Poppervs The Armchair EconomistsBlaug does not stray too far from Popper at any point in either the...

Poppervs The Armchair Economists

Gerardo L. Largoza Economics Department, De La Salle University-Manila

PREAMBLE ARE ECONOMISTS GUILTY of not practising what they

preach? Do they pay no more than lip service to the importance of constructing falsifiable theories? Does much of what passes as science among the economic illuminati actually fail to meet the standards of proper (Popperian) methodology? These are the questions posed by Mark Blaug in his 1980 text, "The Methodology of Economics (Or How Economists Explain)".

Blaug is, simply put, a giant in the field of economic history and methodology - an assessment not only evidenced by the calibre of scholars writing favourably about his work' , but one we arrived at independentiy after being unable to find an online syllabus for the course that does not mention him. To a certain extent, this was expected as, aside from the iconoclastic Donald (now Deidre>) McCloskey, Blaug is that rare animal of a latter-day economist that has produced a credible body of writings in economic methodology. The sub-discipline, after all, does not exactly have graduate students rushing to take their PhDs in it, a point to which this paper will return later. But his affiliation with a number of first-

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number of first-tier universities (Yale, Chicago, Manchester, London, LSE, Exeter, Amsterdam, among others) and his current editorship of the Journal of Economic Methodology are more than enough to affirm his stature in the profession.

In this piece, there is an attempt to carry out something more ambitious than just a belated and by-now redundant review of his book. Instead, there will be an assessment of not just the arguments contained therein but also his more general thesis about the role "formalism" has played in the professional discourse. For although the term itself does not appear in "The Methodology ... ", a careful reading of his subsequent books, journal articles, and discussion papers (as well as a valuable personal meeting with him in a 1997 postgraduate seminar) has convinced the readers that the substance of his quarrel with the present "ugly currents"3 in economics was first enunciated there. Indeed, his criticism of an economics based upon ultimately untestable formal models is the single most abiding theme of his methodological writings.

We divide this paper into four parts. Part I deals with an examination of the concept of "formalism" and its use in economics, an important exercise given the many and occasionally conflicting definitions of "formalism" found amongst commentators. Part II identifies and analyzes the reasons for the lack of a consensus amongst economists as to the role formalism and mathematical logic ought to play in academic work. Part Ill provides Blaug's own analysis of nine research programmes in economics that he alleges have resulted in good examples of unfalsifiable (and therefore "formalistic") theories. This paper demonstrates that enough evidence - from research carried out after 1980-exists for Blaug to reconsider some of his earlier views, although by and large his argument is still a sound one. Finally, in Part IV, an attempt is made to come up with a "sociology" of the economics profession as a means of augmenting the explanation of the pervasiveness of formalist training within its ranks.

PART 1: FORMALISM- THE NATURE OF THE BEAST Blaug's book begins with a playfully titled chapter ("What you

always wanted to know about the philosophy of science but were afraid to ask") which is, in fact, a gracefully-written and exceedingly erudite discussion of pre-and-post Popperian thought (i.e., falsificationism in the sciences). Two things are worth noting about this section: first, its value is immeasurable for graduate students


Gerardo L. Lagroza 61

in economics who have no training in the philosophy of social science; the analysis is substantive and is not written as a mere "idiot's guide". Second, although his material ends with Feyerabend and does not cover Foucault, Wittgenstein, Habermas nor any of the important post-modernists, this is more than made up for by his examination of classic economic treatises, from John Stuart Mill's work to Pareto's, for their methodological content - arguably the most compelling and authoritative of all such attempts in the recent literature.

Blaug does not stray too far from Popper at any point in either the Methology or his subsequent books. His defence of falsificationism- consisting first of a discussion of methodological monism and the problems of induction (in his words "adduction"), an incorporation of Kuhn and Lakatos, then an attack upon its "nai've" version- would no doubt seem ordinary to anyone with a reading knowledge in the philosophy of social science. But it at least provides a stable reference point for his central argument: that after 250 years, most mainstream economists are either compulsive verificationists or nominal falsificationists. Like their 19"-century counterparts, they are still in the methodologically-suspect business of looking for evidence which corroborates their theories rather than trying to find observations or cases that will disprove them. And when confronted with facts that will otherwise cause a research programme to degenerate, economists simply turn away and extol the beauty and technical rigour of their models.

In a recently published interview•, Blaug put a name to the practice; he termed it "formalism" - "the tendency to worship the form rather than the content of the argument". In his view, this formalism, which is to be held responsible for, among other things, the resistance to empirical work in economics (e.g., the widespread aversion to surveys, historical analysis, and the case study approach), has its roots in a fundamental hesitance to test economic theories using Popper's basic criterion. Indeed, the overwhelming mathematical content of the 500+ scholarly journals in the English language (a fairly recent development") is the natural result of a profession more interested in the logic of proof (via the construction of "strong" cases using "stylised" facts) rather than disproof.

All that said, and taking for granted that obeying Popper makes good science, is the accusation a fair one? The anecdotal evidence -and one is tempted to say, from mathematically-challenged



undergraduates- certainly suggests so. 6 Nevertheless, there are two aspects to this formalism that need to be clarified, especially when we consider the remarks of some rather important commentators.

The first of these is from the old guard, Paul A Samuelson, who threw his hat in the ring long before the Nobel. 7 His wellknown contention that mathematics and "prose" are - leaving aside all tactical and pedagogical questions - strictly identical seems to dilute Blaug's claim about the excessive use of math in the discourse. For if the two media are, in fact, equivalent, then those who prefer a "non-mathematical" approach when doing their work are tarred by the same brush. Samuelson gives a few demonstrations of this parity, mostly hinging on the idea that mathematics is merely an economising device in communication. Given enough time, he argued, an equivalent "literarY'' proof can be developed for any proposition. (In the end, however, his attempts to show this were no match against the cogency of Professor Leontiefs own observation - what better and more final proof for the identity of mathematics and words exists, after all, than "that we teach people mathematics by the use of words?")

What are we, then, to make of this view? How can economics have become too formalistic if, in fact, it has merely used a more efficient vehicle for communicating ideas?

A reading of both authors, however, suggests that Blaug's real gripe is not against mathematics per se but against the use of purely deductive• -as opposed to falsificationist- reasoning in theory construction. This is an important point for two reasons: first, Samuelson himself justifies the use of math on the grounds of its superior properties in aiding the deductive endeavour and preventing pure logical errors in the process of model-building. Second, to Blaug, induction and deduction are not "opposite" logical processes at all since they both encourage verificationist tendencies and, in fact, result in the production of "non-demonstrative" (and therefore precarious) arguments. In his view, entire theories can be and ha'Je been built using \)Ufel'j' deducti'Je methods, without any of them capable of being shown as demonstrably false. Therefore Blaug's complaint against the formalism of the economics profession is really leveled against the abstract, deductive, nonfalsificationist, formalist quality of its theories, - facilitated by the co1weniel\t \)IO\)elties of mathematics described by Samuelson.



Paul Krugman, on the other hand, takes the use of mathematical logic a step further. In a couple of well-publicized exchanges between Robert Kuttner of The American Prospect and James K Galbraith, he derided the "lit crit" approach to doing economics. On the docket were the works of Lester Thurow, Robert Reich, James Fallows and a number of other authors whose stories about the economy, he alleges, "simply do not add up". There is nothing like reading Krugman's own words, for their force and lucidity. And for someone who has no real background in the philosophy of social science, he is exceedingly strident in his criticisms of "anti-academics". He accepts that the battle is really epistemological in nature and though he seems unaware of any of the major philosophical ideas about theory choice, he has no problems asserting that "nerds" have the better claim over the "literati".

This colorful taxonomy is worth examining, for herein lies Krugman's strongest methodological claims. "Nerds", he stresses, do not need to do "fancy math" (presumably anything higher than integral calculus). Indeed, Krugman is the first to claim that his own work requires nothing more than intermediate algebra to understand. His real beef with the "literati" is in their use of persuasive rhetoric which, to him, has a way of systematically masking a number of simple arithmetical errors - errors that could have been entirely prevented had these authors been willing to (a) acknowledge the importance of predominantly mathematical textbook theory and (b) check their facts to see if they "add up". An example from his exchange with Galbraith is illustrative at this point•:

"Two years ago, Lind'0 wrote the following in Harper's:

Many advocates of free trade claim that higher productivity growth in the United States will offset any downward pressure on wages caused by the global sweatshop economy, but the appealing theory falls victim to an unpleasant fact. Productivity has been going up, without resulting wage gains for American workers. Between 1977 and 1992, the average productivity of American workers increased by more than 30 percent, while the average real wage fell by 13 percent. The logic is inescapable. No matter how much productivity increases, wages will fall if there is an abundance of


64 POPPERVSTHEARMCHAIRECONOMISTS

workers competing for a scarcity of jobs- an abundance of the sort created by the globalisation of the labour pool for US-based corporations.

Now what should Lind have done before publishing this passage? He should have had an internal monologue -something like this: "Hmm, do these numbers make sense? Well, historically, compensation of workers has been around 70 percent of national income. So let's say that initially, output per worker is 100 and the wage 70. Now if productivity is up 30 percent, that means output is 130, while if wages are down 13 percent, that brings the wage down to 61, which is less than half of 130 -wow, that means the share of labour in national income must have fallen more than 20 percentage points. Let me check that out in the Statistical Abstract ... " Of course, if he had, he would have found out that the share of compensation in national income, far from declining 20 percentage points, was about the same (73% in 1992) as it was in 1977, offering a clear warning bell that something was wrong not only with his numbers, but with his story.

How could Lind have failed to go through this little monologue? Well, this author has had several conversations with impressive, highly articulate men, who believe themselves to be sophisticated about economic matters, but who simply do not understand that if productivity is up and wages are down, this must mean that labour's share in income has fallen. These conversations are not pleasant: they want to discuss deep global issues, and end up being given a lesson in elementary arithmetic. But that is precisely the point: all too many people think that they can do economics by learning some impressive phrases and reciting some geewhiz statistics, and do not realize that you need to think algebraically about how the story fits together."

Krugman's use of the terms "add up" (or "fit together") is an insistence upon the arithmetical consistency of an argument and reveals his conception of economic theory as being fundamentally a set of relationships resembling identities more than structural or behavioural equations. 11 Now despite Krugman's own use of history and data in the passage above, this is precisely the sort of formalism that Blaug decries. It is not merely in the choice of the vehicle used to communicate theories in economics. It is, rather, in the more fundamental construction of an economy in

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which relationships are defined in a straightforward accounting sense, with little room for the influence of contingent variables. The trouble is not merely that reality is more complex than any simple identity could model; it is that the identities themselves, being true by definition, are not testable in the Popperian sense, and therefore cannot be the products of good scientific practice. Their ontological status, to put it lightly, is uncertain.

This has two implications for the discussion: first, it should be clear by now that formalism is not about the use of math as a device for communicating ideas in economics, it is about the construction of a "neat" world where economic relationships are as clean and predictable as they appear in classroom equations.12

Second, the alternatives to formalism are themselves varied -from "more data, more history, more case studies and surveys" to a more general commitment to being "relevant" and "practical", as opposed to treating economics as a species of deductive logic.

PART II: ASSESSING FORMALISMTHE ANALYTIC APPROACH

There is of course, for most economists, an easy escape from the task of wrestling with the various methodological issues involved in academic practice: follow the golden mean. That is to say, admit to both the need for some degree of formalism in one's work, as well as the tendency toward excessive use of it amongst one's colleagues- and then carry on as before. Indeed, one can almost make the argument that explanations for the persistence of formalism in the teaching of economics need go no further than that offered by this "steady-state model".

This researcher rejects this dismissiveness and explores the issues more thoroughly. The starting point is Rugina's principle of an "organic" relationship between theory and policy13 in economics -the claim that no social problem can be solved in practice correctly and fully unless it is first solved analytically beyond any doubt. Take this insight and argue that the unsatisfactory equilibrium that exists in the profession (i.e., widespread formalism despite long-standing and welldocumented criticism) is the result ofthe following, yet unresolved analytical issues:

(a) whether the criticisms directed against formalism in economics are actually reducible to complaints against the choice of particular assumptions, rather than the more



general use of deduction in modeling; and (b) whether mathematics will ever be able to successfully

model human behaviour, even accepting that all models are simplifications of reality.

The legacy of Friedman: merely a case of "unrealistic" assumptions?

There is a considerable amount of confusion on this point as there has been a tendency to lump separate logical complaints together under the same banner. For instance, there is the common accusation that assumptions in most economic models are patently unrealistic (e.g., perfect information, rational and identical consumers, zero transaction costs, complete markets for all time-stated claims for all contingent events, etc.). The standard defense (over and above Friedman's famous predictionsover-assumptions canard) is to invoke the necessity of using simplifying assumptions in order to make any analysis more "tractable"- implying that as one advances in economic training, one will then be able to deal with models using "relaxed" and more "realistic" assumptions. Usually, this justification is enough to placate the struggling apprentice despite the fact that the case against formalism is based on something much more fundamental than just a poor choice of simplifying assumptions, and that is the construction of a theory using purely deductive reasoning, as well as the emphasis on verification rather than falsification in the process of validation. To Blaug, then, the excessive dependence of modern theory upon unrealistic assumptions is deplorable but in the end a non-issue since even models involving imperfect competition and non-rational behaviour in the mainstream literature tend to be verificationist.

The limits of mathematics This leads, however, to a second issue - one that deals

with the power of mathematics itself as an "intuition pump", or an engine for generating economic hypotheses. Assuming that practitioners can re-formulate their theories to satisfy Popper's criterion, there is still the matter of whether mathematics can ultimately be relied upon to produce an accurate representation of economic behaviour and its resulting relationships. The question is important precisely because of

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the more recent (and increasingly vociferous) calls for expositional alternatives to formal mathematical modelling i.e., those which call for a post-modernist approach (McCloskey), in which theory choice and validation becomes an exercise in persuasion using rhetorical devices particular to the discipline, and an "institutionalist" approach, which consists of "sophisticated storytelling" 14 •

The fact that widespread formalism exists side-by-side with a vigorous non-formalist tradition suggests a continued lack of professional consensus as to the power of mathematical discourse. On the one hand, there is Krugman who insists that only through the discipline of mathematical thinking can sone actually conceive of powerful yet counter-intuitive ideas in economics (e.g., comparative advantage, the theory of the second best, etc). On the other hand, there is also McCloskey (whom Krugman refers to as a "knowledgeable insider") insisting that the ascendancy of particular theories in economics cannot be traced to the power of mathematical intuition within them; they can, however, be explained by the effective use of rhetorical devices employed by scholars.

At an analytical level, this impasse exists for two reasons: firstly, following Irving Kristol's dichotomy15 , because mathematics is better at modeling "closed" systems, where all the variables are unambiguously specified, along with their properties, than "open" systems, where the identification and specification of variables is incomplete (and when the variables themselves are capable of independent and strategic behaviour). It is claimed that there are very few "closed" systems in nature, let alone in society, given that the Second Law of Thermodynamics implies the world is essentially a chaotic one.

But even if academics conceive of the economy as an open system, still there must be diminishing returns at work in the modeling enterprise. The problem here now is that as the profession's use of math extends to more powerful tools, its ability to accurately model complex systems increases; but at the expense of other important scientific values, such as parsimony, widespread application and intuitive appeal. On one level, this is merely inconvenient, as the disheartening implication is that any meaningful exploration of economic reality now appears to come at a steep price - say, a separate master's degree in



mathematics. 16 But economics is also at the heart of many policy questions and therefore some kind of "meta-narrative" or universally-held "story" of the economy must be available to policy circles and the general public in order for economic scholarship to remain relevant, even if such a story is not, from an academic point of view, strictly accurate. The insistence upon a "general equilibrium" framework despite the predominance of imperfect competition is an excellent example.

Secondly, as Dennis argues, even if the mathematics used in constructing formal economic theory is indistinguishable from pure mathematics, it still lacks logical rigourY This is so because, in the end, economic theory possesses both mathematical and non-mathematical components- that is to say, behaviours which are consistent enough to be termed "lawlike", and those which are mere "tendencies" and whose properties are not as "wellbehaved". There is an asymmetry in practice, however, since mathematical reductionism routinely fails to formalize the nonmathematical components of economic theory; in many ways, it is still unable to arrive at a logic capable of coping with propositional attitudes (belief, preference, intention) that lie at the very core of economic rationality.

Another analytical issue to consider is the heuristic power of the available alternatives. One of the things that Blaug calls for is "more data" used in economic theorising. This, of course, means statistics, econometrics, history, case studies and surveys -tools of the classic empiricists.

But McCloskey and Ziliak'" reveal a worrisome problem in the use of such methods. From a close examination of regressionbased articles published in the American Economic Review over the entire period of the 1980s, as well as the leading econometrics textbooks, they found out that the authors themselves systematically misunderstood and misused the concept of "significance" when formulating their hypotheses and explaining their findings. "Economic" and "statistical" significance- two very different concepts, were routinely treated as if they referred to the same thing. Now given the AER's stature as a first-tier journal (staffed, we presume, by suitably knowledgeable practitioners), one is led to suspect that for all the methodological problems associated with the formalist (mathematical) approach, there are atleast fewer problems with translation. There appears to be a precision and universality, a built-in safeguard against sloppiness

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and inconsistency, to the language of mathematics other methods cannot so easily supplant.

In conclusion, the "limits" to mathematics spoken of, then, ought not to be couched merely in terms of its power to abstract reality. Indeed, as the next section will show, modeling even the most complex systems is possible, given enough time, as the developments in, say, evolutionary biology show. Rather, these limits are to be seen also in terms of tradeoffs among scientific values which are important to practitioners in varying degrees. It would seem, then, that a "sociology" of the economics profession is necessary to provide a more complete explanation of the phenomenon.

PART Ill: AN IMPORTANT BYWAYTHE RECORD SINCE 1980

Before augmenting the previous chapter's analysis of the persistence of formalism with a sociological approach in Part IV, one may find it useful to take up Blaug's methodological appraisal of the neoclassical research programme (NRP). This is found in Part Ill of his book and consists of a discussion of the extent to which nine major theories in economics satisfy the requirements of good methodology. For it is in this assessment that one may be able to (a) validate Blaug's claims about the untestability and generally poor methodological quality of economic theories, and (b) see whether any changes in the analytic power ofthe formalist approach have brought economic practice closer to the Popperian ideal.

Rather than discuss each of the nine individually, Blaug's conclusions about these various theories are summarized in Table 1 below. This paper contends that by and large, the hard core of theories, particularly in microeconomics, has remained impervious to change, even as a number of its "protective belt" elements have been modified enough for Blaug to reconsider his earlier views on them. Some progress has been made in terms of economists being able to abandon hallowed but degenerative research programmes, although there is still widespread resistance to an empirical approach and a mentality of testing rather than verifying theories. It is probably worth bringing, however, that perhaps the best evidence of the profession paying more attention to its methodological practices is the publication of the late Methodus and its successor, the Journal of Economic


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Methodology. Both were founded and published after The Methodology ... The Journal of Economic Literature, however, still lumps publications in economic methodology together with those in economic history.

Table 1. Selected theories within the neoclassical research programme

Theol)'

Theory af consumer behaviour

Theoryofthefirm

General equilibrium

Margllal productivitytheory of wage determination

Theory of re-switching for physical capital

Hecksher-Ohlin theory

Keynesianism}Monetarism

Human capital theory

New economics of the family

Methodological pitfalls

Ad hocery il explaining Giffen goods; Refusal to abandQn theory In the face of more powerlvl rivals

Alternatives available

lancastrian demand theory based on product characteristics

"situational determinism" New industrial economics Oimiting firm decisions to producing profit-maximizing output or closing): ad hocery: insistence upon the iJ'I&'Jilability of competitive results despite oligopoly

No empirical content, merely a logical formulation- more a paradigm than a themy in the Popperian sense; No practical relevance since impossible to observe and has nothing to say about process of arriving at equilibrium

Formulated in terms so general it is rendered useless in answering specific policy questions

Claims of re-swttching not empirically supported; rather, researc:ll has been concentrated on produc~ "boundary conditions" through logical exercises

Ad hocery in explaining away loo!ltlef paradox; Non-cperationallheorising: insistence upon certain outcomes despite impossibility of assumptions

lnstrumet1talism: prediction without 1heo!Y, and then ad hcca.ry when causal mecilanism required

Lack of commitment to falsifiable hypotto...,

Widespread ad hocery Me1hodological individualism Verification ism

The "Austrian" tradition lnstitutionaHst economics

Various "sociological" explanaiD'\S

"New trade theory"

Post-Keynesian ism Rationalexpedations Supply-side economics

No real rivals

InstitUtionalist economics



Of the nine theories, Hecksher-Ohlin and Keynesianism/ Monetarism have undergone the most profound changes in terms of their relative standing in the discipline. It is not far-fetched to say that they have been "abandoned" in favour of other more promising alternatives.'•

H-0-S (Hecksher-Ohlin-Samuelson) was for 40 years the bedrock of international trade theory. Economists held on to it despite the nagging problem of the Leontief paradox, a situation that was dealt with by a frightening amount of ad hocery. In 1982, however, James Brander & Barbara Spencer published a landmark article20 based on the relaxation of a key assumption within the theory (constant returns to scale). The breakthrough, although logical in formulation, was notable for two reasons: first, it was arrived at via a considerable amount of empirical dissatisfaction over the finding that the trade flowing across developed countries has consistently violated H-0-S predictions. Second, the work produced a deluge of papers by Krugman, Dixit, Helpman, and other notable trade theorists, which became the corpus ofthe "new trade theory". H-0-S has since been relegated to a "special case" (primarily since it is still able to explain interindustry trade, say in agricultural products, quite well).

Having said that, the amount of empirical work to be found in the field is still pitifully small and verificationist. It does, however, provide a major example of (a) economists abandoning a decrepit theory and, more importantly (b) the conditions under which this shift would take place. The latter point is significant since it appears formalism is so entrenched within the profession that work on, say, imperfect competition, while accepted as a concept since the 19'h century, was not integrated into the mainstream until someone like Brander & Spencer found a way to mathematically model it. Analogies to the drunk and his lamp-post are not entirely inaccurate at this point.

A similar story can be told for Keynesianism/Monetarism. The 1970s were, after all, a disaster not just for policy planners but for academics as well. The deficiencies of KIM, as well as the conceptually ingenious work done by Robert Barra, Thomas Sargent, Neil Wallace and Robert Lucas in providing "microfoundations" for macroeconomic theory, caused an almost wholesale abandonment of the old paradigm. The trouble was, of course, that the policy prescriptions coming out of the alternative macroeconomics research programme were either (a) politically



unacceptable (e.g., tax cuts for the wealthy under supply-side economics), or (b) ineffective (e.g., tax cuts for the wealthy under supply-side economics). Indeed, when one looks at macroeconomics as a discipline, one finds it in a rather curious state. Both Keynesian ism and Monetarism have their adherents, most of whom are engaged in various desperate attempts to reinterpret or re-formulate the theory (there are Post-Post Keynesians, for instance). And although rational expectations and supply-side economics have clearly seen better days, they are still routinely taught in places like the University of Chicago. No clear "winner" has emerged in terms of a source for short-run economic policy prescriptions.

Instead, most macroeconomists since the 1990s have been fascinated with various strands of "growth theory", involving either endogenous growth models (incorporating technology) or the phenomenon of international convergence. What is striking about this is that interest in macroeconomics is no longer fuelled by the desire to obtain policy prescriptions to manage short-run macro problems such as inflation and unemployment. Focus has now been shifted not just away from traditional theories, but traditional problems as well. There is a marked preference for long-run analysis (technological waves, generational business-cycles, etc), and although the IS-LM framework is still employed in central banks and planning agencies today, professional acclaim is attained largely by publication in the new "preferred" fields.

None of this, however, takes anything away from Blaug's basic charge of excessive formalism in the profession. Work in macro is still inundated with mathematical models, and when econometric results are produced, they are presented in aid of verification.

Past these two examples, the record for the other theories is largely unchanged, and there is no great cause to contest Blaug's claims. However, something must be said about other theories not mentioned, which have become increasingly important within the economics profession.

Here is a simple reality check. The American Economic Association's John Bates Clark Medal is a highly coveted award; it is probably, then, as good an indicator of what the profession values as anything else. And because it must be given to an economist under 40, it reflects research undertaken fairly recently. So what can be learned about the values of the profession- the



sorts of work that command the highest rewards- by looking at, say, the last ten Clark Medalists? Here is the list: 1979, A Michael Spence; 1981, Joseph Stiglitz; 1983, James Heckman; 1985, Jerry Hausman; 1987, Sanford Grossman; 1989, David Kreps; 1991, Paul Krugman; 1993, Lawrence Summers; 1995, David Card; 1997, Kevin Murphy. In short, two theorists whose work on imperfect markets has had major impact both on policy and on corporate strategy; two econometricians whose techniques are widely used in practical applications; two theorists who specialized on issues of information and uncertainty; a trade theorist who focused on increasing returns and imperfect competition; a macroeconomist with a strong empirical and policy bent; and two very empirically-oriented labour economists. Not one of these economists has worked mainly on perfectly competitive markets, nor is a free-market ideologue. And as far as relevance goes, one cannot help but notice that in their subsequent careers, some members of the group have found that businesses and governments are willing to pay large sums for work based on their earlier research; one became Chairman of the Council of Economic Advisers (Stiglitz), while the other became a very powerful Deputy Treasury Secretary (Summers); and one has been known to write reasonably successfully for non-economists (Krugman).

So perhaps on the charge that economists hang too stubbornly to the neoclassical programme, and have disappeared into the mathematical woodwork, Blaug's verdict needs qualification. But has this come side-by-side with a re-orientation toward empirical/ experimental economics? There is less certainty on this point.

PART IV: ENDURING FORMALISM -A SOCIOLOGICAL APPROACH

The use of an analytical approach to explain the persistence of formalism in the professional ranks despite a fairly old critical tradition seems insufficient. Certainly, it helps shed light on the modeling problem every social scientist faces as well as the strengths and limits of mathematics in this endeavour. However, following Lakatos and Kuhn, we must recognise the insight that academic work does not take place in a vacuum- standards and "best-practices" are the result of complex social interactions among scholars and practitioners. To explain how the formalist tradition in economics is reinforced and passed down requires an inquiry into the sociology of the economics profession.

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A useful starting point is Lipsey's idea21 of problematic initial conditions: the great insights of economics are all qualitative. Economics does not appear to have a theoretical structure that is tightly related to a rich body of data and those seeking to contribute to its ideas operate on widely divergent levels of theoretical and empirical sophistication with little communication between those who operate at different levels.

One immediate consequence is that anomalies between theoretical development and empirical work are tolerated on a scale that would be scandalous in any natural science. This is reinforced in no small measure by the re-structuring of academic departments and the professionalisation of economists that has taken place in the last 30 years.

Departments today are said to be set up with a more or less "corporate" structure, in that their mandate is to defend a field discipline22 (usually by hiring a key scholar working in the given area). In this kind of configuration, mathematical economics, econometrics, standard micro and macro theory automatically move to the fore- they are, after all, universals. In the publishing process, this hierarchy is then reproduced. Work in the "universals" is slotted into the top-tier journals, with regional economics, history, and other sub-fields either moving down the journal ladder or establishing altogether separate venues of their own.

One must note, likewise, that the selectivity described above does not just come as a result of the widespread application of mathematics or econometrics.23 It has also been suggested that math-heavy articles stand a greater chance of being published because it is much easier for the 150 or so top academic "referees" working the circuit of over 500 English-language journals to assess the quality of a mathematical work than, say, one in history. The standards appear to be more straightforward and there is less uncertainty as to the appraisal.

The "professionalization" of economics, on the other hand, has been identified as a reason for academic inflexibility and the general resistance to new paradigms and methods. Outside the academe, it is argued, the demand for economists has grownmainly because of the needs of the business and financial sector. A core set of ideas and practices- again, a "meta-narrative"is required by this new market for professional economists, if only to ensure a consistent "product". Economists then end up



preferring theories that produce unambiguous policy results (such as those arrived at via the general equilibrium framework) over theories that do not, irrespective of their relative evidential bases. This, needless to say, is very different from the way scholarly departments used to work.

A way backward If this sociological explanation carries any weight at all, then

the antidote to the profession's excessive formalism is a return to a traditional university structure. That is to say, the creation of intellectual "hubs" across colleges and universities, with departments abandoning a strategy of universal coverage and moving into "niches" instead. To be sure, there are traces of this model still to be found - in Cambridge, where Keynes and Robinson, Sraffa and Kaldor still hold sway, and in the University of Massachusetts at Amherst where the heterodoxy flourishes.

The creation of a system of "hubs" may also have the salutary effect of disestablishing the present hierarchy of journals. Ideally, an economist should not feel more compelled to publish in the American Economic Review than, say, the Journal of Economic Issues. A spirit of deregulation, specialisation and reorganisation would allow for alternatives to formalism to take root and provide a more meaningful challenge to the orthodoxy.

CONCLUDING REMARKS Mark Blaug has not only written a seminal book, he has

evidently produced an entire research programme. Although he has repeatedly gone on record expressing doubts that the economics profession will ever abandon formalism, his efforts - initially through this book and later through his work at the Erasmus Institute - have ensured the survival of a viable and credible "fringe". The coherent body of work he has produced in economic methodology is important for its own sake but also provides intellectual reinforcement for the development of alternative discourses: post-modernism, institutionalism, experimentalism, and others.

The charge that economists cling to degenerative research programmes is, after 22 years, no longer as valid as before, thanks, ironically, to advances in mathematical modeling techniques. The real obstacles to a more falsificationist economics, however, are formidable. Analytically, they have to

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do with the public's need for a "meta-narrative" with which to make sense of the world and with which to judge policy relevance -problematic since such a paradigm both precludes and resists testing. Sociologically, they have to do with the changing structure of university departments which has prioritised universal coverage over specialisation, as well as the emergence of a market for professional economists that requires a standardised product.

REFERENCES

1 See www.allbookstores.com/browse/Author/Biaug%2C%20Mark tor a complete bibliography (books)

2 Gender change, 1995.

'Mark Blaug. "Ugly Currents in Modern Economics". Les Economistes et Ia Politique Publique. September 1997.

• Challenge Magazine. "The State of Modern Economics: Interview with Mark Blaug". May-June 1998.

'The Economic Journal, which sits atop the discipline's food chain having been founded in 1937 by Keynes himself, contained not a single graph, equation, nor table in its maiden issue.

• A number of French students and supportive university professors have started the "Post-Autistic Economics" Movement, specifically decrying the excessive formalism and lack of "realism" in the teaching of undergraduate economic theory.

' It is a bit of a curiosity in economics that most of its leading figures consider methodological issues only late in their careers, almost as an afterthought. Samuelson, who was awarded the Nobel in 1970, however, published this commentary in the American Economic Review No. 42 in 1952, a full two years before Arrow & Debreu's General Equilibrium -what many consider to be the first great push in a mathematical direction for professional economics.

• A variant of this has been called the "Ricardian Vice".

' Galbraith, James K & Paul Krugman. "Dialogues". Slate Magazine. Aug 1998.

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10 Michael Lind of The New Yorker.

"In econometric theory, an identity is a mathematical relationship that is true by definition (e.g., yo C +I+ G +X- M). Behavioural or structural equations, on the other hand, are of the form Y = a+ b

1X

1 + b,.X. + e,

where e is an error term suggesting a certain amount of randomness in the relationship specified. It is behavioral equations which are "regressed".

12 The term "blackboard economics" is attributed to Nobel laureate Ronald Coase.

13 Rugina, Anghel N. "Is There Anything New to be Said After Adam Smith, Marx, Walras & Keynes?: Toward a Third Revolution in Economic Thinking". International Journal of Social Economics. Vol. 26 No. 10/ 11. 1999.

14 Tilman, Rick. "Institutional Economics, Instrumentalist Political Theory and the American Tradition of Empirical Collectivism". Journal of Economic Issues. Vol XXXV No 1. March 2001.

15 see Kristof's article in Bell, Daniel and Irving Kristof (eds). The Crisis in Economic Theory. Basic Books Inc/Harper Colophon Books, 1981.

16 Blaug himself goes so far as to say that the popular notion of economics attempting to capture the rigour and elegance of physics is misleading since physicists are even more immersed in data and are not particularly concerned with proving theorems. In reality, Blaug asserts, the only discipline which economics is actually trying to emulate is mathematics itself.

"Dennis, Ken. "A Logical Critique of Mathematical Formalism in Economics" Journal of Economic Methodology. Vol. 2 No.2. December 1995

"McCloskey, Deidre & Stephen T Ziliak. 'The Standard Error of Regressions". Journal of Economic Literature. Vol XXXIV No 1. March 1996.

"This, however, is to be taken as a separate assessment from their continued use as paradigms and references within policy circles.

"'Brander, James A and Barbara J Spencer. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry". Canadian Journal of Economics. August 1981.



" Hoover, Kevin D. "Successes and Failures in the Transformation of Economics". Journal of Economic Methodology. Vol. 8 No. 2. June 2001.

''Galbraith, James K & Paul Krugman. "Dialogues". Slate Magazine. Aug 1998.

23Biaug is quick to point out that "econometrics" articles in journals today consist not of econometric results but of proofs and increasingly complicated techniques, in many cases indistinguishable from pure higher math.

DLSU Busi11ess & EcoJWmics Review VQ}ume 13 No. 2 2001-2002

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