Lecture notes
Alternative Perspectives in Economics Lecture Notes 22/23
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- The University Of York (UOY)
Alternative Perspectives in Economics Lecture Notes 22/23
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Alternative Perspectives in Economics (Autumn)Lecture 1: Schools of Economic Thought (week 2)
Learning objective
- To identify the main schools of heterodox economic thought and highlight their differences
from the neoclassical mainstream
Orthodox view: you don’t need to study history of economic thought – all you need to study is
modern theory - you don’t need to study other schools of thought
Heterodox view: orthodox view is not right, need to consider other schools of economic thought and
look for alternatives and find different approaches – believes pluralism
Classical school (Smith, Ricardo, Mill): focused on economic growth and development, wealth of
nations, Adam Smith, macro-type theory, period of IR, capitalism beginning of capitalist theorem,
growth is dependent on the distribution of income between wages, rent and profit. Permanent
market power so no market clearing and this is the source of profit – permanent surplus.
Neoclassical economics (Jevons, Marshall, Walras): based on individualism – individual agents,
rational choice, utility maximisation, market clearing equilibrium. Replaces classical economics.
Mainstream economics: any orthodox textbook
Classical > Neoclassical > Mainstream
,Marxian economics: anti-capitalist, still based on the classical school, Marx based his economics on
Ricardo. Marx adapted Ricardo’s model to make it anti-capitalist. Not individualistic and not static.
Radical economics: regulation theory, social structures of accumulation model
Classical > Marxian > Radical
Keynes
Post-Keynesian economics:
Neo-classical (Sraffian) economics:
Institutional economics: American, believes that orthodox approach neglects institutions, take
account of institutions, social structure, culture, should all be part of economic theory, critical of
mathematical economics, cumulative causation
Austrian economics: became quite heterodox in C20, subjective thoughts not mathematical
equations
,Lecture 2: Methodology (week 3)
Nature of methodology
The main aim of methodology is to evaluate theories, uncover the truth and explain things.
Three main alternative approaches:
- Rationalism – based on logical reasoning alone (as in pure theory)
- Empiricism – based on formal observation and experiments, pure theory on its own is not
enough, controlled observations, not mutually exclusive with rationalism
- Interpretative methods – based on interpretative understanding of human motives, signs
and symbols (e.g. hermeneutics – study of interpretation, semiotics – interpretation of signs
of symbols)
Economic methods
Orthodox economics makes extensive use of formal theory but rarely argues for rationalism as a
method. The main recommended method is empiricism, as is clear from the stress on empirical
testing of hypotheses and prominence in econometrics.
Interpretative methods are associated with the humanities and rarely mentioned in orthodox
economics. Heterodox economics generally argues for pluralism of method, implying a combination
of approaches.
Empiricism
There are two basic empirical approaches:
Induction
The original scientific method, dating back to the Enlightenment (1600s, 1700s, Francis Bacon, etc..).
Starts with observation and then derives theories from this. Repeated observations lead to
derivation of general laws (particular to general). The aim is verification or proof. One drawback of
induction is the ‘problem of induction’, i.e. future may always be different from past experience –
future observations may differ from pervious ones.
Deduction
Emerged largely in the 20th century, associated with Karl Popper, etc. Starts with theoretical
hypotheses and then uses observation to test them. Starts with a general hypothesis and then tests
this with controlled observations (general to particular). The aim of deduction is falsification or
disproof.
One of the drawbacks of deduction is that the source of the general hypothesis is unknown.
Normally a theory comes from previous observations, however this would be induction and not
deduction. Another drawback is the Duhem-Quine thesis which states that the general hypotheses
can always be rescued by auxiliary hypotheses – blame it on other factors like the data, the
econometrics, failure of assumptions like ceteris paribus, a time lag problem, etc.
General problems of empiricism
, No observations or empirical results can ever be entirely free from the conceptual presuppositions
of the observer. Conscious and unconscious biases always enter into the design of empirical studies
and the way that the results are interpreted. Hence, there is no pure, conclusive version of
empiricism.
Mainstream economic methodology
Dominant methods have been Friedman’s predictive instrumentalism (judging theories by their
predictions alone) and Popper’s falsification (requiring formal tests of hypotheses). Influence of
both is visible in the widespread use of econometrics.
The main difficulty is the near impossibility of conclusive empirical testing (Duhem-Quine thesis),
which suggests that exclusive reliance on formal empirical methods is unwise. Any theory can be
rescued from empirical failure through auxiliary hypotheses, data mining, selective interpretation of
results, etc., and empirical tests on their own have no discriminatory force.
Philosophy of science
Recent philosophy of science has moved away from positivistic and falsificationist methods towards
a broader, more pluralistic view that highlights the social aspects of science. For example, the work
of Lakatos (scientific research programme), Kuhn (paradigm shifts) and Feyerabend (methodological
relativism). These anti-positivist arguments are tolerant of methods other than formal empiricism,
such as informal observation, rationalism, interpretative methods, etc.
Mainstream economics, however, remains committed to narrow and formal versions of empiricism
(despite being a social rather than natural science).
Facts and values
Orthodox view: rigorous empirical testing can yield positive, value-free knowledge. Basic value
judgements are added later, by policy makers. Hume’s guillotine.
Heterodox view: all theory will be influenced by subjective judgements of fact. No neat fact/value or
positive/normative distinctions in economics. This breaches Hume’s guillotine – we can’t separate
facts from values.
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