Who made economics?

4economists

The discipline of economics has a high level of intellectual status, even hegemony, in today’s social sciences — especially in universities in the United States. It also has a very specific set of defining models and theories that distinguish between “good” and “bad” economics. This situation suggests two topics for research: how did political economy and its successors ascend to this position of prestige in the social sciences? And how did this particular mix of techniques, problems, mathematical methods, and exemplar theoretical papers come to define the mainstream discipline? How did this governing disciplinary matrix develop and win the field?

One of the most interesting people taking on questions like these is Marion Fourcade. Her Economists and Societies: Discipline and Profession in the United States, Britain, and France, 1890s to 1990s  was discussed in an earlier post (link). An early place where she expressed her views on these topics is in her 2001 article, “Politics, Institutional Structures, and the Rise of Economics: A Comparative Study” (link). There she describes the evolution of economics in these terms:

Since the middle of the nineteenth century, the study of the economy has evolved from a loose discursive “field,” with no clear and identifiable boundaries, into a fully “professionalized” enterprise, relying on both a coherent and formalized framework, and extensive practical claims in administrative, business, and mass media institutions. (397)

And she argues that this process was contingent, path-dependent, and only loosely guided by a compass of “better” science:

Overall,contrary to the frequent assumption that economics is a universal and universally shared science, there seems to be considerable cross-national variation in (1) the and nature of the institutionalization of an economic knowledge field, (2) the forms of professional action of economists, and (3) intellectual traditions in the of economics. (398)

Fourcade approaches this subject as a sociologist; so she wants to understand the institutional and structural factors that led to the shaping and stabilization of this field of knowledge.

Understanding the relationship between the institutional and intellectual aspects of knowledge production requires,first and foremost,a historical analysis of the conditions under which a coherent domain of discourse and practice was established in the first place. (398)

A key question in this article (and in Economists and Societies) is how the differences that exist between the disciplines of economics in France, Germany, Great Britain, and the US came to be. The core of the answer that she gives rests on her analysis of the relationships that existed between practitioners and the state: “A comparison of the four cases under investigation suggests that the entrenchment of the economics profession was profoundly shaped by the relationship of its practitioners to the larger political institutions and culture of their country” (432). So differences between economics in, say, France and the United States, are to be traced back to the different ways in which academic practitioners of economic analysis and policy recommendations were situated with regard to the institutions of the state.

It is possible to treat the history of ideas internally (“systems of ideas are driven by rational discussion of their implications”) and externally (“systems of ideas are driven by the social needs and institutional arrangements of a certain time”). The best sociology of knowledge avoids this dichotomy, allowing for both the idea that a field of thought advances in part through the scientific and conceptual debates that occur within it and the idea that historically specific structures and institutions have important effects on the shape and direction of the development of a field. Fourcade avoids the dichotomy by treating seriously the economic reasoning that took place at a time and place, while also searching out the institutional and structural factors that favored this approach or that in a particular national setting.

This is sociology of knowledge done at a high level of resolution. Fourcade wants to identify the mechanisms through which “societal institutions” influence the production of knowledge in the four country contexts that she studies (Germany, Great Britain, France, and the US). She does not suggest that economics lacks scientific content or that economic debates do not have a rational structure of argument. But she does argue that the configuration of the field itself was not the product of rational scientific advance and discovery, but instead was shaped by the institutions of the university and the exigencies of the societies within which it developed.

Fourcade’s own work suggests a different kind of puzzle — this time in the development of the field of the sociology of knowledge. Fourcade’s topic seems to be one that is tailor-made for treatment within the terms of Bourdieu’s theory of a field. And in fact some of Fourcade’s analysis of the institutional factors that influenced the success or failure of academic economists in Britain, Germany, or the US fits Bourdieu’s theory very well. Bourdieu’s book Homo Academicus appeared in 1984 in French and 1988 in English. But Fourcade does not make use of Bourdieu’s ideas at all in the 2001 article — some 17 years after Bourdieu’s ideas were published.  Reference to elements of Bourdieu’s approach appears only in the 2009 book. There she writes:

Bourdieu found that the social sciences occupy a very peculiar position among all scientific fields in that external factors play an especially important part in determining these fields’ internal stratification and structure of authority…. Within each disciplinary field, the subjective (i.e., agentic) and objective (i.e., structural) positions of individuals are “homologous”: in other words, the polar opposition between “economic” and “cultural” capital is replicated at the field’s level, and mirrors the orthodoxy/heterodoxy divide. (23)

So why was Bourdieu not considered in the 2001 article? This shift in orientation may be simply a feature of the author’s own intellectual development. But it may also be diagnostic of the rise of Bourdieu’s influence on the sociology of knowledge in the 90’s and 00’s. It would be interesting to see a graph of the frequency of references to the book since 1984.

(Gabriel Abend’s treatment of the differences that exist between the paradigms of sociology in the United States and Mexico is of interest here as well; link.)

Poverty and economics

How important should the subject of poverty be within the discipline of economics? Some economists appear to think it is a very small issue compared to the magnificent mathematics of general equilibrium theory. Others believe that economics should fundamentally be about the sources of human well-being and misery, and that understanding poverty is absolutely fundamental for economics. How should we try to sort this out?

Among the contemporary economists who have given the greatest attention to poverty and deprivation, Amartya Sen and Jean Dreze are particularly outstanding. Their research on well-being, quality of life, and hunger set a standard for the point of view that says that life quality and deprivation need to be at the top of the list of economic research goals. Here I’m thinking of books like Inequality ReexaminedPoverty and Famines: An Essay on Entitlement and Deprivation, and Hunger and Public Action.

The neoclassical free market purists stand at the other end of the garden.  The economists of the Chicago School put primary emphasis on the beneficent effects of untrammeled market behavior, and they give little attention to the “market imperfections” that poverty and deprivation represent. (The word “poverty” does not occur in the index of John Van Overtveldt’s good intellectual history of the Chicago School, The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business.) Poverty seems to be viewed as a normal and fair result of the workings of market institutions: some people make large contributions and earn high income, and others make small or zero contributions and earn low income.

The closing chapter of Milton Friedman’s Capitalism and Freedom is entitled “The Alleviation of Poverty.” Here Friedman admits that poverty is a problem, but conceives of only two solutions: private charity (which he agrees will not work in a large complex society) and direct transfers from tax revenues to payments to the poor (which is limited by the willingness of citizens to provide taxes for this purpose). The mechanism he prefers is a negative income tax: persons with incomes below a given threshold would receive payments determined by their income levels. “In this way, it would be possible to set a floor below which no man’s net income (defined now to include the subsidy) could fall” (192).

What this analysis leaves out is any consideration of the economic mechanisms that produce poverty within an affluent society, and how institutions could be adjusted so that poverty and inequality tended to fall over time as a consequence of the normal workings of economic institutions. Take race in America, for example — a set of institutions that many observers see as being crucial mechanisms in the production of urban poverty. Writing in 1962, Friedman argues that racial discrimination in employment is essentially impossible within a competitive market system (link). But we now understand the geography and social structuring of poverty much better. Racial segregation in housing has not disappeared; it has only worsened. Low-quality and ineffective schools are concentrated in low-income and racially segregated neighborhoods, so poor people have reduced educational opportunities. Access to jobs is also constrained by geography and educational opportunity. (Here is a recent post on the mechanisms of racial disparities; link). So it seems clear that our economy systematically reproduces poverty in inner cities rather than reducing it. And the situation of rural poverty is not substantially better.

This all has to do with the dynamics of income at the bottom end. But we have also seen persistent widening of income at the top end. American capitalism has produced ever-widening inequalities of income for at least the past forty years. Consider these two graphs of income by percentile provided by Lane Kenworthy:

(Source: Lane Kenworthy, Consider the Evidence blog (link))

So the idea that a properly functioning market economy will tend to reduce poverty and narrow the extremes of income inequality has been historically refuted — at least in the case of American capitalism.

It is apparent that the ills of poverty are debilitating to the families who experience it; their quality of life is dramatically lower than it needs to be in an affluent society. So that is one reason for economists to give higher priority to the study of the mechanisms and structures that reproduce poverty in the United States. But there is a more systemic reason as well: if 15% of all Americans live in poverty (46 million people), and if 22% of children live in poor households (16 million children), this implies a huge drain on the productive capacity of the American economy. Education, health, and inclusion are important components of economic growth; and each of these is harmed by the persistence of poverty. So economists ought to be in the lead when it comes to placing a priority on poverty research.

We need to have a much more systematic understanding of the institutions and structures through which access to income and the necessities of life is created. And this implies that the mainstream might be well advised to take counsel from structuralist economists like Lance Taylor. Here is how Taylor describes the intellectual foundations of structuralist macroeconomics in Reconstructing Macroeconomics: Structuralist Proposals and Critiques of the Mainstream:

In the North Atlantic literature, structuralism’s intellectual foundations lie within a complex described by labels such as [original, neo-, post-]-[Keynesian, Kaleckian, Ricardian, Marxian] which nonmainstream economists have adopted; numerous variants exist in developing countries as well. The fundamental assumption of all these schools is that an economy’s institutions and distributional relationships across its productive sectors and social groups play essential roles in determining its macro behavior. (1)

This emphasis on study of the concrete institutions embodied in a given economy, and the distributive characteristics that these create, seems like a very good starting point for arriving at a better understanding of the economic foundations of poverty than we currently have.

(Here is a post on some of the approaches to this kind of economic research taken by contemporary alternative economists.)

Value-free economics?

 

A recent volume by Vivian Walsh and Hilary Putnam,  The End of Value-Free Economics, brings to a fine point a line of argument that has been brewing for fifteen years: is the logical positivist insistence on separating “fact-based” science from “value-based” ethics any longer a tenable one? Most particularly, are there now compelling reasons for declaring that mainstream economics needs to recognize that the distinction is wholly untenable? Is the zeal for insisting on “positive” economics now unsupportable? Should economists at last recognize that Lionel Robbins’ strong exclusion of normative language from the science of economics both unjustified and unwise?  Walsh and Putnam argue that the answers to each of these questions is definitive: the strict dichotomy between fact and value in economics can no longer be supported.

The issue of facts and values has a number of sources within the empiricist tradition.  There is Hume’s view that we can’t derive “ought” from “is”; or in other words, that moral judgments are logically independent from empirical beliefs.  There is the positivists’ criterion of significance, according to which the meaning of an utterance reduces to the empirical experiences that would demonstrate its truth or falsity.  (The two propositions together imply that moral sentences are meaningless or “non-cognitive”, since the first proposition concedes that no empirical experience can demonstrate the truth or falsity of a normative statement.) And there is the positivists’ idea that science is exclusively concerned with “facts”; but the first two propositions consign moral statements to the category of “value” rather than “fact”, so science cannot contain normative vocabulary.  Another source was internal to debates within neoclassical economics itself: Lionel Robbins’s arguments against interpersonal comparisons of utilities, based on the idea that making such comparisons unavoidably involves taking an evaluative stance towards the individuals in question.

The key idea advanced in The End of Value-Free Economics is that none of these philosophical ideas have survived the critique of positivism that was offered within philosophy of science and philosophy of language over the past fifty years.  The attempt to draw a sharp line between “fact” and “value” turns out to be impossible.  And this is equally so in economics.

Consider an example.  The concept of Pareto efficiency is defined in value-neutral terms: a distribution is Pareto-efficient if there is no other distribution that improves some individuals without harming at least one individual.  The concept of distributive justice is not value-neutral; it invokes the idea that some distributions are better because they are more fair or more just than others.  The positive economist holds that the latter set of distinctions are legitimate to make — in some other arena.  But within economics, the language of justice and equity has no place.  The economist, according to this view, can work out the technical characteristics of various economic arrangements; but it is up to the political process or the policy decision-maker to arrive at a governing set of normative standards.  Walsh and Putnam (as well as Amartya Sen) dispute this view on logical grounds; and this leaves the discipline free to have a rational and reasoned discussion of the pros and cons of various principles of distributive justice.

Raising the issue of value-neutrality for economics is a frontal assault on the uncritical positivism that neoclassical economics incorporated from the 1930s and forward. But it is also an attack on something else–the no-longer acceptable idea that economists can only tell us how things are, not how they should be. Is famine worse than food sufficiency? Is literacy better than illiteracy? Is good health an improvement in wellbeing? If we take the view that “positive economics” cannot contain normative judgments, then none of these questions could be answered by an economist. “It depends on what you value.” What Walsh, Putnam, Sen, and other contributors to this volume want to say is that this response is idiotic, and there is no basis in logic, science, or methodology that would support it. Of course economics, and economists, can find that starvation is a bad thing. Instead, they maintain that the best philosophy of language and philosophy of science supports the idea that value concepts and descriptive concepts are intermingled or “entangled”, and that we can offer good reasons and evidence for evaluating claims involving both.

Why, some readers will ask, has Hilary Putnam become a central figure in this emerging debate? Putnam is known as a technically astute philosopher of mathematics, logic, and physics, and a philosopher of language; he is known for a sometimes wavering adherence to several versions of scientific realism; and he has made contributions of the greatest importance to each of these fields. But how did he come to get deeply immersed in the issue of the role of values in economics?

Vivian Walsh is one important part of the answer. Walsh undertook a series of articles in the 1980s and 1990s that were critical of the logical positivist assumptions that have lingered within the methodology of neoclassical economics. He took encouragement from the writings of Amartya Sen on welfare economics that confidently dismissed these positivist assumptions — for example, the idea that science could not incorporate values or that statements about values were meaningless. (Lionel Robbins is offered as a particularly clear advocate of these views.) And Putnam worked up his reactions to these ideas into a novel book in 2002, The Collapse of the Fact/Value Dichotomy and Other Essays.

A key construct in the collaborative thinking that Putnam and Walsh have done together is the idea of the “second phase of classical theory.” (Harvey Gram discusses this construction in detail in his contribution.) Walsh introduces the idea and Putnam follows up in his essay. What this refers to is the fact that classical political economy, as expressed by Smith and Ricardo, underwent a major intellectual revival in the 1960s when thinkers like Pierro Sraffa proposed reappropriating some of their key analytical ideas. Sraffa’s Production of Commodities by Means of Commodities : Prelude to a Critique of Economic Theorywas a key product of this rethinking. The rethinking itself came about because of an uneasiness about the premises of neoclassical economics, and it stayed close to the core logical ideas. The first revival focused on Ricardo, but the second phase, Walsh argues, has given a much more nuanced interpretation of Smith himself.  Walsh finds that this reconsideration has been led by Amartya Sen and is more wide-ranging. Here is why Walsh thinks this reconsideration of Smith is important:

This is because Smith embedded a remarkable understanding of the core concepts of a political economy whose implications for moral philosophy he understood and explored.  The Smith texts as a whole offer a rich tapestry, interweaving threads of classical analysis, moral philosophy, jurisprudence, and history. (7)

And here is how Putnam summarizes Sen’s contribution to this reconsideration of classical political economy:

If we are to understand Sen’s place in history, the reintroduction of ethical concerns and concepts into economic discourse must not be thought of as an abandonment of “classical economics”; rather it is a reintroduction of something that was everywhere present in the writings of Adam Smith, and that went hand-inhand with Smith’s technical analyses. This is something that Sen himself stresses. (quoted by Walsh, 29)

Amartya Sen has argued throughout his career for the robust possibility of reasoning about value issues — in economics and elsewhere. (A very early place where Sen takes up this topic is in “The Nature and Classes of Prescriptive Judgements”; link.) Much of what Sen brings to this debate within economics, according to Walsh and Putnam, is found in his capabilities theory as a foundation for a theory of welfare or wellbeing. This theory is based on the idea of human functionings; and there is a plain intermingling of factual and evaluative ideas associated with this notion.  We need to know what human beings can and want to do, before we can say how well off they are. And this means bringing in orienting human values at the foundations. Putnam draws attention to Martha Nussbaum’s list of core human capabilities. Anyone reading these descriptions would agree that they presuppose human values. And Nussbaum (as well as Sen and Putnam) believes that we can rationally discuss and evaluate these. But if welfare economics is to incorporate a substantive notion of human wellbeing, then it plainly cannot be maintained that it is “value-free”.

Another important locus for Sen’s reintroduction of ethical concepts into economics is his critique of the narrow conception of individual economic rationality.  As Sen puts the point in “Rational Fools” (link),

A person thus described may be “rational”in the limited sense of revealing no inconsistencies in his choice behavior, but if he has no use for these distinctions between quite different concepts, he must be a bit of a fool. The purely economic man is indeed close to being a social moron. Economic theory has been much preoccupied with this rational fool decked in the glory of his one all-purpose preference ordering. To make room for the different concepts related to his behavior we need a more elaborate structure. (336)

Sen introduces the idea of “commitments” directly into the concept of economic rationality.  Individuals choose among preference rankings based on their commitments — to each other, to political ideas, to groups with whom they have decided to affiliate.  And this brings normative ideas directly into economic decision-making — and therefore into the domain of economics.

Walsh and Putnam insist on a point that seems very important to me as well: it is the dichotomy between facts and values, or between positive and normative analysis, that they reject. They do not reject the idea that there are facts and there are values. But they believe in important respects these categories are intertwined and inseparable. They argue for “entanglement” and “rich description.” They believe that it is fully possible and acceptable to engage in rational debates over the best theory of justice, or human nature, or human freedom; and to do so within economics as well as outside of economics.  And they believe that science can handle its goals without this sharp dichotomy.

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