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What is Heterodox Economics and what is its relationship to Mainline Economics?

Summary:
I just returned from the annual History of Economic Society meetings at Columbia University. It was a great meeting if you ask me, but also very revealing.  Europeans scholars dominated the attendance, especially for younger scholars, and the number of none economists actively engaged in research in the history of economics and political economy is staggering.  This has been an evolving trend, but it was particularly striking to me at this years meetings.  It speaks to the challenge that those of us who hope to carve out a niche within economic science, and within the US academic landscape face, and how one's main discourse partners in scholarship are changing.  My observation has no normative thrust to it, it is just what it is.  If you go back in time to the old internet discussion

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I just returned from the annual History of Economic Society meetings at Columbia University. It was a great meeting if you ask me, but also very revealing.  Europeans scholars dominated the attendance, especially for younger scholars, and the number of none economists actively engaged in research in the history of economics and political economy is staggering.  This has been an evolving trend, but it was particularly striking to me at this years meetings.  It speaks to the challenge that those of us who hope to carve out a niche within economic science, and within the US academic landscape face, and how one's main discourse partners in scholarship are changing.  My observation has no normative thrust to it, it is just what it is.  If you go back in time to the old internet discussion board for history of economics, you will see that I was arguing against this trend that Roy Weintraub was pushing since the 1990s, when I taught history of economic thought at NYU.  I am getting ready to teach my history of modern economic theory class again this fall, so these questions have not only research but pedagogical import for me.  I am still with Kenneth Boulding, my teacher, on the importance of history of thought in economic science and agree with Jacob Viner's plea for scholarship in the graduate education of economists.

But another observation was obvious at these meetings.  Austrian economics is no longer considered heterodox economics among the younger generation of heterodox economists.  There is a new book out that was discussed at the meetings -- What is Heterodox Economics? Conversations with Leading Economists -- and, as the book description states: 

Since the Global Financial Crisis, economics has been under greater public scrutiny, revealing a crisis in the discipline. This represented a potential turning point on how economics should be thought and taught. Heterodox economics has played a prominent role in these discussions revolving around new economics thinking and pluralism in economics. Yet, its identity, aspirations, and pedagogy remain underexplored, contested, and somewhat opaque.

This volume brings together sixteen interviews with leading economists to understand what heterodox economics is. How and why does an economist become heterodox? In which way do heterodox economists see themselves as ‘different’ from mainstream economics? The interviews shed light on what problems heterodox economists perceive in the mainstream; elucidate the different contexts under which they operate in higher education; and provide insights on their ontology and methodology. The reader will also find answers to the following questions about the nature and state of heterodox economics: Do heterodox economists have particular intellectual journeys, motives and aspirations? Is this reflected in their teaching practices and strategies to achieve social change? What is the relation between heterodox economics and the humanities and arts?

Appealing to a diverse audience, including philosophers, sociologists and historians of economic thought, the book will be of great interest to anyone keen to find out more about the internal discussions in the economics discipline.

Unfortunately, I was unable to attend Danielle Guizzo's discussion of the book and ask my questions about selection criteria, etc. for the economists interviewed.   But it is clear from a look at the table of contents, the selection criteria is much different from what would have been the case when Daniel Bell published his The Crisis in Economic Theory in 1981, or Steve Pressman published his collection on Economics and Its Discontent in the late 1990s.  So something has happened since that time to weed out in the minds of younger scholars that Austrian economists from the camp of heterodox economists -- this is despite the JEL category of the modern Austrian School of Economics in the heterodox camp.  Of the authors interviewed, only Ulrich Witt would come close to having any affinity to Austrian ideas with his evolutionary economics perspective, but he surely would distance himself from any such "Austrian" identity, though he has been and continues to be a valued member of the editorial board, and contributor to, the Review of Austrian Economics, which I edit with Chris Coyne. Though I should say upfront that several of those interviewed could speak very intelligently about the Austrian School of Economics and its strengths and weaknesses as a tool of analysis and social criticism -- especially Tony Lawson and Gary Mongiovi. 

Perhaps there is an underlying logic to this exclusion.  I actually believe the contemporary editors are correct, and the JEL classification was an error. But before I make that argument let me stress that the contemporary Austrian school of economics does represent a radical challenge to the existing practice of scientific economics.  This challenge isn't new.  Hayek in his Nobel lecture told him audience that the economics profession had failed and made a mess of things.  He also argued that they made a mess of things because of scientism, and that scientism would lead to scientific charlatanism. And that this charlatanism would be protected by the vested interests of departments and professional associations.  He also concluded that unless this situation was reversed the venerable and honorable tradition of political economy would cease to be practiced and instead economists would be turned into potential tyrants over their fellow citizens and destroyers of the very civilization that they had so significantly benefited from.  That was in 1974, and nothing in his message would have changed in 2008-2009.  Austrian school fellow traveler, James M. Buchanan, for example was adamant in his condemnation of economists after the crisis, arguing that the "economists have no clothes."  Like, Hayek this challenge to the conventional practice was not new, back in the 1970s, Buchanan had stated in one of his essays that: "If not an economist, what am I? An outdated freak whose functional role in the general scheme of things has passed into history? Perhaps I should accept such an assessment, retire gracefully, and, with alcoholic breath, hoe my cabbages. Perhaps I could do so if the modern technicians had indeed produced "better" economic mousetraps. Instead of evidence of progress, however, I see a continuing erosion of the intellectual (and social) capital that was accumulated by "political economy" in its finest hours."

Keep in mind, those words are from two Nobel Prize winners.  In those earlier texts on crisis and dissent, hearing from the leading economics voices meant including those who had a claim to that sort of status in the science.  That isn't the case with this volume, if you just do a citation impact study of the various authors interviewed you will see that they are not high impact scholars -- Tony Lawson is the only one with over 10K citations, and to put that in perspective someone like Andrei Shleifer has over 200K citations, and Elinor Ostrom's Governing the Commons has alone 35K citations.  Though I do not agree with the thrust of this comment, but you can understand why Frank Hahn one time referred to the critics of economics as a bombardment of so many soap bubbles.

I, obviously, believe that there is a lot more to scholarship and impact than citations studies can capture, but they do suggest something about readership and influence.  Karl Marx, John Maynard Keynes as well as Adam Smith show up very strong in any citation study.  So excluding dissenting voices that were major figures in the discipline has a cost to this conversation the editors want to initiate, and that should be understood.  Slightly out of sync voices matter -- so Coase, North, Ostrom, Smith, but also Bowles and Ginits, Kirman, Sethi, Roemer, etc. all could have found representation in the volume if that was the intent. But I think the sorting mechanism was a more wholesale rejection of economic theory, including any semblance of an individual actor model, and a coordinative properties of social interaction guided through the market price system.  The central mystery of mainline economics -- how the invisible hand theorem can be derived from the rational choice postulate -- simply doesn't interest the editors.  That doesn't mean that all the contributors share the editors priors on this -- e.g., I actually think Lawson, Witt and Mongiovi all have puzzled about this question in serious ways in their work.  In many ways the mainstream discourse in economic theory since the 1950s, did not puzzle over this question -- the answer was built into the respective positions --- the dominate perspective argued it could only through heroic assumptions about human cognitive capabilities and the social environment of interaction, and the outlier opinion in the mainstream was that the model was a useful "as if" approximation and provided useful testable propositions about about individual behavior and social interaction.

The dissenting voices that I mentioned -- Hayek and Buchanan to start, but then Coase, North, Smith and Ostrom additionally, sought the answer in a more detailed examination of the institutional environment within which individuals interacted with one another.  Whether or not individuals would pursue productive specialization and realize peaceful social cooperation was a function of the institutional environment in which the game of life was being played out.  Change the rules, change the outcome. Economics that did not permit this examination of alternative institutional arrangements of human behavior and interaction was bad economics plain and simple.

But after what I have just said, it should be clear why our editors are actually more attuned to the reality than the JEL classification.  The dissenting voices I have mentioned, and add Israel Kirzner and Mario Rizzo to that list, all work more or less within what I am calling the mainline -- rational choice --> invisible hand via institutional analysis.  Coordination of economic activities through time is a by-product of an institutional environment of well-defined and enforce property rights that structures incentives, of the free adjustment of relative prices which guide decision makers, and the lure of pure profit to entice actors and tap into their curiosity and creativity, and the penalty of loss to discipline them and redirect their efforts.  And, in this analysis, human decision makers weigh the costs and benefits of decisions as they subjectively perceive them, and choose on the margin and against a background of given constraints.  So rather than heterodoxy, this style of economic reasoning is simply an enriching of the the core model of human decision making and social interaction from Adam Smith onward -- or what Buchanan called "political economy in its finest hours."

Thinking about Rational Choice as if the choosers were human, and doing Institutional Analysis as if history mattered, is not the same thing as the economics practiced at MIT/Harvard, or published in the AER, JPE, QJE and Econometrica, but it is also not heterodox as understood by our editors, or other practitioners who believe that the economic way of thinking was thoroughly discredited by the Global Financial Crisis.  The contemporary Austrian School of Economics has inherited the intellectual capital that was accumulated in the evolution of economic thought from Adam Smith to Vernon Smith.  It twists the neoclassical lens and sees through a different prism to see an alternative picture of the behavior of individuals (the logic of choice), their interaction with others (situational logic) and the resulting social pattern (social order).  These mainline economists are heterodox in the problem situation that they throw their actors into -- complex, uncertain, and difficult learning environments -- but they empower the actors themselves to thinking creativity (not just prudently) and in concert with each other to discover and devise institutions that provide coping mechanisms, and if they do so successfully they will realize human betterment just as orthodox theory would conclude.  The research program of these slightly out of sync economists has been to examine the being and becoming of these alternative institutions and to understand their reasons for their emergence and the impact on social affairs, and the consequences when they fail to emerge for realizing social cooperation.  Explanation of the variation in the pattern of human interaction is to be found in the impact of alternative institutional arrangements on social interaction.

So mainline economics is neither heterodox nor orthodox, it is just the continuation of the grand and honorable tradition of political economy in its finest.

Peter Boettke
Peter Joseph Boettke (January 3, 1960) is an American economist of the Austrian School. He is currently a University Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU.

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