Economics and Other Disciplines

Assessing New Economic Currents

Ricardo F. Crespo

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781317245636
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

During the second half of the twentieth century, economics exported its logic – utility maximization – to the analysis of several human activities or realities: a tendency that has been called "economic imperialism". This book explores the concept termed by John Davis as "reverse imperialism", whereby economics has been seen in recent years to have taken in elements from other disciplines.

Economics and Other Disciplines sheds light on the current state and possible future development of economics by focusing on it from a philosophical perspective, broadening the concept of rationality in economic theory. The beliefs that prevail in the world today make up a physicalist worldview. This book argues that this pervasive view is harmful for economics as a social science. Do new economic currents like behavioral economics, evolutionary economics, neuroeconomics, institutional economics, happiness economics, the capability approach and civil economy, escape this widespread mentality? What would be an adequate underlying economic ethos? Do these approaches fit into this ethos?

Ricardo F. Crespo appraises the contributions from a classical philosophy angle, emphasizing their implications regarding practical reason. This volume is of great importance to those who are interested in political economy, economic theory and philosophy, as well as philosophy of social science.

1 Introductory overview

This book intends to shed light on the current state and possible future development of economics by focusing on it from a philosophical perspective. These are interesting, exciting times for economics. On the one hand, standard economics has become increasingly sophisticated – current micro and macroeconomics bear little resemblance to their 1970s counterparts. Asymmetrical information; industrial organization; new developments in game theory, econometrics and uncertainty management; rational expectations, and dynamic stochastic general equilibrium are all revamping economics. On the other hand, economic crises and laboratory and natural experiments show that there is something wrong with standard economics. The traditionally considered economic rationality, the “economic principle,” appears to be erroneous or at least insufficient to explain economic facts. Economics is consequently opening up to other forms of rationality: psychological, biological, sociological, ethical. Valuable inputs from other sciences and some revisited classical political economy ideas are enriching economic approaches. New ideas are booming, and it is very hard to anticipate what economics will look like in 20 years. As new scenarios unfold, we urgently need to rely on philosophy, in its role as orchestra conductor whose basic function is to combine all instruments to create one harmonious melody. The philosopher, in his/her capacity as conductor, can detect what is going on, what could happen in the future, and suggest better ways of dealing with problems.

This book aims to appraise the contributions to economics of these new and emerging forms and to provide options for their development from a particular philosophical view. In fact, the greatest economists started off as philosophers. Adam Smith was a professor of moral philosophy at the University of Glasgow, and his close friend and colleague, philosopher David Hume, also wrote remarkable essays on economics. A list of other outstanding “economist-philosophers” notably includes John Stuart Mill, Karl Marx, Carl Menger, Frank Knight, Ludwig von Mises, John Maynard Keynes, Friedrich von Hayek, Joseph Schumpeter, Herbert Simon, Albert Hirschman, and Amartya Sen. These names are associated with varying positions.

Let me first address the question about where economics is going to in terms of the history of its relationship to other sciences. After having exported its view of rationality to other social sciences – a process called “imperialism of economics” – new approaches within economics, which “import” insights from other sciences like psychology, sociology, neuroscience, biology, anthropology and ethics, have recently emerged – giving rise to a new process that has been called “reverse imperialism.” How are we to understand these two imperialisms? The aim of this book is to assess these new “reverse imperialist” approaches and other economic currents that revive political economy old traditions from a specific philosophical viewpoint, particularly, whether or not the possible incorporation of “classical practical rationality” and its related commitment to a “liberal naturalist” conception which, as I will later explain, is not a materialistic perspective, could broaden the concept of rationality in economic theory.

“Ideas rule the world.” Indeed, throughout the ages, a set of philosophical ideas, that is, a “metaphysical worldview” or ethos has greatly influenced our conceptions of life and science. The beliefs that prevail today in the world make up a materialistic worldview. I believe that this pervasive view is harmful for economics as a social science. Do these new currents escape this widespread mentality? What would be an adequate underlying economic ethos? Do these approaches fit into this ethos?

The recognition of the influence of theory on data selection and interpretation has currently led to the widely accepted notion that scientific theories’ content, formulation and method largely depend on the contemporary metaphysical worldview. Given the present materialistic perspective, the current “metaphysics of science” is also materialistic (or “physicalist”).¹ According to this view, underlying and embedded into the development of sciences, everything that exists or happens is physical and can ultimately be explained by reducing it down to the categories of the natural sciences. As Thomas Nagel describes it, “among the scientists and philosophers who do express views about the natural order as a whole, reductive materialism is widely assumed to be the only serious possibility” (2012: 4).

Craig Dilworth (2006) argues that modern science is based on specific, fundamental metaphysical principles: first, uniformity of nature; second, substance; and, finally, causality. These principles determine what is ontologically necessary or possible within every discipline: they provide the structure of scientific rationality, set guidelines for pursuing science, and define basic concepts. Also, they are often unconscious: as Alfred N. Whitehead ([1926] 1948: 49) asserts:

There will be some fundamental assumptions which adherents of all variant systems within the epoch unconsciously presuppose. Such assumptions appear so obvious that people do not know what they are assuming because no other way of putting things has ever occurred to them.

According to Dilworth, these principles drive modern science to support a physicalist, deterministic (albeit not always rigid) view of reality. However, many scientific disciplines have reservations about this notion. This resistance or tension in the applicability of this physicalist metaphysical commitment is especially present in the social sciences. Dilworth (2006: 130) explains:

Some of the basic problems regarding their applicability in the social sciences are those of synthesizing uniformity and free will, the vagueness apparently inherent in the notion of a social substance, and the dominant position occupied in social thought by the notion of final causes.

John Searle (2007: 5) describes an analogue tension:

We have a conception of ourselves as conscious, intentionalistic, rational, social, institutional, political, speech-act performing, ethical and free will possessing agents. Now, the question is, How can we square this self-conception of ourselves as mindful, meaning-creating, free, rational, etc. agents with a universe that consists entirely of mindless, meaningless, unfree, nonrational, brute physical particles?

An “easy fix” for this dilemma is to “boldly” admit that, ultimately, we are a set of physical particles, but, deep down, only a few individuals are satisfied with this answer. A similar tension is present in economics, as, once again, Dilworth points out (2006: 135):

[T]here is a particular tension in the economist’s conception of human nature. On the one hand the notion of free will is integral to it, since without free will the rationality principle would make no sense. On the other hand, however, no economic actor has the freedom not to follow the rationality principle, which itself determines how he or she is to act.²

It would prove useful to find out whether this tension stems from an underlying metaphysical view of economics. No doubt, science needs to simplify, to idealize, as Galileo Galilei has taught us. Science has immensely progressed by doing so. However, idealization should not imply setting aside essential factors for the analysis of science’s subject-matter. These factors must be incorporated if science is to truly explain, accurately predict and adequately prescribe.

John Stuart Mill ([1844] 2006: 321), one of the modern founders of the scientific method, specifically speaking about political economy, considers the need for idealization:

What is now commonly understood by the term “Political Economy” is not the science of speculative politics, but a branch of that science. It does not treat of the whole of man’s nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging of the comparative efficacy of means for obtaining that end.

The last part of the last sentence anticipates the prevailing current definition of economics: the allocation of scarce means in order to satisfy given ends: “the scarcity definition” of economics promoted by Lionel Robbins (1935: Chapter 2). However, Mill ([1844] 2006: 322) is aware that this description of political economy involves a simplifying abstraction:

All these operations, though many of them are really the result of a plurality of motives, are considered by Political Economy as flowing solely from the desire of wealth […] Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted.

And, consequently, he finally emphasizes the need to consider additional motives for these “operations” in order to reach a correct explanation and prediction – a de-idealization process:³

So far as it is known, or may be presumed, that the conduct of mankind in the pursuit of wealth is under the collateral influence of any other of the properties of our nature than the desire of obtaining the greatest quantity of wealth with the least labor and self-denial, the conclusions of Political Economy will so far fail of being applicable to the explanation or prediction of real events, until they are modified by a correct allowance for the degree of influence exercised by the other causes.

(Mill, [1844] 2006: 323, see also 326–327)

Mill is inclined towards a determinist position within the free-will versus determinism debate. Consistent with this stance is the belief that, if we have all the information we need, we will eventually be able to determine all possible motives influencing economic actions and thus achieve an exact explanation and prediction. For Mill, the complexity of the human realm makes this impossible in practice, but not in theory. He explicitly states that he accepts the “doctrine commonly called Philosophical Necessity,” and he proceeds to explain it in the following way:

Given the motives which are present to an individual’s mind, and given likewise the character and dispositions of the individual, the manner in which he will act might be unerringly inferred: […] we could foretell his conduct with as much certainty as we can predict any physical event.

(Mill 1882: 581–582).

We only have a “feeling of freedom” (Mill 1882: 582) because we do not know all the factors involved in determining our conduct.

Mill, like many pro-freedom economists, holds a weak notion of freedom, emphasizing external freedom, freedom from coercion, which is not internal freedom. Internal freedom is also called “free-will.” It entails having the capacity to deliberate and decide (i.e., a power to choose) independently of the actual possibility of doing what has been decided: even when restricted by external factors, we still have the capacity to make a decision. External freedom is the absence of restrictions to carry out our decisions. Correlatively, philosophers distinguish between freedom of the will and freedom of action (see O’Connor 2010: 1). The classical concept of positive freedom derives from internal freedom, whereas negative freedom results from external freedom (Carter 2016: 1).

Consequently, for Mill (and other economists), there is no essential methodological divide between natural and social sciences, because the ontological nature of their subject matters (physical, biological and human reality) are explained by efficient causes, and for many contemporary thinkers, they are ultimately reducible to material stuff and to relations between material entities. The difference between these sciences is only a matter of degree of complexity. However, simultaneously holding external freedom and denying or devaluing internal freedom is itself a tensioning position.⁴ That is, Mill acknowledges that there is a plethora of motives driving economic actions, but, at the same time and albeit with some tensions, he “naturalizes” these motives. We will find the same scenario in some of the currents that I will analyze in this book.

The alternative metaphysical position that I will defend concerning the difficult topic of free-will or determinism is that human beings, though conditioned and determined by biological, psychological and sociological factors, still have the capacity to act independently of these conditioning factors. This does not imply that people never act automatically, but rather that, in the first place, there is free decision at the root of their automatic conducts and, second, they can freely alter or consent to their automatic conducts. In other words, in the free-will versus determinism debate, I am taking the side of free-will. This is, of course, a metaphysical position that, though suggested by internal experience and several empirical experiments, cannot be definitively proved. However, there is a longstanding tradition of free-will supporters starting with Aristotle and including Augustine, most medieval scholastics, Immanuel Kant, William James, Henri Bergson, Elizabeth Anscombe and many others, up until the present.⁵ For Joseph Schumpeter’s theory of development, based on the entrepreneur’s performance, “freedom of the will” [sic] was “obviously visible” ([1912] 2002: 122). Still, I am aware that, given today’s predominant materialistic metaphysical vision, my position is not very popular.

However, this does not seem to be unreasonable, at least in our field. As I will later explain, and as Dilworth emphasizes, economists face a tension between the requirements of science and their feeling about the importance of freedom. Even if freedom seems to risk suffocation in the current materialistic atmosphere, it is still alive. This can be understood in terms of the view of rationality economists employ. The logic of standard economics – an optimal allocation of given means to satisfy given ends – is a form of “instrumental rationality,” or maximizing instrumental rationality, also called “the economic principle.” This rationality tends to strictly define a specific course of action enclosing freedom into brackets, as in physics. Today, however, behavioral and experimental economics have empirically challenged this narrow form of rationality. This raises the question I have posed above regarding whether reverse imperialistic and other new approaches are changing the metaphysical view underlying economics. The reasons for the failure of “the economic principle” could be attributed to Millian complexity, freedom, irrationality (as different from economics’ specific form of rationality), or a combination of them. However, regardless of the position we adopt, instrumental rationality seems to have failed, and we thus need to complement it with another kind of rationality different from physicalist rationality.

Let’s return to the history of economics’ relationships to other sciences. During the second half of the 20th century, economics exported its instrumental maximizing rationality to other social sciences: a tendency that, as already mentioned, has been called “economic imperialism.” However, we are now witnessing a slow reverse process that yields an emerging “mainstream pluralism” consisting of different approaches that draw elements from different sciences outside economics (Davis 2008 and 2011).⁶ As Bruno Frey and Matthias Benz (2004: 68) put it, the time has come for a change in direction, with new emphasis placed on importing insights from other social [and natural] sciences rather than on exporting the logic of economics. This tendency shares the same purpose that drove Wilhelm Röpke many years ago: to broaden the scope of economics, opening the doors to wider fields of research (cf. 1942: 18). However, it could still ultimately fail to expand the logic of rationality in economic theory. John Davis (2008: 365) has asserted:

… economics, as other sciences, has regu...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Foreword by John B. Davis
• Acknowledgments
• List of abbreviations
• 1. Introductory overview
• 2. The theoretical and metaphysical foundations of sciences
• 3. Economics and psychology
• 4. Evolutionary economics
• 5. Neuroeconomics
• 6. Happiness economics
• 7. Institutional economics
• 8. The capability approach
• 9. The Civil Economy approach
• 10. Conclusion
• Index