How much do current debates owe to conflicting definitions of economics?

Capture d_écran 2017-03-10 à 04.27.59It is not clear to me how the literature on the current state of economics got out of control. The genre is as old as the discipline itself and has grown cyclically with crises. But the last one broke out as the economic blogosphere was taking shape, and this time, the swelling tide of crisis-in-economics articles hasn’t been curbed by a new General Theory or a World War outbreak (yet). Which is why I welcomed Jo Michell’s recent idea of making a typology of econ defenses (and maybe attacks) of economics with the gratitude of a kitesurfer being handed her first F-One Trax Carbon board. What I want to suggest in this post is that sorting out current debates also requires a better understanding of what definitions of economics critics and champions of mainstream economics hold (I define mainstream as what is being published in the top-5).

Changing definitions of economics

This idea is, as usual, nurtured by the history of the discipline. That accepted definitions of economics have undergone many changes is well documented (see this survey by Roger Backhouse and Steve Medema. edit: they track changes in the definition of economics through textbooks). Economics had initially been conceived as the science of wealth, production and exchange. Marshall famously defined it as the “study of mankind in the ordinary business of life […] on the one side a study of wealth; and on the other, and more important side, a part of the study of man.” The quote shows that in the late 19Th century, an individualistic element appeared, foreshadowing the sea change Lionel Robbins brought. His famous definition of economics as “the science which studies human relations as the relationship between ends and scare means which have alternative uses” not only wrote ethics out of the discipline, but also shifted its focus toward scarcity and resource allocation. In those transitional decades, Frank Knight thought economists should focus on “social organization,” Jim Buchanan on exchange, and Ronald Coase on institutions. In a key twist, Georges Stigler and Paul Samuelson both wedded scarcity to maximization, and Robbins’ definition gradually fed into a third one: economics as the science of rational decision-making. This expanded the boundaries of the discipline: every decision, from marriage to education, prostitution and health care could be considered a legit object for economists. Some, like Gary Becker and Gordon Tullock, called this expansion economic imperialism. Backhouse and Medema’s account ends in the late 1970s, but another shift has arguably been taking place in the last decades: the replacement of a subject-based definition with a tool-based one. The hallmark of the economist’s approach would not be its subject-matter –any human phenomenon is eligible-, but its use of a set of tools designed to confront theories with quantitative data through models. See for instance this recent post by Miles Kimball: “economics needs to tackle all the big questions in the social sciences,” he titles, adding that “what is needed [for economists to influence policy] is a full-fledged research program that does the hard work of modeling and quantifying.”

From definitions to topics, methods and interdisciplinary practices: 1952

Most interesting for my purpose is how these successive, sometimes competing definitions of economics have informed what economists think are the proper subject matters, methods and boundaries of their science. And these views are nowhere as clearly articulated as when they discuss their relationships to other sciences. Take 1952, which I believe was the most important year in the history of economics. It was a time of transition when the above definitions were found clashing, as seen in the conference on “Economics and the Behavioral Sciences” held in New York under the auspices of the Ford Foundation. The minutes of the conference read:

Marschak: two fold definition of economics; (1) optimization (rational behaviour); (2) dealing with material goods rather than with other fields of decisions.

Boulding: Yes. The two don’t have anything to do with each other. It is the material goods that characterize economics. To state that the recent increase in American money wages was due to the increase of quantity of circulation has nothing to do with rational behaviour.

Marschak: it has. This was stated already by David Hume who speculated on what will people do if everyone finds overnight that his cash balance has doubled.

Herbert Simon was in the room, and his notes are slightly different from the typed minutes. He wrote “allocation of scarce resources / best decisions / the handling of material goods,” and seemingly referred to the two first as “rational.”

Capture d_écran 2017-03-10 à 03.48.11

Simon’s notes (source)

Kenneth Boulding, Simon and Jacob Marschak had all been much involved in interdisciplinary ventures since the War. Later, they would each spend a year at the Center of Advanced Studies in the Behavioral Science, established by the Ford Foundation in the wake of the aforementioned conference.  Yet, they held diverging views of what economics is about. This led them to articulate different pictures of the relationships between economists and other scientists, a topic back on the scene today.

 

Boulding: a gifted theorist – he received the second John Bates Clark medal in 1949, a year before publishing a Reconstruction of Economics aimed at merging Keynesian analysis with a balancesheet theory of the firm–, a Quaker and a pacifist, Boulding spent a lifetime reflecting on how to avoid wars, including scientific ones. His study of growth led him to study sociology and political sciences, before establishing an “integration seminar” at Michigan. “Boulding’s advocacy of integration by symbiosis between the various social sciences rather than by edification of a superdiscipline encompassing other could be taken as offering a different model for international relations: an integrated world, like an integrated social science, required collaboration, not subjugation,” Philippe Fontaine explains. The result of this integration of social science and pacifist Quaker faith was a triangle, aimed at representing society in terms of three mains organizers (‘love,’ ‘fear,’ ‘exchange’), one published months after his participation into the New York conference. He later proposed a general theory of behavior based on the concept of the message-image relationship.

simonSimon is largely absent from those giants’ shoulders 2017 critics and champions of economics like to summon, and yet he strikes me as just the kind of character whose vision should be discussed right now. By his own assessment, he developed an early (aka undergraduate) interest in decision-making in organizations, and borrowed from whichever science could help him understand it: political science, management, economics, organizational sociology, social and cognitive psychology and computer science. Simon saw no disciplinary boundaries: “there are a lot of decisions in economics, there are a lot of decisions in political science, and there are a lot of decisions in psychology. In sum, there are a lot of decisions in doing science. It is all the same subject. My version of the science of everything,” he told Mie Augier at the end of his life. The science of everything he had tried to teach and institutionalize at Carnegie’s GSIA since the 1950s was, unlike Boulding’s, unified by mathematization and quantification (must reads on Simon include Crowther-Heyk, Augier, and Sent on his economics. Edit: I forgot Simon’s autobiography).

marschakThough Simon and Marschak often found themselves on the same side of postwar debates about the future of economics – for instance in their focus on decision-making and their instance that mathematization is a prerequisite for interdisciplinary work –, their scientific visions were nonetheless different. A Menshevik activist turned marxist turned mathematical economist, Marschak headed the Cowles Commission during the 1940s. At the time of the conference, he was only beginning to contemplate interdisciplinary projects as a way to enhance his models of decision under uncertainty. If the economist can fruitfully collaborate with other scientists, Marschak wrote to Ford Foundation’s Thomas Carroll months before the 1952 conference, it is because he brings a distinctive perspective to the table. Marschak’s nascent interdisciplinary bent was predicated upon a strong disciplinary identity. His letter is worth quoting at length:

Economics is normally defined formally as dealing with the best allocation of limited resources; or (somewhat more generally) as concerned with the choosing of the best among limited set of opportunities. The word “best” refers to consistent preferences of an individual, or of a group; a business corporation, a nation. In the latter case there arise important problems of semi-ethical nature (welfare economics) […]

Many an economist (sic) tries to study comprehensively all human actions that pertain to material goods, including such things as the administration of price control, the psychology of stock speculation, the political feasibility of a monetary reform, the process of collective bargaining. Such an economist, if endowed with good common sense, can say as much any journalist so endowed. But he could say much more as a result of joint work with a psychologist, sociologist, or political scientist. In such a cooperation, the distinctive contribution of the economist consists in asking: how would the buyers, sellers, bankers, stockholders, workers, farmers behave if they consistently made choices that are the best from their own point of view? And what are the policy measures that are best from the nation’s point of view?

The economic principle of consistent choices (also known as “rational behaviour principle”) admittedly does not have power to describe all behaviour, not even in the field of commodity choices. For example, a truly rational model of a stock speculator would have to be someone like a mathematical statistician continually practicing a form of so-called sequential analysis: he will make each subsequent decision dependent, in a predetermined optimal fashion, upon the ever growing sequence of observations. While it may be advisable for a speculator to behave according to this model, no speculator does! The rational model, useful for advice, is, in this case, of little use for prediction of actual behaviour. The economist working on the theory of speculation will have to do, or learn, some social psychology, from books or from colleagues. Yet, even in this case, the economist will be able to make a contribution stating from his economic principles. The cross-disciplinary group studying speculators will be looking for a realistic compromise between the picture of mathematical statisticians engaging in speculation and the picture of stampeding buffalos. While the economist will contribute his particular method of looking for rationality, his psychological colleagues will enlighten him on how to design a series of experiments reproducing the essential elements of the investment situation. Because, as stated in your memorandum, collaboration should be seen, not as a mutual borrowing of propositions but as the interchange of methods!

[…] The economists’ peculiar concern with optimal behaviour, while astonishing and irritating to non-economists, is actually a distinct and useful contribution of economic thinking

From definitions to topics, methods and interdisciplinary practices: 2017

 To me, Miles Kimball’s post has clear Marschakian overtones: first, define what your economics identity is. Then, go and engage other social sciences on any question you wish. Writes Kimball:

That doesn’t mean the economists should ignore the work done by other social scientists, but neither should they be overly deferential to that work. Social scientists outside of economics have turned over many stones and know many things. Economists need to absorb the key bits of that knowledge. And the best scholars in any social science field are smarter than mediocre economists. But in many cases, economists who are not dogmatic can learn about social science questions outside their normal purview and see theoretical and statistical angles to studying those questions that others have not. 

By contrast, Unlearning Economics’s last critical essay seems informed by the notion that economics is about explaining how the economy works. Reclaiming the economy is also how I interpret the CORE’s recent proposal to reshape introductory economics courses. The textbook opens with histories on capitalism, wealth, growth and technology. Scarcity and choice only show up in the third chapter. Other blueprints for “radical remaking” have a Simonish flavour, perhaps not surprisingly given that their advocates are often biologists or physicists by training. And I read many French critics as plotting to subdue economics to sociology, whether bourdieusian, foucaldian, latourian or mertonian (kidding, all mertonians but one are dead).

I’m thus left wondering to what extent current debates about the state of economics are nurtured by conflicting definitions of economics. Here’s my speculation: those economists who believe the shape of economics is good usually endorse the rational decision definition. Yet in the past decades, they have shifted toward a tool-box vision of their practices. They thus view interdisciplinarity as tool exchanges. Meanwhile, critics are pushing back toward a definition of economics that was in wide currency in the early XXth century, one concerned with understanding the economy as a system of production and distribution, one rooted in capitalist accumulation, technological change, etc. They believe economists should borrow from other scientists whatever models, concepts and theories will improve their understanding of how the economy works. Those who believe the economy cannot be isolated from the social system it is embedded in additionally plead for a deeper integration of social (and sometimes natural) sciences. And that is why critics and champions often talk past each other.

Putting this hypothesis to test requires a typology of competing definitions of economics. But more systematically spelling out what your definition of “economics” is before lamenting or celebrating its current state will certainly raise the quality of current debates. Now I’m off to read Economism, The Econocracy and Economics Ruleswith the hope of riding the wave.

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2 Responses to How much do current debates owe to conflicting definitions of economics?

  1. ngruen says:

    it seems to me you’ve got things round the wrong way.

    When people propose definitions of economics – they’re usually generalising from their own experience – their own thinking about what is and isn’t valuable in their own practice of economics and those of the economists they approve of. Sometimes their intent is mild and descriptive – an attempt to offer a helpful generalisation. But often such definitions are peremptory moves in disciplinary culture wars. (I’d put Marshall’s definition in the former category and Robbins in the latter but I’m not well read enough to be sure). Either way, it’s an aesthetic and value judgement about what economists could most usefully be doing (often with some implicit idea of what economists shouldn’t be doing that seems to me to be the engine behind definitions.

    Now when people critique economics, certainly when they claim it’s in crisis, they’re engaged in a culture war for the soul of economics – they’re making claims about how useful it might be and how it should be practised. Speaking for myself I think economics is a dysfunctional discipline in all manner of ways. This is because of the scientistic way it uses optimisation as some kind of epistemic foundation rather than one among many tools to give it insight. This seems like an utterly stupid thing for a discipline to do – to reify one particular approach to trying to understand behaviour.

    Telling me that my problem is that I’m just using one definition of economics and so I’m guilty of some simple misunderstanding seems to be a kind of trick – a switch of the scenery. It seeks to exercise a kind of force majeure that changes the nature of the debate from a normative one (how should we practice economics?) to a positive one (how do people practice economics?). Mere description – generalisation – about how people practice a discipline is not a very interesting question it seems to me, but if it is, it isn’t any way to determine normative questions about how things should be. Pretty obviously a definition of economics based on how things are, can’t tell you anything about whether those things are good, bad or indifferent, and whether they should be different.

  2. Beatrice says:

    Thank you for this long and thoughtful comment. There’s a lot to say here. First, I think you misunderstood my goal with this post. It was by no mean intended as a contribution to normative discussions on how we should practice economics. As someone who teach economics but do not practice it anymore (economic practices are my data, not my job), I don’t feel entitled to participate in these discussions. And to be honest, I’m agnostic as to the current state of economics, which the citizen and economist in me find upsetting, but the historian finds convenient. The normative element in that post is that I often feel I don’t have enough information to understand a critic or champion’s arguments about the current state of the discipline. I also feel current discussions often go in circles and are sometimes pale renditions of debates that have been raging for decades, if not centuries. What I was trying to do here is looking for some patterns in these debates, a positive exercise indeed.

    Now, to your claim that I neglect the rhetorical element in providing a definition of economics: I take your point, but not all of it. Disentangling what is rhetoric from what is genuine epistemic stance in economists’ statements has been a nagging concern for me. I have little guidance to offer, but I nonetheless refuse to treat the issue as an “all or nothing” one. Sometimes rhetorical aspects are key (for instance when I study RAND or NSF grant applications, Newsweek columns, or Congress testimonies by economists), sometimes I feel I can ignore them (when I read private correspondence between Marschak and Polanyi on social structures and uncertainty). Textbooks and programmatic papers – which are where you often find definitions of econ – stand halfway. On the one hand, they are aimed at shaping economists’ identity. on the other, they’re inward-looking, not intended at altering the public image of the discipline. Anq how much light is thrown on a statement when pinning it as “rhetorical” ? Calling your methodology “imperialistic,” claiming you’ve launched a “credibility revolution,” or comparing economists to plumbers doesn’t mean your lifetime goal is not genuinely about stretching the frontiers of econ analysis or improving economists’ plumbing skills.

    My major reason for not putting the emphasis on the rhetorical aspect of these definitions is that the post wasn’t concerned with the vision of famous economists, Marshall, Robbins or Samuelson. My interest is in what these canonical definitions become once spread across generations of practioners. It doesn’t really matter here to what extent Robbins’s definition or Friedman’s methodological essay were rhetorical. They have emancipated from their authors, they have lived a life of their own, they have gotten under economists’ skin the way I now see Dani Rodrik’s statement that “all models are wrong, but they are helpful used in relevant context” getting under econs’ skin. And they have survived, become core beliefs, and they are now shape current debates.

    That providing a definition of economics is as much about saying what econs shouldn’t be doing as saying what they should → excellent point. I need to think further about what it means for my explanatory framework

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