations, (e.g. with a sober cyclist) its power is triggered, and 
> becomes an
> > exercised power.
> > 
> > It appears that the term mechanism is a label we apply to the 
> ensemble of
> > structures, powers, and relations. Once a specific set of intrinsic 
> structures
> > combine to form an entity with a power, and this entity enters into 
> appropriate
> > relations with other entities, the power is triggered and becomes 
> an exercised
> > power, whereupon a tendency is generated. When we write that a 
> mechanism has a
> > tendency to x, this is, strictly speaking, inaccurate: it is the 
> ensemble that
> > has a tendency to x, and we should write that the ensemble of 
> structures,
> > powers and relations has a tendency to x. Re-working Reuten's 
> (1997: 157)
> > terminology we might say that the tendency 'belongs' or is 
> 'attached' to the
> > ensemble - not merely to the mechanism, or to the power.
> > 
> > Now, to write that an ensemble has a tendency to x, does not mean 
> that it will
> > x. In an open system, ensembles do not, typically, exist in 
> isolation from one
> > other, rather there are a multiplicity of ensembles, each with 
> their own
> > tendencies and these tendencies converge in some space-time 
> location. The
> > actual outcome of this confluence of tendencies is impossible to 
> predict a
> > priori. The tendency for bicycles to facilitate transportation, for 
> example,
> > depends upon the existence or absence in the same space-time 
> location of other
> > tendencies such as the tendency for alcohol in the bloodstream to 
> cause
> > dizziness; the tendency for steep slopes or strong head winds to 
> reduce forward
> > momentum and so on. This is why a tendency acts transfactually. 
> >  
> > A tendency then, metaphorically speaking, is akin to a force. When 
> we think of
> > a force we think of terms like: drive, propel, push, thrust, 
> pressure and so
> > on. The term 'tendency' relates not to any results, consequences, 
> or outcomes
> > of some acting force, such as a regularity or pattern in the 
> resulting flux of
> > events. The term 'tendency' refers to the force itself.
> > 
> > Now, I frequently encounter Marxists who opine that they too 
> operate with
> > tendencies and not laws: moreover, they do so without any help from 
> critical
> > realism. When the conversation gets a little deeper, however, it 
> soon becomes
> > clear that they are operating with a notion of tendency along the 
> lines of some
> > kind of loosely operating (Humean) law. From the critical realist 
> perspective,
> > the interpretation of tendency as some kind of loosely operating 
> (Humean) law
> > is, arguably, mistaken. Explaining the origin of this mistake is 
> made easier by
> > considering several commonly held (mis) interpretations of the term 
> 'tendency'.
> > *	A tendency can be interpreted as a statistical trend such as: 
> profits
> > tend to fall over time. One might style this as 'Whenever event x 
> (i.e. passage
> > of time), then event y'.
> > *	A tendency can be interpreted as a high relative frequency of a 
> given
> > sub-set of a class of possible events, such as: if the organic 
> composition of
> > capital increases, there is some probability that the rate of 
> profit will
> > decline. We might style this as: 'whenever event x, then event y 
> under some
> > well defined probability condition' 
> > *	A tendency can be interpreted as a counterfactual claim about 
> what
> > would come about under certain closure conditions such as: if the 
> organic
> > composition of capital increases, the rate of profit will decline 
> ceteris
> > paribus. We might style this as 'whenever event x, then event y 
> under
> > conditions z'.
> > *	A tendency can be interpreted as a constant conjunction of events 
> that
> > holds with some unspecified regularity: a kind of loosely operating 
> Humean law.
> > MacBride (above) refers to tendencies as 'high level 
> generalisations' (1977:
> > 59). We might style this as 'whenever event x, then most of the 
> time event y'.
> > *	A tendency can be interpreted as an expression, outcome or result 
> of
> > some phenomenon such as: 'the capitalist mode of production (CMP) 
> inherently
> > produces an increasing social productivity of labour (prodtt) and 
> this gets
> > expressed in a tendential fall in the rate of profit (r)' 
> (Reuten1997: 160). We
> > might style this as 'whenever events x1 (CMP) and x2 (prodtt) then 
> event y (r)
> > as a 'stylised fact'.
> > 
> > These interpretations are mistaken because they share a (possibly 
> inadvertent)
> > lapse into an empiricist, or more accurately, empirical realist 
> mode of
> > thinking. These interpretations treat a tendency as a result, 
> consequence, or
> > outcome. The term 'tendency' is conceived of as some kind of 
> empirically
> > identifiable, and systematic, pattern in the flux of events. The 
> pattern might
> > be one of: perfect regularity, imperfect regularity, statistical 
> regularity or
> > 'stylised regularity'. The important point to note here is that, 
> contra to
> > critical realism, none of these interpretations identify a tendency 
> with the
> > force itself. 
> > 
> > 
> > I hope I have whetted your apetite to elaborate your critique a 
> little more. 
> > 
> > Regards
> > 
> > Steve Fleetwood
> > 
> > 
> > 
> > 
> > 
> > 
> > 
> >      --- from list ---
> > 
>      --- from list ---

     --- from list ---


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