In defense of post-Keynesian and heterodox economics : responses to their critics 9780415694360, 0415694361, 9781138799196, 113879919X

Table of contents :
Preface: The Future of Post-Keynesian Economics and Heterodox Economics Contra Their Critics Frederic S. Lee and Marc Lavoie 1. Post-Keynesians and Others John King 2. After the Crisis: Perspectives for Post-Keynesian Economics Marc Lavoie 3. Post-Keynesian Economics - How to Move Forward Engelbert Stockhammer and Paul Ramskogler 4. A Guide to Paradigmatic Self-Marginalization: Lessons for Post-Keynesian Economists Leonhard Dobusch and Jakob Kappeler 5. Post-Keynesianism, Heterodoxy, and Mainstream Economics David Dequech 6. Heterodox Economics and its Critics Frederic S. Lee 7. Building Heterodox Community: Pluralism in Fragmented Epistemological Communities Barbara E. Hopkins 8. Conversation or Monologue? On Advising Heterodox Economists with Addendum Matias Vernengo 9. Economics Fit for the Queen: Barriers and Opportunities Peter E. Earl and Ti-Ching Peng 10. Orthodoxy, Heterodoxy, and Post-Keynesian Economics: Notes on Taxonomy Gary Mongiovi 11. The Global Financial Crisis and the Role of Engagement with the Mainstream in the Future of Post-Keynesian Economics Louis-Philippe Rochon and Peter Docherty 12. Notes on Ideology and Methodology with Addendum Duncan K. Foley 13. Whither Heterodoxy? Or Where is Heterodox Economics Going? Liem Hoang-Ngoc

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SPINE 19mm

In Defense of Post-­Keynesian and Heterodox Economics

Edited by Frederic S. Lee and Marc Lavoie

ROUTLEDGE ADVANCES IN HETErODOX ECONOMICS

In Defense of Post-­Keynesian and Heterodox Economics Responses to their critics Edited by Frederic S. Lee and Marc Lavoie

I S B N 978-0-415-69436-0 www.routledge.com

9

780415 694360

SPINE 19mm

In Defense of Post-­Keynesian and Heterodox Economics

Post-­Keynesian and heterodox economics challenge the mainstream economics theories that dominate the teaching at universities and inform government economic policies. And it was these latter theories that helped to cause the great depression the United States and the rest of the world is in. However, most economists and the richest 1% do not want mainstream theories challenged—for to do so would mean questioning why and how the 1% got where they are. Therefore, numerous efforts have been and are being made to discredit if not suppress post-­Keynesian and heterodox economics. These efforts have had some success; this book is a response to them. The chapters of the book deal with three interrelated points. The first is the extent to which mainstream and post-­Keynesian/heterodox economics are distinctly different; the second is a response to the arguments that heterodox economics should not exist and heterodox economists should become mainstream economists; and the third point concerns developments within the community of heterodox economists regarding the building of a stronger community and the pursuance of productive research strategies within the context of an antagonistic mainstream economics. This book makes it clear that post Keynesian/heterodox economics is, in spite of internal problems, a viable and important approach to economics and that it should resist the attempts of the critics to bury it. The reader will also find arguments that directly engage the critics and suggest that their views/criticisms are vacuous and wrong. As such, this will appeal to all who are interested in economic theory, economic history and who believe in challenging the orthodoxy. Frederic S. Lee is Professor of Economics at the University of Missouri, Kansas City, USA. Marc Lavoie is Professor of Economics at the University of Ottawa, Canada.

Routledge advances in heterodox economics Edited by Wolfram Elsner University of Bremen

and Peter Kriesler University of New South Wales

Over the past two decades the intellectual agendas of heterodox economists have taken a decidedly pluralist turn. Leading thinkers have begun to move beyond the established paradigms of Austrian, feminist, institutional-­evolutionary, Marxian, post-­Keynesian, radical, social, and Sraffian economics—opening up new lines of analysis, criticism, and dialogue among dissenting schools of thought. This cross-­fertilization of ideas is creating a new generation of scholarship in which novel combinations of heterodox ideas are being brought to bear on important contemporary and historical problems. Routledge Advances in Heterodox Economics aims to promote this new scholarship by publishing innovative books in heterodox economic theory, policy, philosophy, intellectual history, institutional history, and pedagogy. Syntheses or critical engagement of two or more heterodox traditions are especially encouraged.   1 Ontology and Economics Tony Lawson and his critics Edited by Edward Fullbrook   2 Currencies, Capital Flows and Crises A post Keynesian analysis of exchange rate determination John T. Harvey   3 Radical Economics and Labor Frederic Lee and Jon Bekken   4 A History of Heterodox Economics Challenging the mainstream in the twentieth century Frederic Lee   5 Heterodox Macroeconomics Edited by Jonathan P. Goldstein and Michael G. Hillard

  6 The Marginal Productivity Theory of Distribution A critical history John Pullen   7 Informal Work in Developed Nations Edited by Enrico A. Marcelli, Colin C. Williams and Pascale Jossart   8 The Foundations of Non-­Equilibrium Economics The principle of circular and cumulative causation Edited by Sebastian Berger   9 The Handbook of Pluralist Economics Education Edited by Jack Reardon 10 The Coming of Age of Information Technologies and the Path of Transformational Growth A long run perspective on the 2000s recession Davide Gualerzi 11 Cultural Economics and Theory The evolutionary economics of David Hamilton. William M. Dugger, William Waller, David Hamilton, and Glen Atkinson 12 The Cultural and Political Economy of Recovery Social learning in a post-­disaster environment Emily Chamlee-­Wright 13 The Foundations of Institutional Economics K. William Kapp Edited by Sebastian Berger and Rolf Steppacher 14 Alternative Theories of Competition Edited by Jamee K. Moudud, Cyrus Bina and Patrick L. Mason 15 In Defense of Post-­Keynesian and Heterodox Economics Responses to their critics Edited by Frederic S. Lee and Marc Lavoie

This series was previously published by The University of Michigan Press and the following books are available (please contact UMP for more information): Economics in Real Time A theoretical reconstruction John McDermott Liberating Economics Feminist perspectives on families, work, and globalization Drucilla K. Barker and Susan F. Feiner Socialism After Hayek Theodore A. Burczak Future Directions for Heterodox Economics Edited by John T. Harvey and Robert F. Garnett, Jr. Are Worker Rights Human Rights? Richard P. McIntyre

In Defense of Post-­Keynesian and Heterodox Economics Responses to their critics

Edited by Frederic S. Lee and Marc Lavoie

First published 2013 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2013 selection and editorial material, Frederic S. Lee and Marc Lavouie; individual chapters, the contributors. The right of Frederic S. Lee and Marc Lavoie to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data In Defense of Post-­Keynesian and Heterodox Economics/edited by Frederic S. Lee and Marc Lavoie. p. cm. Includes bibliographical references. 1. Keynesian economics. 2. Economics. I. Lee, Frederic S., 1949– II. Lavoie, M. (Marc) HB99.7.I574 2012 330.15′6–dc23 ISBN: 978-0-415-69436-0 (hbk) ISBN: 978-0-203-09576-8 (ebk) Typeset in Times New Roman by Wearset Ltd, Boldon, Tyne and Wear

Contents



List of illustrations List of contributors Preface

ix x xiii

M arc L a V oie A N D F R E D E R I C S . L E E



Acknowledgments

  1 Post Keynesians and others

xvi 1

J ohn E . K in G

  2 After the crisis: perspectives for post-­Keynesian economics

18

M arc L a V oie

  3 Post Keynesian economics – how to move forward

42

E n G elbert S tockhammer and P aul R amsko G ler

  4 A guide to paradigmatic self-­marginalization: lessons for post-­Keynesian economists

62

L eonhard D obusch and J akob K apeller

  5 Post Keynesianism, heterodoxy, and mainstream economics

87

D a V id D e Q uech

  6 Heterodox economics and its critics

104

F rederic S . L ee

  7 Building heterodox community: pluralism in fragmented epistemological communities B arbara E . H opkins

133

viii   Contents   8 Conversation or monologue? On advising heterodox economists, with addendum

158

M atias Vernen G o

  9 Economics fit for the Queen: barriers and opportunities

172

P eter E . E arl and T i - C ­ hin G P en G

10 Orthodoxy, heterodoxy, and Post-­Keynesian economics: notes on taxonomy

202

Gary M on G io V i

11 The global financial crisis and the role of engagement with the mainstream in the future of Post Keynesian economics

212

L ouis - ­P hilippe R ochon and P eter D ocherty

12 Notes on ideology and methodology, with addendum

230

D uncan K . F oley

13 Whither heterodoxy? Or where is heterodox economics going?

241

L i Ê m H oan G - ­N G oc



Index

253

Illustrations

Figures 2.1 4.1 4.2 7.1 7.2

Orthodoxy, dissent, and heterodoxy Citation pattern for the Cambridge Journal of Economics Citation pattern for the Journal of Post Keynesian Economics Mainstream economics Heterodox economics

21 75 75 144 145

Tables 2.1 The evolution of the main themes of post-­Keynesian economics 2.2 Negative advice given to heterodox or post-­Keynesian economists 2.3 Positive advice given to heterodox or post-­Keynesian economists 2.4 Counter-­advice for heterodox or post-­Keynesian economists 2.5 My own advice to post-­Keynesian economists 4.1 Citation networks constituted by leading orthodox and heterodox journals 4.2 The role of self-­citations within citation networks of leading orthodox and heterodox journals 4.3 Citation behavior among a content-­oriented selection of heterodox economic journals 4.4 Citation trade balance of 13 heterodox journal vis-­à-vis the mainstream 4.5 Non-­formal, formal, and econometric articles in two leading post-­Keynesian journals between 2007 and 2008 4.6 Strategies for increasing article circulation 4.7 Copyright policies of outlets for post-­Keynesian research 6.1 Examples of critical engagement with mainstream economics by JEL codes  6.2 Examples of critical engagement with frontier mainstream research

19 23 26 31 34 67 67 68 70 72 78 79 115 116

Contributors

David Dequech is a Professor of Economics at the University of Campinas, São Paulo, Brazil, and has recently been a visiting scholar at the Max Planck Institute for the Study of Societies and at Stanford University. His main topics of research have been institutions, economic behavior and thought, and uncertainty. Leonhard Dobusch is a post-­doctoral researcher at the School of Business and Economics at Freie Universitaet Berlin, Department of Management. His research interests include private regulation via standards, management of digital communities, and heterodox economics. Among his most recent publications is “ ‘Why is Economics not an Evolutionary Science?’ New Answers to Veblen’s Old Question” (with Jakob Kapeller, Journal for Economic Issues, 2009). Peter Docherty is Associate Professor in the Economics Group of the Business School at the University of Technology, Sydney (UTS). His undergraduate and Ph.D. degrees were earned from the University of Sydney and his research interests include post-­Keynesian monetary economics, macroeconomic policy, banking, and prudential regulation. He has held full time positions at the University of Sydney and the University of New South Wales as well as at UTS, and has been a visiting researcher at the University of Ottawa. He teaches courses in macroeconomics, monetary economics and capital markets, and is co-­editor of the Australasian Journal of Economics Education. Peter E. Earl is an Associate Professor of Economics at the University of Queensland, Australia, and has previously held academic appointments at Lincoln University, New Zealand, the University of Tasmania, and the University of Stirling. He is a past co-­editor of the Journal of Economic Psychology and a founding member of the editorial boards of Review of Political Economy and Marketing Theory. Duncan K. Foley is the Leo Model Professor of Economics at the New School for Social Research and External Professor at the Santa Fe Institute. He has worked on a wide range of topics in both mainstream and Marxist economics. His recent books are Unholy Trinity (Routledge, 2003) and Adam’s Fallacy (Harvard University Press, 2006).

Contributors   xi Liêm Hoang Ngoc is an Assistant Professor at the University of Paris I Panthéon-Sorbonne. In 1996 he initiated the call against the “pensée unique” in economics (the claim that there is no alternative). He is the author of several books. He is a member of the European Parliament, and a member of the Economic and Monetary Affairs Committee. He is also Deputy National Secretary of the French Socialist Party, in charge of economic issues. Barbara E. Hopkins is an Associate Professor of Economics at Wright State University in Dayton, Ohio. She teaches courses on comparative economics, capitalism, gender, and the global economy. Her research focuses on the interaction between the economic system and the gender system, consumption choices, and pluralism in economics. She has published in Feminist Economics, Feminist Studies, the Review of Radical Political Economics, and in several edited volumes. Jakob Kapeller is an economist who accidentally became a philosopher. He is working as a university assistant at the Department of Philosophy and Theory of Science at the University of Linz. His research interests include the epistemology of the social sciences, the history of political and economic thought, and heterodox economics. He recently completed his Ph.D. thesis, which analyzes mainstream economics from an epistemological perspective. John E. King is Professor of Economics at La Trobe University in Melbourne, Australia, where he has taught since 1988. His principal research interests are in the history of heterodox economic thought, with particular reference to Marxian political economy and post-­Keynesian economics. His recent publications include The Rise of Neoliberalism in Advanced Capitalism: a Materialist Analysis (with M. C. Howard) (Palgrave Macmillan, 2008), Nicholas Kaldor (Palgrave Macmillan, 2009) and The Microfoundations Delusion (Elgar, 2012). He is also the editor of The Elgar Companion to Post Keynesian Economics (second edition, 2012). Marc Lavoie is Professor in the Department of Economics at the University of Ottawa, where he started teaching in 1979. He has published over 175 book chapters and journal articles, as well as a number of books, including Foundations of Post-­Keynesian Economic Analysis (1992), Introduction to Post-­ Keynesian Economics (2006), and Monetary Economics: An Integrated Approach to Money, Income, Production and Wealth (2007) with Wynne Godley. With Mario Seccareccia he has been the co-­editor of a book on the works of Milton Friedman (1993) and of Central Banking in the Modern World: Alternative Perspectives (2004). With Gennaro Zezza he has prepared The Stock-­Flow Consistent Approach: Selected Writings of Wynne Godley (2011). Frederic S. Lee is a Professor of Economics at the University of Missouri-­ Kansas City. He has published extensively on heterodox microeconomics, and on the history of heterodox economics. He was the editor of the Heterodox Economics Newsletter and the executive director of ICAPE. He is

xii   Contributors ­currently the editor of the American Journal of Economics and Sociology. He has published in numerous heterodox journals including the Journal of Post Keynesian Economics, Review of Radical Political Economics, Review of Social Economy, Cambridge Journal of Economics, Review of Political Economy, and the Journal of Economic Issues. Gary Mongiovi received his Ph.D. from the Graduate Faculty of the New School for Social Research in 1988; he teaches at St John’s University. His main areas of research concern the classical political economy tradition associated with Ricardo, Marx, and Sraffa; and non-­mainstream approaches in macroeconomics. His work has appeared in the Cambridge Journal of Economics, Social Research, the Journal of the History of Economic Thought, Metroeconomica, the American Journal of Economics & Sociology and the Review of Radical Political Economics, The Good Society and The Nation. He and Steve Pressman have been co-­editing the Review of Political Economy since 1996. Ti-­Ching Peng is an Assistant Professor of Economics at National Dong-­Hwa University, Taiwan. She was previously appointed as Research Fellow in Behavioural Economics at the Centre for Regional Innovation and Competitiveness (CRIC) of University of Ballarat, Australia. Paul Ramskogler is economist and lecturer in Vienna. His major fields of interest include wage bargaining systems and post-­Keynesian monetary economics. He has published, amongst others, in the Journal of Economic Issues, the Review of Political Economy, and the Cambridge Journal of Economics. Louis-­Philippe Rochon is an Associate Professor at Laurentian University and the founding co-­editor of the Review of Keynesian Economics. He has written extensively on endogenous money, monetary policy, and post-­Keynesian economics. Engelbert Stockhammer is Professor at Kingston University, UK. His research areas include macroeconomics, financialization and unemployment. He has published numerous scholarly articles and recently co-­edited A Modern Guide to Keynesian Macroeconomics and Economic Policies (with Eckhard Hein and Edward Elgar, 2011). Matías Vernengo is currently Senior Research Manager at the Central Bank of Argentina, and Associate Professor (on leave) at the University of Utah. He has been external consultant at the Economic Commission for Latin America and the Caribbean (ECLAC), the International Labor Office (ILO), the United Nations Conference on Trade and Development (UNCTAD), and the United Nations Development Programme (UNDP). His research is mainly on development macroeconomics and the history of ideas from a heterodox perspective.

Preface Marc Lavoie and Frederic S. Lee

Over the last decade or so, a number of papers have discussed the evolution of neoclassical economics and its apparent transformation from a school of thought based on narrow marginalist principles to a broader more encompassing mainstream economics. Several papers have also made judgments on the prospects of post-­Keynesian economics specifically and heterodox economics at large, independently of this transformation. These two streams of papers have mainly appeared in heterodox publications such as the Review of Political Economy, the Journal of Post Keynesian Economics, the Journal of Economic Issues, the Cambridge Journal of Economics, and the Journal of Institutional Economics, but also in several recent edited books. So frequent have been the claims that neoclassical economics has changed that the editors of the journal Intervention: European Journal of Economics and Economic Policy felt compelled to survey their board members and former authors, asking them: how heterodox is the mainstream? (see the forum in the May 2007 issue). During these years both of us have felt uncomfortable with many of the arguments that have been advanced by the critics of heterodox economics, and in particular with the advice, however friendly, that has been offered to post-­Keynesian, and more generally to heterodox economists, in order to be more respectable and to achieve more pre-­eminence. The critics include John B. Davis, Giuseppe Fontana, Robert Garnett, and Bill Gerrard, but those that we have most in mind are David Colander, Richard C. Holt, and J. Barkley Rosser. Moreover, we were quite concerned that no systematic response to the critics (beyond short notes) had been published; and when short notes responding to the critics did appear in the journals, the critics were offered the opportunity to respond and hence got to have the final say. In particular, given the negative comments made by the critics, it was surprising to us that no prominent heterodox economists were invited by the heterodox journals to respond. It was as if the critics were winning the debate by default. Finally, it struck both of us that rarely did the critics of heterodox economics include, as representative targets of their criticisms, post-­Keynesian or other heterodox economists that currently have the greatest impact on the theoretical development of heterodox economics through their publications, teaching, directing dissertations, involvement in heterodox associations and conferences, and their editorship of heterodox newsletters, book series, and journals.

xiv   Preface The catalyst to do something and get involved in the conversation was the following. First Marc Lavoie was invited to give a lecture on the future of Keynesian economics at the 2009 international meeting of the Associação Keynesiana Brasileira (the Brazilian Keynesian Association). The presentation gave rise to two papers, one that discussed whether the global financial crisis had created conditions favorable to a second Keynesian revolution (which was published in the April–June 2010 issue of the Brazilian Journal of Political Economy) and another that appraised the pieces of advice recently provided to post-­Keynesian economists (which appears as Chapter 2 in this book). Secondly, at the 2009 conference of the European Association for Evolutionary Political Economy (EAEPE), Fred Lee attended a session on pluralism and heterodoxy in economics. Themes, comments, and feelings that emerged from it included the notion that pluralism should not be considered an important value for economists because it offended mainstream economists; that heterodox is a term that should not be used and that economists should not identify themselves as heterodox economists; that young economists should not spend much of their time studying heterodox economics; and that graduate students from heterodox programs were not competitive enough on the job market relative to mainstream students. This spurred him to write a rebuttal (which is published as Chapter 6 in this book). Through the virtues of the internet, in December 2009, the two of us realized that we had both written papers criticizing the critics—their recommendations, as well as their description and assessment of the current state of post-­Keynesian and heterodox economics. We met at the University of Missouri in Kansas City in January 2010, and figured that it would make sense to publish our two papers together, as we felt that they were complementary. That is, since we both agreed that heterodox economics includes post-­Keynesian economics and do not see much if any substantial theoretical conflict between the two, our responses to the critics were similar, although only partially overlapping. We then thought that the best way to make our views known would be to set up a symposium published in a heterodox economics journal on the subject of heterodox economics and its future. In particular, we envisioned the symposium as a vehicle that would forcefully and critically address the arguments of the heterodox critics, and would also engage with important issues within heterodox economics, such as the issues of pluralism, inter-­paradigm cooperation, and theoretical convergence. However, even for a mini-­symposium, one requires at least three papers. We thus needed to find another paper discussing the prospects of heterodox economics. This seemed to be a problem at first, but through internet searches and our own personal contacts, we quickly found two unpublished papers that had already been written on precisely the topics that we wished to address (Dobusch and Kapeller, published as Chapter 4 in this book; and Hopkins, published as Chapter 7 in this book). We also found scholars that were willing at short notice to write or reconsider their own assessment of the future and strategic options of heterodox economics (Dequech, published as Chapter 5 in this book; Earl and Peng, published as Chapter 9 in this book; King, published as Chapter 1 in this

Preface   xv book; Rochon and Docherty, published as Chapter 11 in this book). Instead of not having enough papers our problem became that, with eight possible papers, some of them being quite lengthy, we had too much material for the proposed symposium! However the editors of the Review of Political Economy graciously agreed to publish shortened versions of all eight papers as a two-­part symposium that appeared in the 2012 April and July issues. Being ever so entrepreneurial we thought that we could, as well, produce a book, using the long versions of the symposium papers. In addition, there existed already-­published articles (Stockhammer and Ramskogler, reprinted as Chapter 3 in this book; Vernengo, reprinted with an addendum as Chapter 8 in this book) and unpublished papers (Foley, reprinted with an addendum as Chapter 12 in this book; and Hoang-­Ngoc, translated from the French as Chapter 13 in this book) on the subject of the symposium and with which we either fully or roughly agreed. The topic was so popular that one of the co-­editors of the journal in which our symposium had first appeared also proposed to make a contribution (Mongiovi, published as Chapter 10 in this book). Finally, because John King is a very accommodating fellow, we got him to expand his symposium overview of the relationships between post-­Keynesian economics, heterodox economics, and mainstream economics, so as to take into account the additional book material (see Chapter 1 in this book), thus sparing us the trouble of writing one.

Acknowledgments

The editors are grateful to the Review of Political Economy for allowing us to use slightly modified or expanded versions of the papers that were published there and which now appear as Chapters 1, 2, 4, 5, 6, 7, 9 and 11 of this book. An earlier version of Chapter 6 appeared in Revue Francaise De Socio-­Economie (2011, 8: 123–44). We would also like to gratefully acknowledge the publishers that granted permission to reproduce parts or the whole of the following works: Chapter 3 is reprinted from Intervention: European Journal of Economics and Economic Policies (2009, 6:2, pp. 227–46); Chapter 8 (without the addendum) is reprinted from the Journal of Post Keynesian Economics (Spring 2010, 32:3, pp. 389–96) [© 2010 by M. E. Sharpe, Inc.; reprinted with permission of M. E. Sharpe, Inc.]; and Chapter 13 is a partial translation of the French article published in L’homme et la société (2008/4–2009/1, 170–1: 195–218) [© Editions l’Harmattan].

1 Post Keynesians and others1 John E. King

The relations between Post Keynesians and other economists have never ceased to be of great interest. In my book on the history of Post Keynesian economics I told a fairly non-­controversial story about the emergence of the Post Keynesian school in the 1950s and 1960s in the course of its sustained attack on the (old) neoclassical synthesis (King, 2002). I had little or nothing to say about dissenting mainstream economists, and was criticised by one reviewer for the omission, which, he maintained, entailed that I was attacking a straw man. He himself, however, proved to be defending a chimera (“behavioural macroeconomics”), which considerably weakened his argument (Bateman, 2004; compare King, 2008). I devoted one chapter of the book to a discussion of the relationship between Post Keynesians and certain other heterodox traditions (King, 2002: Chapter 11); with hindsight, I could have made a much better job of this one. All these questions have become much more contentious in the last decade. They are obviously closely related, but to keep things simple I shall deal with each one separately, before drawing some general conclusions.

Post Keynesians and the mainstream There are three very clear positions on the question of how Post Keynesians should deal with the mainstream: fight them, cooperate with them or ignore them. Peter Earl and Ti-­Ching Peng (this book, Chapter 9) add a fourth: creep up on them by stealth. The first position has been defended by Paul Davidson with commendable intransigence and consistency for almost half a century. There are obvious and to my mind very good reasons for taking this line. Mainstream ­macroeconomic theory is wrong, and it has pernicious consequences when used as the basis for economic policy. In Davidson’s (recent) words (2009): Today mainstream economics – whether it goes under the title of old neoclassical Keynesians, New Keynesians, old classical or new classical theorists, Arrow–Debreu–Walrasian economics, post-­Walrasian theory, behavioural economic theory – still relies on the classical axioms that Keynes discarded in his attempt to make economics relevant to the real-­ world problems of unemployment and international trade and international

2   J. E. King payments. As a result, these problems still plague much of the real world in the globalized economy of the twenty-­first century. For Davidson the continuing errors and increasing intolerance of the mainstream mean that resolute opposition to their mistaken and damaging ideas is the inescapable duty of all Post Keynesians. I have a lot of sympathy for this position, but it does have its dangers. One is the potential encouragement of sectarian intolerance, not just of other heterodox schools of thought but also of alternative approaches to Post Keynesian economics itself. This can be seen in Davidson’s own hostility to both the Kaleckian and the Minskyian strands of Post Keynesian thinking (Davidson, 2000, 2008), which I should be most reluctant to expel from my “big tent” (King, 2005; compare Davidson, 2003–2004, 2005 and Lavoie, 2005).2 A second danger, emphasised by Leonhard Dobusch and Jakob Kapeller in their contribution to this book, is that of allowing the mainstream to dictate the Post Keynesian agenda, especially the methodological agenda. This, they suggest, can already be detected very clearly in the journal citation data, which reveal Post Keynesians to be more likely to cite mainstream papers than to give credit to work in other heterodox traditions, and to exaggerate the intellectual significance of econometrics and mathematical modelling (this book, Chapter 4). One alternative to the Davidson position is to cooperate with the mainstream in the expectation that orthodox economists can be made to see the error of their ways and apply Post Keynesian corrections to both their theoretical models and their policy prescriptions. This position has been ably defended by Giuseppe Fontana and Bill Gerrard, who attribute it – wrongly, in my opinion3 – also to Davidson (Fontana and Gerrard, 2006: 70). In their view, Post Keynesians should actively pursue constructive engagement with mainstream economics with an emphasis on theoretical and empirical developments within a methodology that supports engagement. . . . Such a strategy should seek to exploit the parallel developments in mainstream and Post Keynesian economics such as decision-­making under uncertainty, imperfect competition, international finance, path-­dependency analysis and monetary and fiscal policy rules. Mainstream economists are social scientists, after all, with the commitment that this entails to constantly reassess their models and their methods; they are not, for the most part, merely Marx’s “hired prize-­fighters” of the bourgeoisie. Fontana and Gerrard can point to one important example of Post Keynesian success, in the area of monetary policy. This is the post-­1990 replacement of monetarism by the Taylor rule, with the implied acceptance of the Post Keynesian proposition that money is endogenous and central banks can control interest rates but not the money supply. The influence of Nicholas Kaldor and Basil Moore in this notable intellectual retreat may well have been significant, even if it is rarely acknowledged by mainstream theorists. It demonstrates that Post

Post Keynesians and others   3 ­ eynesians can have an impact, and should encourage them to offer friendly, K positive criticism of mainstream ideas. Fontana and Gerrard would probably maintain that their position has been considerably strengthened by the global financial crisis, which has revealed substantial weaknesses in the (new) neoclassical synthesis and forced the best and most honest of its practitioners to engage in fundamental self-­criticism. There have, for example, been many favourable references in the recent literature to the ideas of Hyman Minsky (for example by Akerlof and Shiller, 2009: 177 fn. 2). And this is the assessment of the eminent mainstream macroeconomist Willem Buiter (2009)4: Indeed, the typical graduate macroeconomics and monetary economics training received at Anglo-­American universities during the past 30 years or so may have set back by decades serious investigations of aggregate economic behaviour and economic policy-­relevant understanding. It was a privately and socially costly waste of time and other resources. Most mainstream macroeconomic theoretical innovations since the 1970s (the New Classical rational expectations revolution associated with such names as Robert E. Lucas Jr., Edward Prescott, Thomas Sargent, Robert Barro etc, and the New Keynesian theorizing of Michael Woodford and many others) have turned out to be self-­referential, inward-­looking distractions at best. Research tended to be motivated by the internal logic, intellectual sunk capital and aesthetic puzzles of established research programmes rather than by a powerful desire to understand how the economy works – let alone how the economy works during times of stress and financial instability. Post Keynesians have of course always been engaged in the “serious investigations of aggregate economic behaviour” that were lacking in mainstream models of representative agents with rational expectations and no obvious reason for using money. They have invariably been motivated by “a powerful desire to understand how the economy works” rather than the construction of elaborate, rigorous, beautiful and utterly useless formal models. Their contributions will prove even more acceptable to mainstream macroeconomists, Fontana and Gerard would suggest, if they are presented in a spirit of positive cooperation. If this were eventually to lead to the disappearance of Post Keynesianism as a separate school of thought, it would be no bad thing: The demise of Post Keynesian economics could be interpreted as a sign of intellectual progress to the extent that it signifies the integration of Post Keynesian economics into the main corpus of economic theory. Distinct schools of thought can wither away as a result of success rather than failure as, for example, Baumol (1991) has argued in the case of the Stockholm school. (Fontana and Gerrard 2006: 68)

4   J. E. King For every Willem Buiter, alas, there is at least one Olivier Blanchard. After proposing some modest (but very welcome) fine tuning to macroeconomic policy prescriptions, the chief economist of the IMF and two of his colleagues continue by stating the obvious, namely, that the baby should not be thrown out with the bathwater. Most of the elements of the precrisis consensus, including the major conclusions from macroeconomic theory, still hold. . . . The natural rate hypothesis holds, at least to a good enough approximation. . . . Fiscal sustainability is of the essence, not only for the long term, but also in affecting expectations in the short-­term. (Blanchard et al., 2010: 10, stress added) This is not quite “business as usual”, but it is pretty damn close. If the worst economic downturn in 80 years leaves “the major conclusions from macroeconomic theory” very largely intact, it is difficult to see friendly criticism from Post Keynesians ever having much of an impact on mainstream thinking. And Blanchard is by no means the most dogmatic defender of the “precrisis consensus”. Thus the optimism of Louis-­Philippe Rochon and Peter Docherty concerning the effects of the crisis on mainstream macroeconomics seems misplaced (this book, Chapter 11). As Duncan Foley notes: “Mainstream macroeconomics has suffered what Marx called the severe criticism of history, and by all ordinary standards we might expect mainstream macro to be on the ropes pleading for mercy from triumphant dissidents.” But this is not what has happened. “The spectrum of macroeconomic scholarly opinion in the mainstream,” he continues, remains “astonishingly narrow” and “there does not seem to be . . . any sense of urgency or responsibility to re-­refashion what looks like an exhausted and unprogressive research paradigm” (this book, Chapter 12). Rochon and Docherty are, of course, by no means alone in their excessive optimism. Engelbert Stockhammer and Paul Ramskogler make similar comments (this book, Chapter 3), while a commentator as politically astute as Robert Skidelsky (2009: 170) made the following predictions in a book that went to press in July 2009: One thing of which we can be tolerably sure is that the next phase of political economy will see less reliance on export-­led growth, a more restricted financial sector, an expanded public sector, and a more modest role for economics as tutor of governments. As of July 2012 he seems to have been quite wrong. Thus far, then, I am with Davidson. The third position on this question is that proposed by Fred Lee: ignore the mainstream altogether and get on with the task of building a comprehensive and totally self-­contained heterodox economics, which “is not (at least for the past two decades) defined in negative, oppositional terms or as a dual to mainstream economics but as a positive alternative to it. So if mainstream economics disappeared, heterodox economics would be un­affected” (this book, Chapter 6; also see Lee, 2011: 545). This position

Post Keynesians and others   5 extends to the “parallel developments in mainstream and Post Keynesian economics” identified by Fontana and Gerrard: “Since the entire theoretical corpus of neoclassical economics is pseudo-­knowledge”, Lee continues, “it is not clear why heterodox economists should pay attention to the mainstream frontier advances” (this book, Chapter 6). For several reasons I consider this to be the least persuasive of the three positions that I have been discussing thus far. First, it rests on a most unconvincing belief in the unity of heterodox economics, a point that I shall return to in the next section. Second it ignores fundamentally important political realities: mainstream macroeconomic policy is indeed derived, more or less consistently, from “precrisis consensus” macroeconomic theory. Any convincing criticism of the policy simply has to be based on a systematic critique of the theory. Third, it begs the question of the institutional survival of Post Keynesian economics in an increasingly hostile and intolerant academic environment. If not in (mainstream) economics departments, where exactly are heterodox economists of any persuasion going to find employment? Possibly in business schools, as suggested by Rochon and Docherty (this book, Chapter 11). Neither Lee nor I – who was recently released after serving a ten-­year sentence in one – find this a very attractive option. Fourth, and most contentiously, I think Lee considerably overstates his case in arguing that “neoclassical theory is pseudo-­knowledge” (this book, Chapter 6), if this is taken as referring to neoclassical theory in its entirety. The new neoclassical synthesis in macroeconomics is probably beyond redemption, but in other areas some mainstream ideas do have some merit. We all adhere to the law of demand in everyday life, and most of us would wish to apply it to some important policy questions. Let me offer one example; it is not a trivial one. Simon Chapman, Professor of Public Health at Sydney University and a long-­ term anti-­tobacco campaigner, advocates a number of proposals for reducing cigarette consumption (these are collated in Australian Government, 2009). One involves the elimination of all promotional material, including brand names, from cigarette packaging, on the grounds that this would reduce the attractiveness of the product as a social phenomenon, that is, as a source of group identity. This rests (of course) on an impeccable heterodox argument with which almost all Post Keynesians would agree: as the institutionalist Anne Mayhew once put it, all consumption is conspicuous (Mayhew, 2002). A second proposal is for a large increase in the tax on cigarettes, to bring their price in Australia up to the EU average. This was defended in a radio interview by Chapman – who is a sociologist specialising in public health, not an economist of any persuasion – on the grounds that the elasticity of demand for tobacco is known to be roughly minus 0.4, so that a 50 per cent increase in cigarette prices would cut the quantity smoked by 20 per cent and save very many lives. I suspect that this is true; it is certainly the product of mainstream economics; and it seems to be a very good idea. It is not the whole truth, as Chapman’s first proposal suggests, but it would be wrong to reject it purely on account of its origins in mainstream economics. Much the same can be said, I suspect, about carbon taxes as part of the remedy (if there still is one) for global warming, which have

6   J. E. King recently been endorsed by a prominent Australian heterodox economist, Frank Stilwell (2008). And I write from Melbourne, a city subject to severe periodic drought, where no Post Keynesian would object to higher water prices as one policy measure (among several) to promote conservation and prevent the waste of water. Anyone down here who dismissed this as being derived from “pseudo-­ knowledge” would lose all credibility. Earl and Peng (Chapter 9) suggest a fourth strategy that Post Keynesians (and other heterodox economists) might adopt towards the mainstream: stealth. Their argument is applied to both teaching and research. “Rather than engaging in open combat,” they suggest, “real-­world economists should exploit the ignorance of the mainstream that arises from their narrow reading and limited ability to monitor what happens in classrooms”, and present real-­world economics to students without explicitly branding it as such. In terms of research: The big chance for real-­world economics lies in applied work where theories meet facts rather than simply being ‘proved’ mathematically for a stylised content. Here, we think that pluralism has enormous Trojan horse potential. . . . By being presented in a non-­combative manner, pluralistic research that uses ideas from heterodox approaches and outperforms monist orthodox research strategies may become increasingly acceptable and visible in well-­ranked journals. This is an intriguing prospect. However, I doubt that it will succeed, at least in the context of macroeconomics,5 where RARE (representative agent/rational expectations) microfoundations are regarded as a precondition for any serious applied work or policy analysis. Without such microfoundations, discussion of monetary or fiscal policy (for example) will not be published in leading mainstream journals; with them, it will not be heterodox. I suspect that macroeconomic theory, empirical research and policy are much too closely integrated, in mainstream thinking, for the “Trojan horse” strategy to be in with a chance. To conclude this section: of the four positions distinguished at the outset, my preference is for the first. Post Keynesians should continue to attack mainstream macroeconomics, while remaining aware of the various dangers that this might entail. Gary Mongiovi concludes (this book, Chapter 10): For the time being it is preferable for Post-­Keynesians to remain outside the tent and go about their work, rather than sacrifice the scientific cornerstones of their approach merely for the privilege of being allowed into the mainstream conversation. They should be under no illusion about the prospects for friendly cooperation with the mainstream, but ignoring it altogether is simply not a realistic option. What, though, of Bradley Bateman’s “straw man” argument? Is mainstream macroeconomics on the way out? Should we focus instead on the dissenters on the fringes of the mainstream? And how should we react to them?

Post Keynesians and others   7

Post Keynesians and the mainstream dissenters This section considers the economists described by Lee as “heretics” (as opposed to “blasphemers”), and by Marc Lavoie as “orthodox dissenters” (as opposed to “apostates”); I myself prefer the term “mainstream dissenters”.6 These people “believe in the mainstream and its methodology”, but they advocate modifications to the doctrine. Thus “they are not a threat and are tolerated, the more so if they come from the upper ranks of the hierarchy” (this book, Chapter 2). Lavoie lists 14 of them, ten of whom are still alive: Robert Shiller, Richard Thaler, Colin Camerer, Harvey Leibenstein, Dani Rodrik, Herbert Simon, Ronald Coase, Wassily Leontief, Amartya Sen, George Akerlof, Paul Krugman, Joseph Stiglitz, Oliver Williamson and Bill Vickrey (this book, Chapter 2); David Colander should probably be added to the list. This is a very motley crew, but it is certainly a distinguished one. The last nine of those named by Lavoie have been awarded the Swedish Bank Prize in economics, and four of the first five are in the running for the award in the near future (Leibenstein ruined his chances by dying in 1994). Of the ten living dissenters only Akerlof, Krugman, Shiller and Stiglitz are known for their work in macroeconomics. All, I think, would describe themselves as “Keynesians”. Krugman is a self-­declared “Old Keynesian”, who really does seem to have learned something from the global financial crisis, as can be inferred from comparing his insipid and unenlightening introduction to Palgrave Macmillan’s 70th anniversary reissue of the General Theory (Krugman, 2007) with his recent journalism. Krugman now recognises that the crucial analytical relationship is that between saving and investment, so that in a recession the volume of saving is not deficient but excessive, relative to the depressed level of investment expenditure. This fundamental point completely eludes the mainstream, and it is – almost unbelievably – denied by Akerlof and Shiller (2009: ix, original stress deleted), who write in Animal Spirits that “left to their own devices, capitalist economies will pursue excess, as current times bear witness. There will be manias. The manias will be followed by panics. There will be joblessness. People will consume too much and save too little”. This, of course, is a travesty of Keynes. The new, dissenting “behavioural macroeconomics”, which according to Bateman (2004) was foreshadowed by Akerlof ’s Swedish Bank Prize acceptance lecture (Akerlof, 2002), has proved to be still-­born. Post Keynesians have never been quite sure what to make of Joseph Stiglitz; more precisely, very few of them seem ever to have seriously considered the question. Yet Stiglitz’s policy prescriptions during the global financial crisis have been unerringly correct, and they are derived from a theoretical perspective that has some important affinities with Post Keynesian thinking, including an emphasis on credit rationing, fundamental uncertainty (rather misleadingly presented in terms of “asymmetric information”) and involuntary unemployment (albeit mistakenly attributed to the microeconomic phenomenon of “efficiency wages”, rather than to the principle of effective demand). Stiglitz’s writings on economic development also display some notable Post Keynesian characteristics, though

8   J. E. King once again these tend to be wrapped up in unacceptable mainstream packaging. In his dissection of the Doha Round, for example, he first criticises computable general equilibrium models for ignoring unemployment, thereby rendering them inapplicable to real-­world developing economies, and then goes on to devote scores of pages to statistical tables derived from precisely such models (Stiglitz and Charlton, 2005: 199, Appendix I: 215–60). Krugman and Stiglitz are interesting, and almost certainly exceptional, in having moved somewhat further away from the mainstream as their careers have progressed. David Colander’s trajectory has been in the opposite direction. Colander’s early work on “Post-­Walrasian economics” was based on a rather radical critique of mainstream macroeconomics, both theoretically and methodologically, which included a call for a drastic reform of the teaching of economics to graduate students and, at the theoretical and methodological levels, the provision of macrofoundations for microeconomics (Colander, 1996). By 2009, as Lavoie demonstrates, the mainstream had Colander very firmly back on board. This had already become apparent two years earlier when, in The Making of an Economist, Redux, he renounced “my critique of twenty years ago”. He was then a critic of (mainstream) economics, Colander wrote, for “its rigidity of assumptions, its lack of empirical grounding, and its failure to bring the models to the data in a serious way”. By 2007: I believe, however, that economics has changed, and is now attempting to bring the models to the data in a much more meaningful way than it used to. . . . My critique of economics now is not about economics but about pedagogy – specifically the structure of the core in graduate education. (Colander 2007: 48) We shall shortly see what happens in mainstream macroeconomics when “models” and “data” come into conflict. By 2009 Colander was urging heterodox economists to “be economists, not heterodox economists”; “give the mainstream its due”, “see mathematicians and technical economists as your allies, not your nemesis”; and “worry less about methodology” (these are sub-­section headings in Colander 2009: 65–7, original italics removed). Evidently very little was left of the critical “Post-­Walrasian” dissenter of the mid-­1990s. If neither behavioural macroeconomics nor Post-­Walrasian economics ever took off, the question arises whether any of the orthodox dissenters really do pose a threat to mainstream theory, as John Davis (2008) suggested that they soon would. The history of behavioural economics, viewed as a form of dissenting mainstream microeconomics, suggests an answer. Faced with a potential challenge from within, the mainstream either shrugs it off, leaving the dissenters to choose between offering increasingly futile resistance or give up the battle altogether and move into other academic disciplines, as Herbert Simon chose to do (see Simon 1991: 249–51).7 Or the mainstream absorbs the dissidents, making only minor concessions to their critique. For behavioural economics, the price of respectability has been the abandonment of social psychology, and the project of

Post Keynesians and others   9 constructing a behavioural theory of the firm, and their replacement by a purely individualistic, asocial, choice-­theoretic, framework of analysis (Sent, 2004; Jefferson and King, 2010–2011). There is a parallel of sorts here with the “New Keynesians” of the 1980s, who began by appearing to offer a serious threat to New Classical economics but were soon swallowed up by it in what soon emerged as a new neoclassical synthesis.8 In this context, Lavoie’s endorsement (this book, Chapter 2) of Colander’s strictures on methodology is regrettable Like Colander, I would advise my post-­Keynesian colleagues to ‘worry less about methodology’. Stop talking about research, about how it should be done and about the methodological failings of previous authors, and do yourself some actual research that finds something! In practice, though, Lavoie himself is ambivalent on this question. The passage just quoted continues thus: Still, I do not wish to demean methodological studies. They play an important role in building a sense of belonging and in establishing the presuppositions of a research programme. . . . However, when a large proportion of the members of a paradigm focus on methodology, as was nearly the case in the 1990s, this denotes a problem. Interestingly, Lavoie has indeed been unable to avoid any further mention of methodological issues, as revealed by his references to the “hard-­science method” of mainstream economics, the desire of Fontana-­Gerrard “to bring about a methodological shift in orthodox economics”, the “straitjacket of individual optimization”, and Stephen Dunn’s assertion that “there is a degree of incommensurability in the methodology of orthodox economics and post-­ Keynesian economics” (Lavoie, this book, Chapter 2). The inescapable role of methodological considerations in the criticism of mainstream economics is emphasised by Matias Vernengo (this book, Chapter 8) and also by Rochon and Docherty (this book, Chapter 11). Lavoie stresses the importance of empirical research, which is certainly crucial. But it involves not just the issue of what counts as evidence (on which Post Keynesians and mainstream macroeconomists are unlikely to agree), but also the question of the relative importance of evidence and theoretical rigour when they come into conflict. Here is a prominent British macroeconomist (Wren-­Lewis, 2007: 47–8), reporting pre-­GFC on recent progress in policy formation in the UK: The pre-­microfoundations approach puts the stress on data consistency: models that are not consistent with the data (in an econometric sense) should be rejected. In contrast, the Bank of England’s new model embodies a quite different approach. Internal consistency is vital, because only then can we

10   J. E. King be sure that relationships are consistent with the axioms of microeconomic theory. Econometric consistency is not essential (it is ‘handled’ via ad hoc, non-­core relationships), but instead is a pointer to future theoretical development. This is very clear statement of the relationship between theory and evidence: when they conflict, throw out the evidence but retain the theory.9 In contrast, most Post Keynesians acknowledge the need for a sound methodological underpinning. This will have to come from scientific realism in one or other of its forms: the critical realism which is widely accepted at present, or the less dogmatic realist position advocated by the philosopher John Searle and recently endorsed – convincingly, in my opinion – by John Smithin (2009), or possibly the minimalist version defended by Uskali Mäki (2011). Contrary to Colander (2009: 67), it is not the case that “just about everything to be said about methodology has been said”. Not, at least, in the presence of mainstream macroeconomists, dissenting or otherwise. To conclude: there is nothing to be lost by engagement with the mainstream dissenters, but also (I fear) not very much to be gained. On this issue I broadly agree with Vernengo (this book, Chapter 8). This leaves one final question: what should be the Post Keynesian attitude to other heterodox schools of thought?

Post Keynesians and other heterodox economists Who, precisely, are the heterodox economists? Lee (this book, Chapter 6) lists six heterodox “traditions”, which together, he claims, constitute a coherent alternative to mainstream economics: “Post Keynesian-­Sraffian, Marxist-­radical, Institutional­evolutionary, social, feminist, and ecological economics”. He insists that “there are not multiple kinds of heterodox economics”, since all six traditions “emphasize the wealth of nations, accumulation, justice, social relationships in terms of class, gender and race, full employment, and economic and social reproduction”. The best that can be said of this is that it represents a manifesto for the future development of heterodox economics (and one that I find very attractive). It is not, however, an accurate description of the status quo. I shall begin with Lee’s list. (Where, incidentally, are the Austrians? Or the neo-­Schumpeterians? Both schools are heterodox, but both would come to the party to praise capitalism, not to bury it). I am most familiar with the first two of the six traditions that Lee identifies, and I find his characterisation of them deeply problematic. Almost no-­one today regards “Post Keynesian-­Sraffian” economics as a single coherent school of thought. By the end of the last century the Sraffians had been expelled (or, perhaps, had expelled themselves) from the Post Keynesian tradition, and in 2010 it is not at all clear whether the classical approach to political economy (as its few remaining practitioners prefer it to be known) will long survive the retirement of the first post-­Sraffa generation of theorists like Heinz Kurz and Neri Salvadori. I have already alluded to the significant disagreements between Kaleckian, Minskyian and Davidsonian (or “Fundamentalist Keynesian”) branches of Post

Post Keynesians and others   11 Keynesian economics, narrowly defined to exclude the Sraffians. Similarly, the term “Marxist-­radical” covers a multitude of sins and a very wide range of conflicting views. I know of no evidence – certainly Lee provides none – that radical economists10 and the various Marxist factions have seen the error of their exceedingly diverse ways and have come to an agreement on the “historical science of the social provisioning process” that Lee defends (this book, Chapter 6). The same can be said of the various and conflicting radical and Marxist approaches to financialisation, crisis theory, globalisation, and very much besides. This is not to deny that there are broad and significant areas of common ground, shared by the various heterodox traditions, nor to suggest that individuals from several of these traditions cannot work together, respecting each other’s idiosyncrasies, in particular when it comes to resisting the mainstream. There has certainly been more evidence of such mutual tolerance and cooperation in recent years. In part this simply reflects the increasingly hostile academic and (especially) institutional environment in which heterodox economists of all traditions now operate; we simply have to huddle together, in what has become a very cold climate. If this has made us more knowledgeable about other heterodox traditions, more interested in the problems that concern them, and more willing to cooperate when there is genuine common ground, so much the better. Fred Lee himself has made an enormous personal contribution to this process, which has seen the establishment and progress of the Association for Heterodox Economics in the UK, the Society of Heterodox Economists in Australia and similar organisations in other parts of the world. But this is evidence of pluralism, not of the existence of a single “specific, contemporary, and alternative theory” as Lee would have it (this book, Chapter 6). I find the section of Lee’s paper entitled “The Question of Identity” deeply puzzling. If heterodox economists really are “inter-­paradigms pluralistic”, so that “cross-­paradigm engagement” is “an important component of heterodox identity”, it follows that that cannot yet be a single alternative heterodox economics, since there are multiple heterodox paradigms. This is rather widely recognised in the heterodox community. Thus Engelbert Stockhammer and Paul Ramskogler (this book, Chapter 3) cast doubt on the feasibility of a “grand unifying heterodox synthesis”, since “it is far from clear whether different heterodox approaches are consistent”. Leonhard Dobusch and Jakob Kapeller call for a concerted effort “to further broaden and unify the theoretical and methodological bases on which the convergence of different heterodox theories might continue – or at least begin” (this book, Chapter 4, stress added). In similar vein, Gary Mongiovi defends Geoff Harcourt’s “horses for courses” approach, which advocates the use of different models and different methods for different problems (this book, Chapter 10). This has influenced Mongiovi’s own proposal for cooperation between Post Keynesians and Sraffians: “Rather than striving for a synthesis between the Post-­Keynesian and Sraffian traditions (or indeed between any two non-­mainstream frameworks),” he argues, “it might be

12   J. E. King more appropriate simply to aim for reconciliation – for recognition that the frameworks are compatible and complementary, and that there is enough common ground to justify an abandonment of the tensions that have impeded fruitful dialogue”. And David Dequech identifies “important overlaps between Post Keynesianism and other schools of economic thought. Some of their ideas are thus similar, while others – but by no means all – are compatible and complementary” (this book, Chapter 5, stress added). Moreover, with the best will in the world, there remains significant scope for misunderstanding between the various heterodox paradigms, as Barbara Hopkins reminds us in her contribution to this book. This manifests itself most obviously in the refereeing process, since heterodox economics journals tend to accept that anyone who has mastered a single heterodox perspective is qualified to evaluate any heterodox perspective. In consequence, heterodox economists often get referees with no background knowledge of the perspective they are writing in. This is a serious problem, Hopkins suggests (this book, Chapter 7), because the various heterodox perspectives not only reflect differences in subject matter but also indicate the existence of “fragmented epistemological communities”. I would prefer to rephrase this as revealing the influence of different methodologies, since – as the critical realists insist – in addition to epistemology, questions of ontology are also involved. Either way, Hopkins is certainly correct in arguing that heterodox economics does not at present constitute a single coherent unified community. As Foley points out (this book, Chapter 12), this is even reflected in citation practices: “There is a curious quirk in some dissident economists’ scholarly personalities that makes them reluctant to cite other living scholars’ work”, while no such inhibition restricts their references to Smith, Ricardo or Marx. “The point is that citing other dissident economic scholars, even those you may disagree with, does some public service in raising the visibility of scholarship in the field and approach in which you are working.” In a recent paper Dobusch and Kapeller (2009: 892; see also this book, Chapter 4) argue that “methodological and theoretical pluralism” might itself offer the basis for a unified paradigmatical alternative to mainstream economics. “Instead of unavailingly and in parallel struggling for paradigmatic dominance,” they suggest, “a joint effort for a pluralist (meta-)paradigm – in the sense of multiple paradigms competing on a similar level – seems much more promising.” Since the economy is a (very) complex system, it can only be understood from a variety of perspectives. These perspectives are certainly different, but they are not necessarily inconsistent with each other. In Kapeller’s words11: Such a pluralist paradigm could exhibit most characteristics typically attributed to paradigms (a common terminological structure, a common set of academic institutions, similar ideas for judging scientific quality, a shared conception of appropriate methodologies and even some common theoretical convictions), while debating the remaining theoretical differences in a polite and undogmatic way. Such a pluralist paradigm could accumulate the “solved puzzles” of various traditions, without determining the “one and only way” to do economics.

Post Keynesians and others   13 This position is endorsed by several contributors to this book, including Dequech (Chapter 5), Hopkins (Chapter 7) and Duncan Foley (Chapter 12). Post Keynesians will find this prospect attractive or threatening, depending on the value that they place on theoretical consistency and on maintaining their own distinctive identity, and on the strength of their fear that they might lose it in a featureless pluralistic quagmire.

Concluding remarks Whether the creation of a unified heterodox economic community is a practicable medium-­term prospect, and whether it is something to be welcomed, or resisted, are questions that we should all be thinking about. So far as the Post Keynesian tradition (or perspective, or paradigm) is concerned, I continue to prefer my big tent to Davidson’s small one, and I am not ready to take it down, fold it up and put it away, as Fontana and Gerrard propose. As I wrote (King, 2002: 5–6) some years ago: Early in the 1990s A.P. Thirlwall, who always described himself as a “Keynesian” (without any qualifying adjective), summarized the “six central messages of Keynes’s vision”. These were the propositions that output and employment are determined in the product market, not the labour market; involuntary unemployment exists; an increase in savings does not generate an equivalent increase in investment; a money economy is fundamentally different from a barter economy; the Quantity Theory holds only under full employment, with a constant velocity of circulation, while cost-­push forces cause inflation well before this point is reached; and capitalist economies are driven by the animal spirits of entrepreneurs, which determine the decision to invest (Thirlwall, 1993: 335–7). I suspect that many avowed Post Keynesians would regard this as a reasonable minimum platform. I would still welcome into my big tent anyone who is in broad agreement with Thirlwall’s six principles. This would rule out all orthodox mainstream macroeconomists, and most of the mainstream dissenters: Colander for sure, and also Akerlof and Shiller, despite the title of their recent book. Krugman and Stiglitz? Who knows? As for relations with other heterodox traditions, I would certainly encourage inter-­paradigm cooperation, while recognising that another mainstream tenet – the principle of opportunity cost – has to be borne in mind. We have limited time and energy (most of us, at least: Fred Lee seems to be an exception), and hours spent studying the work of institutionalists or social economists are hours that cannot be devoted to specifically Post Keynesian concerns. But there clearly is scope for joint work on particular issues, for example the ecological and gender implications of different macroeconomic policy regimes. There is a substantial history of cooperation between (some) Post Keynesians and (some) Marxist-­ radicals, using Michał Kalecki as a bridge, and between (some) institutionalists

14   J. E. King and (some) Post Keynesians, with the writings of Alfred Eichner and John Kenneth Galbraith as important points of contact. I am very sympathetic to Liêm Hoang-­Ngoc’s proposal (this book, Chapter 13: 12) for renewed cooperation between Post Keynesians and Marxians, not least because, as he notes: “Keynes stops at the entrance of the factory, which Marx had started to break down with the theory of exploitation.” But this again is evidence of pluralism, not unity. Similarly, there is much to be said for Post Keynesians becoming more inter-­ disciplinary, since sociologists and political scientists are much more open to heterodox economic ideas than the great majority of (orthodox) mainstream economists; the (sub-) discipline of international political economy might be a good place to start. Again, though, inter-­disciplinary and multi-­disciplinary work presupposes that there are several separate disciplines, and thereby denies the existence of a single, unified social science. To repeat: this may (or may not) be regrettable, but it is the way things are.

Notes   1 I am grateful to Jakob Kapeller, Marc Lavoie and Fred Lee for comments on an earlier draft.   2 It is greatly to Davidson’s credit, however, that he has always distinguished clearly between the role of journal editor and that of individual scholar. Under his stewardship the Journal of Post Keynesian Economics has been consistently and commendably ecumenical, though Davidson has never hesitated to make his own position very clear.   3 It could be argued that there is only a difference in degree between Davidson’s strategy of “unrelenting criticism” of mainstream macroeconomics and the Fontana-­ Gerrard strategy of “constructive engagement”. I think that this considerably understates the gulf between them.   4 I am grateful to Marc Lavoie for this reference. Buiter has been a significant figure in mainstream macroeconomics for the last three decades. Formerly Professor of Economics at Cambridge, the London School of Economics and Yale, he has also been a member of the Bank of England’s Monetary Policy Committee (1997–2000) and Chief Economist at the European Bank for Reconstruction and Development (1994–2000). In January 2012 he was Chief Economist at Citigroup.   5 Perhaps significantly, the examples cited by Earl and Peng come from microeconomics: behavioural theory in the classroom, housing renovation choices in the journals.   6 As Marc Lavoie reminds me, this resembles John Davis’s “mainstream heterodox” category (Davis, 2008: 359).   7 Simon’s adversaries at Carnegie Tech included an Old Keynesian (Franco Modigliani) and a New Classical (John Muth).   8 My own earlier discussion of New Keynesianism was woefully inadequate (King, 2002: 233–9).   9 This strengthens my suspicion that the Earl-­Peng “Trojan horse” strategy is unlikely to succeed, at least in macroeconomics. Wren-­Lewis’s own reconsideration of these issues focuses on the inability of mainstream models of price rigidity to satisfy the consistency test; he has not renounced the primacy of theoretical consistency over empirical evidence (Wren-­Lewis, 2011). 10 “Radical economics” is yet another umbrella term, which needs to be fully unfurled; this, however, is not the place to attempt to do so. 11 Personal communication, 17 March 2010.

Post Keynesians and others   15

References Akerlof, G. A. (2002) “Behavioral macroeconomics and macroeconomic behavior” in American Economic Review, 92: 411–33. Akerlof, G. and Shiller, R. (2009) Animal Spirits: how human psychology drives the economy, and why it matters for global capitalism, Princeton: Princeton University Press. Australian Government, Preventative Health Taskforce (2009) Australia: the healthiest country by 2020. Technical Report 2: Tobacco Control in Australia: making smoking history, Canberra: Commonwealth of Australia. Bateman, B. (2004) “Review of King, A History of Post Keynesian Economics Since 1936” in History of Political Economy, 36: 581–3. Baumol, W. J. (1991) “Comment” in L. Jonung (ed.) The Stockholm School of Economics Revisited, Cambridge: Cambridge University Press. Blanchard, O., Dell’Arica, G. and Mauro, P. (2010) “Rethinking Macroeconomic Policy”, Washington, DC: IMF Staff Position Note, SPN/10/03. Buiter, W. (2009) “The unfortunate uselessness of most ‘state of the art’ academic monetary economics” in Financial Times, 3 March. Available at: http://blogs.ft.com/maverecon/ 2009/03/the-­unfortunate-uselessness-­of-most-­state-of-­the-art-­academic-monetary-­ economics/#more-­667. Colander, D. (1996) “The macrofoundations of micro” in Colander (ed.) Beyond Microfoundations: Post Walrasian macroeconomics, Cambridge: Cambridge University Press. Colander, D. (2007) The Making of an Economist, Redux, Princeton: Princeton University Press. Colander, D. (2009) “How did macroeconomic theory get so far off track and what can heterodox macroeconomists do to get it back on track?” in E. Hein, T. Niechoj and E. Stockhammer (eds) Macroeconomic Policies on Shaky Foundations: whither mainstream economics?, Marburg: Metropolis Verlag. Davidson, P. (2000) “There are major differences between Kalecki’s theory of employment and Keynes’s general theory of employment, interest, and money” in Journal of Post Keynesian Economics, 23: 3–25. Davidson, P. (2003–2004) “Setting the record straight on ‘A History of Post Keynesian Economics’ ” in Journal of Post Keynesian Economics, 26: 245–72. Davidson, P. (2005) “Responses to Lavoie, King, and Dow on what Post Keynesianism is and who is a Post Keynesian” in Journal of Post Keynesian Economics, 27: 393–408. Davidson, P. (2008) “Is the current financial distress caused by the subprime mortgage crisis a Minsky moment? Or is it the result of attempting to securitize illiquid non-­ commercial mortgage loans?” in Journal of Post Keynesian Economics, 30: 669–76. Davidson, P. (2009) The Keynes Solution: the path to global economic prosperity, Basingstoke: Palgrave Macmillan. Davis, J. B. (2008) “The turn in recent economics and the return of orthodoxy” in Cambridge Journal of Economics 32: 349–66. Dequech, D. (2013) “Post Keynesianism, heterodoxy, and mainstream economics” in this book, Chapter 5. Dobusch, L. and Kapeller, J. (2009) “  ‘Why is economics not an evolutionary science?’: new answers to Veblen’s old question” in Journal of Economic Issues, 43: 867–98. Dobusch, L. and Kapeller, J. (2012) “A Guide to Paradigmatic Self-­Marginalization: Lessons for Post-­Keynesian Economists” in this book, Chapter 4.

16   J. E. King Earl, P. E. and Peng, T.-C. (2013) “Economics fit for the Queen: barriers and opportunities” in this book, Chapter 9. Foley, D. K. (2013) “Notes on ideology and methodology, with addendum” in this book, Chapter 12. Fontana, G. and Gerrard, B. (2006) “The future of Post Keynesian economics” in Banca Nazionale del Lavoro Quarterly Review, 59 (236): 49–80. Hoang-­Ngoc, L. (2013) “Whither heterodoxy? Or, where is heterodox economics going?” in this book, Chapter 13. Hopkins, B. (2013) “Building heterodox community: pluralism in fragmented epistemological communities” in this book, Chapter 7. Jefferson, T. and King, J. E. (2010–2011) “Can Post Keynesians make better use of behavioral economics?” in Journal of Post Keynesian Economics, 33 (2): 211–34. King, J. E. (2002) A History of Post Keynesian Economics Since 1936, Cheltenham: Edward Elgar. King, J. E. (2005) “Unwarping the record: a reply to Paul Davidson” in Journal of Post Keynesian Economics, 27: 377–84. King, J. E. (2008) “Heterodox macroeconomics: what, exactly, are we against?” in L. R. Wray and M. Forstater (eds) Keynes and Macroeconomics After 70 Years: critical assessments of the General Theory, Cheltenham: Edward Elgar. Krugman, P. (2007) “Introduction to new edition” of J. M. Keynes, The General Theory of Employment, Interest and Money (1936)”, Basingstoke: Palgrave Macmillan, pp. xxv–xxviii. Lavoie, M. (2005) “Changing definitions: a comment on Davidson’s critique of King’s history of Post Keynesianism” in Journal of Post Keynesian Economics, 27: 371–6. Lavoie, M. (2010) “Are we all Keynesians?” in Revista de Economia Politica – Brazilian Journal of Political Economy, 30 (2): 189–200. Lavoie, M. (2013) “After the crisis: perspectives for Post-­Keynesian economics” in this book, Chapter 2. Lee, F. S. (2011) “The Pluralism Debate in Heterodox Economics” in Review of Radical Political Economics, 43: 540–51. Lee, F. S. (2013) “Heterodox economics and its critics” in this book, Chapter 6. Mäki, U. (2011) “Scientific realism as a challenge to economics (and vice versa)” in Journal of Economic Methodology, 18 (1): 1–12. Mongiovi, G. (2013) “Orthodoxy, heterodoxy, and Post-­Keynesian economics: notes on taxonomy” in this book, Chapter 10. Rochon, L.-P. and Docherty, P. (2013) “The global financial crisis and the role of engagement with the mainstream in the future of Post Keynesian economics” in this book, Chapter 11. Sent, E.-M. (2004) “Behavioral economics: how psychology made its (limited) way back into economics” in History of Political Economy, 36: 735–60. Simon, H. A. (1991) Models of My Life, New York: Basic Books. Skidelsky, R. (2009) Keynes: the Return of the Master, London: Allen Lane. Smithin, J. (2009) Money, Enterprise and Income Distribution: towards a macroeconomic theory of capitalism, London: Routledge. Stiglitz, J. E. and Charlton, A. (2005) Fair Trade for All: how trade can promote development, Oxford: Oxford University Press. Stilwell, F. (2008) “Sustaining what?” in Overland, 193: 42–6. Stockhammer, E. and Ramskogler, P. (2013) “Post Keynesian economics – how to move forward” in this book, Chapter 3.

Post Keynesians and others   17 Thirlwall, A. P. (1993) “The renaissance of Keynesian economics” in Banca Nazionale del Lavoro Quarterly Review, 186: 327–37. Vernengo, M. (2013) “Conversation or monologue? On advising heterodox economists, with addendum” in this book, Chapter 8. Wren-­Lewis, S. (2007) “Are there dangers in the microfoundations consensus?” in P. Arestis (ed.) Is There a New Consensus in Macroeconomics?, Basingstoke: Palgrave Macmillan. Wren-­Lewis, S. (2011) “Internal consistency, price rigidity and the microfoundations of macroeconomics” in Journal of Economic Methodology, 18 (2): 129–46.

2 After the crisis Perspectives for post-­Keynesian economics1 Marc Lavoie

Introduction Over the last few years, there has been a flurry of articles claiming that neoclassical economics had changed, questioning whether mainstream economics even still ought to be called neoclassical economics, or discussing the future of post-­ Keynesian economics or the future of heterodox economics at large. David Colander (1996, 2000, 2003, 2009a, 2009b) has been in the vanguard of this movement, along with Holt and Rosser (2004, 2007–2008), but they have been accompanied by many more authors such as Davis (2006, 2008), Garrett (2006) and Fontana and Gerrard (2006), with contributions to specific concerns of post-­ Keynesian economics by King (2002) and Davidson (2005), not forgetting the abundant writings of Tony Lawson (2006, 2009a). Very appropriate responses, in my view, have been written by Dutt (2003), King (2009a, 2009b), Lee (2011), Vernengo (2010; also see Chapter 8) and Stockhammer and Ramskogler (2009; also see Chapter 3). On many occasions, browsing through yet another of these papers giving advice to heterodox or post-­Keynesian authors, I have been tempted to get into the discussion, but I have resisted doing so up to now, thinking that I would be wasting my time, and also because, as mentioned above, some of the responses have been quite adequate. I cannot but confess that I have experienced a great deal of frustration reading some of the advice being offered by colleagues, some of which have themselves hardly ever attempted to publish any empirical work or formal models. As a result of this, I now have some sympathy for neoclassical authors who have invested heavily in technical tools and refuse to reply to outside methodological critiques. Be that as it may, here is my take on all these issues. I will try not to vent my frustrations, achieving this by stating without much controversial comment the various suggestions which have been made. I start by outlining the past evolution of post-­Keynesian economics. I then present a nomenclature that should help to clarify the distinction between orthodox and heterodox economics. I then list and assess the things that post-­ Keynesians have been told not to do, followed by the positive advice that they have been asked to follow. I finish with advice that I very much agree with, and by offering some suggestions of my own. In this essay I will not try in any way

After the crisis   19 to define the features or the presuppositions that define heterodox or post-­ Keynesian economics, as I have done so elsewhere (Lavoie 1992, 2011a).

The past evolution of post-­Keynesian economics Before talking about the future of post-­Keynesian economics, I think it would be fair to recapitulate its past evolution, so as to have some background information. King (2002) believes that post-­Keynesian economics started in the 1930s, when Keynes was testing his new ideas about depression economics with members of the Circus, notably Joan Robinson and Richard Kahn. In a very reduced form, Table 2.1 outlines what I believe to be the themes that have marked the evolution of post-­Keynesian theory, fully recognizing that this is a bird’s view nomenclature, one based on readings’ recollection, and not a quantitative analysis that could be gathered from King’s (1995) annotated bibliography of post-­Keynesian economics. This is nothing else than a partial view. For instance, a lot of work on Kaleckian growth models has certainly been done in the 1990s, and discussions about monetary theory have certainly gone beyond the 1980s, in particular with the current push by the so-­called neo-­chartalist group (Wray 1998), now presented in blogs as modern monetary theory (MMT), with its emphasis on the payment and clearing and settlement system. The main point that I wish to emphasize is that methodology issues nearly came to dominate all other issues in the 1990s, with a re-­examination of Keynes’s writings, which was also associated with an enthusiasm for history of economic thought, perhaps generated by some fear to engage in policy debates. Indeed, this led Giuseppe Fontana and Bill Gerrard (2006: 69) to comment that: “Post Keynesian economists are seen to be more Table 2.1  The evolution of the main themes of post-Keynesian economics Timeline

Main themes

1930s 1950s

Unemployment Neo-Keynesian (Cambridge) models of growth and distribution Capital controversies Theory of the firm, pricing, definition of a paradigm Kaleckian models of growth, endogenous money, the financial fragility hypothesis Attempts at synthesis and textbooks (the Romantic Age, according to Fontana and Gerrard (2006)) Methodology, critical realism, history of economic thought (the Age of Uncertainty, according to Fontana and Gerrard (2006)) Economic policy, globalization, empirical and econometric work, new attempts at synthesis Stock-flow coherence, path dependence, ecological economics, financial instability?

1960s 1970s 1980s Late 1980s, early1990s 1990s 2000s 2010s

20   M. Lavoie concerned with critique, methodology and the history of economic thought rather than the development of economic theory per se.” Indeed, an even harsher appraisal was mentioned by Stephen Dunn (2000: 343): Post Keynesianism is commonly referred to as a disintegrating research program, more obsessed with the exegesis of the ideas of long dead economists than it is concerned with explaining new, novel empirical facts or contributing to the development of new policy. But as can be clearly ascertained when participating to various post-­ Keynesian conferences throughout the world over the last dozen years or so, this has given way to a concern for policy relevance, both at the domestic and global level, accompanied by a revived interest in empirical studies and in applied econometrics, no doubt helped by the appearance of novel agnostic time-­series methods. There has been a clean shift from abstract methodological matters towards more concrete empirical ones, although methodological issues are still alive as the present paper and the present book testify! In other words, post-­ Keynesian economics today is not the same as it was 20 years ago, and it is not always clear that some of its critics are fully aware of this evolution.

Dissent in economics Before engaging any further in a discussion of the future of post-­Keynesian economics, I wish to put forth a distinction which is inspired by the proposals of Roger Backhouse (2004), whose article is devoted to understanding the nuances between disagreement, controversies and dissent in economics. My taxonomy may help to simplify the characterizations proposed by David Dequech (2007–2008), while at the same time helping us to understand the sociology of the economics profession. I will argue that economists can be divided into two broad groups: the mainstream and the dissenters. The mainstream essentially corresponds to the textbook view. “Its existence as a coherent intellectual whole is generally most strongly expressed in textbooks at the upper undergraduate and at the graduate levels” (Colander et al., 2007–2008: 306).2 The dissenters, as argued by Backhouse (2004), are themselves subdivided into two additional groups: the orthodox dissenters and the heterodox dissenters. Those three groups are represented in Figure 2.1, with the heterodox dissenters in black on the left, the mainstream in dark grey on the right, and the orthodox dissenters in light grey and white, in between the other two groups. In his paper on the nature of heterodox economics and neoclassical economics, John Davis (2006: 27) does not use the terminology proposed by Backhouse, but I think that this is what he has in mind when he says that “heterodox economics post-­1980 is a complex structure, being composed of two broadly different kinds of heterodox work: . . . the traditional left heterodoxy and the ‘new heterodoxy’ resulting from other science imports”. His left heterodoxy is ­Backhouse’s heterodox dissent, while his new heterodoxy is orthodox dissent.

After the crisis   21 Heterodoxy

Dissenters

Orthodoxy

Colander’s Edge

Mainstream

Figure 2.1  Orthodoxy, dissent, and heterodoxy.

Similarly, those that Colander et al. (2007–2008: 309) call outside the mainstream heterodox economists are Backhouse’s heterodox dissenters, while their inside the mainstream heterodox economists are Backhouse’s orthodox dissenters. I much prefer Backhouse’s terminology. Frederic Lee (2009, 2011) also utilizes a slightly different nomenclature, a more provocative one as it is akin to religion, an analogy which, nevertheless, may be quite adequate for economics, calling heretics those that Backhouse would name orthodox dissenters, while the heterodox dissenters are named blasphemers. Here Lee uses the term heretics in a sense different from that of Keynes in the General Theory. Heretics in religion are believers, but they advocate some modification of the doctrine. In the context of economics (but not that of religion, as the Inquisition episodes have shown), they believe in the mainstream and its methodology, and thus they are not a threat and are tolerated, the more so if they come from the upper ranks of the hierarchy. They are orthodox dissenters. By contrast the blasphemers are non-­believers, they do not believe in the mainstream, indeed they reject the core of the mainstream, deny its relevance and truth, and do not really wish to improve its doctrine. They have their own agenda, unrelated to that of the mainstream. They are apostates, who have split off from the mainstream, giving it up entirely. They are the heterodox dissenters. As Backhouse (2004) says, schools of thought such as the post-­Keynesians, the Marxists, the Radicals, and the Old Institutionalists are clearly heterodox dissenters, to which we should add the French regulation school. Thus heterodox economists are dissenters in economics. But the concept of dissent is much broader than that of heterodoxy. Heterodox dissenters are unlikely to become part of the mainstream, and their position in the pecking order is always likely to remain precarious. By contrast, orthodox dissenters may

22   M. Lavoie turn into heterodox dissenters or may become part of the mainstream, either from their own volition or because the bulk of the profession moved towards the propositions of these dissenters. Backhouse offers some examples of orthodox dissenters, such as the French disequilibrium school in the late 1970s, with Malinvaud and Bénassy. Keynes himself, with the publication of the General Theory in 1936, may be perceived as an orthodox dissenter. Milton Friedman was certainly a dissenter in the 1950s, but then his views became mainstream in the late 1960s. Similarly, the New consensus model, based as it were on a central bank reaction function involving the rate of interest, instead of the money supply stock, was certainly considered as orthodox dissent in its beginning, but as we pointed out earlier, it is now the bread and butter of central bank researchers. Other examples of orthodox dissent may include the work of authors as diverse as Robert Shiller, Richard Thaler, Colin Camerer, Harvey Liebenstein, Dani Rodrik, Herbert Simon, Ronald Coase, Wassily Leontief, Amartya Sen, George Akerlof, Paul Krugman, Joseph Stiglitz, Oliver Williamson, or William Vickrey. Indeed many of these authors have explicitly stated that they certainly did not want to rock the mainstream boat. Thaler for instance, is cited as saying that he did not want “to lay waste to the entire mathematical, hard science apparatus that economists had built after World War II” (Fox, 2009: 187). Obviously getting the Bank of Sweden Prize (in Economic Sciences in Memory of Alfred Nobel) seems to be helpful for a dissenter to be heard. But it may also be, as forcefully argued by Colander (2003) and Colander et al. (2004, 2007–2008), that orthodox dissenters are the “cutting edge” of orthodox economics, the really serious and innovative people arising out of the mainstream (represented by the white area in Figure 2.1). For Colander and his co-­authors (2004: 492), the cutting edge is that part of dissent “that is taken seriously by the elite of the profession”. Krugman (2000: 1830–1) adds that “most economists do not do first-­rate research”, so that “there is a lot of irrelevant mathematical modelling out there”, while “the very best economists may be free of the sins of which the profession is criticised”. Thus, for Colander and his co-­authors, the cutting edge right now are people who do what Colander used to call Post Walrasian economics, now renamed complexity economics (notably in Holt et al., 2011), with non-­linear and chaotic economics, plus the economists involved with behavioural and experimental economics, and those working with simulations and multi-­agent modeling, as proposed at the Santa Fe Institute – although it should be pointed out that the economics section at the Institute has now been discarded. Colander and his associates would like us – post-­Keynesian or heterodox economists – to forget about the mainstream and focus our attention on the contributions of these “cutting-­edge” orthodox dissenters. My own take on this is that while some of the orthodox dissenters no doubt produce “cutting-­edge” stuff, it is certainly not the case of all orthodox dissenters, as illustrated in Figure 2.1 with the white area, depicted as small as it is unlikely that the majority of orthodox dissenters produce “cutting-­edge” work.

After the crisis   23

Negative advice given to post-­Keynesian economists As pointed out at the beginning of this section, several authors have felt confident enough to provide advice to their heterodox colleagues about how they should be conducting or orienting their research. I present these suggestions as a series of short tables, and I elaborate briefly on their suggestions. I start with what I call negative advice – things that heterodox researchers or post-­Keynesian economists should not be doing – see Table 2.2. I will then move on to positive advice – things that we should be doing – and in particular positive advice about techniques. I will follow with counter-­advices – suggestions for research which contradict some of the earlier advice – that have been put forward by other authors as a reaction to this earlier advice. I close this tour with my own suggestions. The first negative advice given by methodologists is to stop spending so much time discussing methodology! Colander (2009a: 67) tells us to “worry less about methodology”. Colander et al. (2007–2008: 309), after having read Dequech (2007–2008), are more sanguine. They say: “Do not worry about methodology”. They excuse the fact that they are contradicting themselves by adding that “only long-­in-tooth . . . economists such as us are given a pass to write on methodology”, meaning that only experienced researchers ought to indulge in methodology. Like Colander, I would advise my post-­Keynesian colleagues to “worry less about methodology”. Stop talking about research, about how it should be done and about the methodological failings of previous authors, and do yourself some actual research that finds something! Still, I do not wish to demean methodological studies. They play an important role in building a sense of belonging, and in establishing the presuppositions of a research programme. They help to understand how one’s work fits within the larger subset of heterodox economics, as will be pointed out later. I have myself devoted a fair amount of attention to  methodology (Lavoie, 1991, 1992), establishing how heterodox economics Table 2.2  Negative advice given to heterodox or post-Keynesian economists Authors

Suggestions

Colander (2009); Colander et al. (2007–2008) Fontana and Gerrard (2006); Colander et al. (2007–2008)

Worry less about issues of methodology

Garnett (2006);Colander et al. (2009) Hoang-Ngoc (2008–2009) Henry (1993), Rutherford (2000), Lawson (2009b)

Move away from criticizing the neoclassical straw man models found in textbooks Abandon anti-mainstream stances Stop criticizing the lack of realism of mainstream assumptions, and produce your own models Stop defending the “true faith” as found in the works of the founders of heterodox schools

24   M. Lavoie constituted a research programme on its own by identifying what I felt were its key presuppositions, and my two post-­Keynesian textbooks each devote a chapter to methodology. However, when a large proportion of the members of a paradigm focus on methodology, as was nearly the case in the 1990s, this denotes a problem. But as pointed out earlier, it is clearly not the case anymore. The second piece of negative advice is to move away from criticizing the neoclassical straw man model found in textbooks. Colander et al. (2007–2008: 310) make this point repeatedly, enjoining us not to “criticize a strawman to be found in the textbook”, adding that “criticizing textbook ideas as a description of what the mainstream believes is not a productive endeavour”. In the terms that we have defined above, one would need to rephrase the above as “criticizing textbook ideas as a description of what orthodox dissenters or the cutting-­edge economists believe is not a productive endeavour”. Fontana and Gerrard (2006: 73), conclude similarly that “Post Keynesian economics must move away from ‘straw man’ critiques”. Still they believe that post-­Keynesians should be able to “provide informed critiques” of the new developments in orthodox economics. A third piece of negative advice, somewhat related to the second one, is to abandon anti-­mainstream stances. This view is most clearly expressed by Robert Garnett (2006). He argues that the paradigmatic approach of heterodox economics is a remnant of the Cold War, concluding that “the paradigm warfare approach has become increasingly anachronistic and self-­defeating for heterodox economists” (2006: 526). Seen from the perspective of an economist working in a North American academic environment, where room for heterodox thought has to be dearly fought for, this view seems somewhat naive. Garnett has basically two arguments to offer. The first is to refer to the interesting work of orthodox dissenters. His second argument is that it contradicts the heterodox quest for pluralism, more about which will be said later. My own view here is that while we should not spend too much time, if any, criticizing mainstream textbooks, it seems to me that it is difficult not to oppose several standard assumptions, including those made by state-­of-the-­art authors. The recent book by Davidson (2009) is quite instructive in this regard, as he keeps pressing the point that free-­market policies and financial deregulation over the past few decades were based on theoretical constructs: the efficient market hypothesis and the assumption of rational expectations, tied to a hard-­science method that denied the relevance of fundamental uncertainty, liquidity, and loan defaults, and that proclaimed the neutrality of monetary arrangements, going so far as to assert that in a proper inter-­temporal model any object can serve as money. Even some neoclassical authors, such as Willem Buiter and Paul Krugman, have taken a warfare approach against these kinds of assumptions, which permeate orthodox economics and which are to be found in state-­of-the-­ art models.3 But Colander et al. (2010: 399) tell us that we “should interpret their work generously”, and “not be openly hostile”. The implication appears to be that orthodox authors like Colander and Buiter are permitted to be highly critical of dynamic stochastic general equilibrium models, while heterodox economists should restrain themselves when criticizing such models.

After the crisis   25 This leads us to the fourth piece of negative advice, which says that we should stop criticizing the lack of realism of mainstream assumptions, and produce our own models. Liêm Hoang-­Ngoc (2008–2009; also see Chapter 13) argues that heterodox economists have actually helped out orthodox economists by providing them with stylized facts and an internal critique of their most non-­realistic hypotheses, thus feeding lines of research to the orthodox dissenters, allowing them to recover standard orthodox conclusions with a varnish of realism. Indeed, Fontana and Gerrard (2006: 69) believe that this may turn out to be one of the possible futures for post-­Keynesianism: its possible demise could be “interpreted as a sign of intellectual progress to the extent that it signifies the integration of Post Keynesian economics into the main corpus of economic theory”. We shall touch upon this issue later, but in the meantime it should be said that what Hoang-­Ngoc really means is that heterodox authors should stop spending endless hours carefully studying orthodox models, using the saved time to elaborate an alternative research programme and crafting their own models. This proposal will also arise later, when positive advice will be discussed. Finally, we arrive at the last piece of negative advice for heterodox economists. In a symposium on the prospects of heterodox economics, Malcolm Rutherford (2000: 186), an Institutionalist economist who has attempted to build bridges between Old and New Institutionalism, complains that heterodox schools (focusing on American institutionalism, but also mentioning post-­Keynesians and the Marxists) tend to be “inward looking, defensive, and not very open to new ideas”, in part because these groups feel embattled. Rutherford wishes that “a mentality of defending the true faith” would stop dominating. Lawson (2009: 116) is similarly appalled, saying in an interview that “probably the feature of the heterodox traditions of which I feel the most critical is a lack of willingness on the part of some to fundamentally question the founding contributors”. The warning has been specifically addressed to post-­Keynesian authors. Geoffrey Hodgson, the well-­known British Institutionalist and former Sraffian sympathizer, notes in an interview with Labrousse and Vercueil (2008: 4) that “some post-­Keynesian economists preoccupy themselves with interpreting what Keynes really meant, and there is insufficient self-­criticism and innovation in this school of thought”. A similar admonition has been issued by a former colleague of mine, as far back as 1982. In the 1993 English translation of his paper, Jacques Henry (1993: 19) invites his post-­Keynesian colleagues to stop acting as “self-­ appointed Guardians of the Temple”, for fear of driving the research programme into theoretical parochialism. I am sure that readers can recall some recent examples and some very aggressive defence of the holy scriptures. My own view is that this problem is less frequent now, and again this will be discussed once more when we tackle the issue of pluralism.

Positive advice We now move on to the positive pieces of advice which have recently been provided to heterodox economists – see Table 2.3. Colander has an inexhaustible

26   M. Lavoie Table 2.3  Positive advice given to heterodox or post-Keynesian economists Authors

Suggestions

Colander (2009a, 2009b)

If you cannot do maths, do joint work with mathematicians and statisticians If you do not master techniques, get into pedagogy or political advice. Track more carefully the latest developments in orthodox theory Engage in dialogues with orthodox economics Use a modelling methodology which is acceptable or convincing to orthodox economics Think of yourself as an economist first

Colander (2009a, 2009b) Fontana and Gerrard (2006), Colander et al. (2007–2008, 2010) Fontana and Gerrard (2006), Colander et al. (2007–2008) Colander et al. (2004), Fontana and Gerrard (2006), Colander (2009a), Colander et al. (2010)

source of these, which are to be found in nearly identical form in several articles, whether written alone or in group. His first suggestion is to do joint work with mathematicians and statisticians, the more so if we do not have the necessary skills (Colander 2009a: 67; 2009b). This has many advantages, according to Colander, one of which is to “provide an entrée for them into economic debates”. Certainly we can say that there have been successful teams of economists and mathematicians in heterodox economics, such as Duménil and Lévy, but writing a good article, with plenty of theorems and lemmas, does not guarantee that orthodox economists will take notice (see, for example, Duménil and Lévy, 1991). And transforming flawed ideas into a mathematical article will not make them any better.4 But generally speaking, I would agree that heterodox economists should not be anti-­maths in general, as long as the maths helps to improve the clarity of the argument. Colander (2009b: 42) further believes in Adam Smith’s division of labour, and to “concentrate on areas where you can make a difference”. Colander (as does Garnett, 2006: 540) believes that pedagogy is one of the areas where heterodox authors can make a difference, presumably because he sees them as being able to take a broader point of view and because it does not require high mathematical skills. But then there is some contradiction with one of the previous pieces of negative advice, the gist of which was to avoid spending an overly large amount of time on mainstream textbooks. Anyway, several heterodox authors are indeed engaged in textbook writing, and some post-­Keynesians are now engaging with the orthodoxy, by putting forth books that either compare mainstream ideas with heterodox ones (Cohn, 2007; Bougrine and Seccareccia, 2010; Hill and Myatt, 2010) or inject a dose of heterodoxy in orthodox dissent models, as occurs in the book edited by Fontana and Setterfield (2009), which deals with pedagogical versions of the New consensus models and its critiques. This is an interesting experience, and we shall see what effect such efforts will have on future mainstream teaching.

After the crisis   27 In order to edit or write such a book, one needs to keep track of the more recent developments in neoclassical economics. As Colander (2009a: 57) says, one does not need to be a producer of neoclassical economics to have a deep understanding of the new neoclassical theories. It is enough to be an intelligent consumer of these theories. Fontana and Gerrard (2006: 70) do encourage post-­ Keynesians to have a more thorough understanding of orthodox theory and its policy implications, “in order to be able to provide informed (rather than a ‘straw man’) critiques of its limitations”. Similarly, Colander et al. (2010: 399) believe that the best way to interact with heterodox economists “is to know their work inside and out”. In addition, Colander (2009a: 68) wishes to persuade heterodox economists to “criticize the best of the profession, not the worst”. If criticism must be made, it should be addressed at the “cutting-­edge” heterodox dissenters, so as obtain a better chance of being heard by the élite of the profession. This élite is more likely to listen, say Colander et al. (2007–2008), because they are more open-­minded than their mainstream colleagues. For my part, I no doubt have learned a lot by reading the “consumer reports” on cutting-­edge orthodox economics. But time is a big constraint. We cannot read everything. Should I spend more time reading unrealistic neoclassical stuff and less time reading the output of my heterodox colleagues from various schools and various fields? As in the case of methodology and history of thought, I think it would become problematic if a majority of heterodox economists spent most of their time assessing the works of mainstream authors or orthodox dissenters. Some of us may feel the urge to do it, but most of us should go about our own business. Why do Colander or Fontana and Gerrard (2006) want heterodox authors to keep up with recent orthodox developments? This leads to the fourth item of positive advice – the dialogue with orthodoxy. Colander et al. (2007–2008: 308) want post-­Keynesians to have an impact on mainstream economics. In their view, this is usually done through work done at the cutting-­edge of orthodox economics. Hence, the best way for heterodox dissenters to influence mainstream economics is to influence orthodox dissenters. Davis (2006: 29), seems to be in agreement with this strategy, as he favours an alliance between heterodox and orthodox dissenters, believing that it would be likely to have a significant impact on the mainstream. Fontana and Gerrard also wish to bring about a methodological shift in orthodox economics. They believe that the way forward for heterodox economists is “to engage in a more constructive dialogue with mainstream economics with the objective of encompassing relevant neoclassical models within a more general framework that incorporates Post Keynesian alternatives”. (Fontana and Gerrard, 2006: 72). This is reminiscent of the position of Davidson, who has long been arguing that neoclassical theory is a particular case of Keynes’s General Theory, and indeed Fontana and Gerrard (2006: 70) do refer to Davidson’s belief that the neoclassical presuppositions are of a restrictive nature and to his desire to engage in a critical dialogue with the mainstream. Indeed, Davidson (1989: 467) would certainly endorse this fourth bit of advice, as he claims that: “Post Keynesians

28   M. Lavoie have attempted to engage in a constructive dialogue with the economic mainstream by framing their concepts in orthodox vocabulary without accepting some of their postulates.” Fontana and Gerrard are particularly interested in the dialogue with some orthodox dissenters. As already mentioned, Fontana has acted upon this advice by editing a book that combines the contributions of orthodox and heterodox dissenters on the pedagogical versions of the New consensus model (Fontana and Setterfield, 2009). Besides this, Fontana and Gerrard (2004: 634) probably have most in mind behavioural economics, as they wrote earlier that the recent developments in experimental economics and psychology . . . are broadly consistent with the PK approach. . . . It is the urgent task of PKE to engage with these developments in experimental economics and psychology to accelerate the emergence of a more fully developed general theory of decision-­making under conditions of risk and uncertainty. I also agree that much of behavioural economics is consistent with Keynes’s practical rationality in a world of limited knowledge and fundamental uncertainty – the world we live in. But one needs to be aware, no doubt as are Fontana and Gerrard (2004), that behavioural economics is not necessarily perceived in this way by mainstream economists, who see instead an innocuous research programme in behavioural imperfections, akin to the New Keynesian search for price rigidities. Now, moving on to the fifth piece of positive advice, how does this dialogue with orthodox theory come to fruition? In his first papers, Colander was rather vague, saying that heterodox work often did not have an impact because “heterodox arguments have not struck a chord with mainstream economists’ aha sense of the world” (Colander, 2003: 79). In Colander et al. (2004: 492), we are told that “modern mainstream economics is open to new approaches, as long as they are done . . . with a modelling methodology acceptable to the mainstream”. But what is acceptable to the mainstream? In his more recent articles Colander (2009a: 66) is more explicit, recognizing that “to make the transfer from the heterodox incubator to the mainstream, the idea must be developed in a formal model and buttressed by technical empirical work”. This is consistent with Tony Lawson’s (2009a: 762) understanding of modern orthodox economics: “The fundamental problem of modern economics, as I see it, is the mainstream insistence that mathematical modelling is the only useful, and the proper, way to do economics.” Sheila Dow (2000: 164) appears to concur when she writes that “the guiding principle of orthodox economics is mathematical formalism”. But she goes too far, it would seem, when she adds that “heterodox paradigms share a rejection of mathematical formalism”. Several heterodox authors do enjoy formalization, and are in fact regrouped under the informal term of analytical political economy (Setterfield, 2003). The big difference, as Amitava Dutt (2003: 58) points out, is that the only mathematical modelling that is acceptable to both the mainstream and the orthodox dissenters

After the crisis   29 ultimately relies on “the use of the optimizing agent” instead of “empirically-­ based behavioral relations”. It is the insistence on modelling and on this straitjacket of individual optimization that heterodox authors turn down. Colander (2009a: 66) implies that without the adequate mathematical apparatus to tackle a given issue, mainstream economists will not look at this issue, even if they believe that it is important. A good example of this attitude is Robert Lucas’s (1981: 224) claim that “in cases of uncertainty, economic reasoning will be of no value”, thus justifying his assumption, and that of followers, that “business cycles can be viewed as repeated instances of essentially similar events” – situations of risk, not of fundamental uncertainty. As to Fontana and Gerrard (2006: 73), they believe that econometrics will sway the views of orthodox economics, claiming that “nothing persuades better than theoretical models that provide testable hypotheses substantiated by empirical evidence”. There is no doubt that their advice has already been followed, with a lot of econometric studies now being done by many post-­Keynesian economists. Be that as it may, the fact that post-­Keynesians are producing theoretical models with fancy econometric work does not mean that they will get a hearing. As was pointed out early on by King (2002: 258), it takes two to tango! A good example of the neoclassical refusal to dance is the way endogenous money has been incorporated in the New consensus model. This model, both in its state-­ofthe-­art and pedagogical versions, has endogenous money, causality being reversed with money supply being determined by money demand, and with (short-­term) interest rates being under the control of the central bank, as post-­ Keynesian authors like Basil Moore, Kaldor or Davidson and Weintraub have been arguing, at least since 1970, and even earlier in the case of Joan Robinson and Richard Kahn. Yet post-­Keynesian authors are never given any credit for these assumptions of the New consensus model. All the credit goes, if ever, to Fischer Black (1970), the financial economist well-­known for the Black–Scholes option-­pricing formula, despite the fact that his paper on endogenous money is written in exactly the same literary style used by Kaldor (1970). Still, Colander et al. (2010: 404) are putting the blame of this situation squarely on the shoulders of heterodox economists: “They are shutting themselves out.” Colander (2009a: 66) insists that we should “give the mainstream its due”. But as Dutt and Amadeo (1990: 163) noted in passing two decades ago, this seems to be a one-­way street. One-­way relations for sociologists and political scientists are an expression of power, and academic power is clearly at stake here. While orthodox dissenters like Krugman, Stiglitz or Buiter do mention heterodox authors like Minsky, it always seems to be with some reluctance, as a last-­minute thought. This point is also made by Matías Vernengo (2010: 392) with regards to Krugman’s recycling of themes and arguments made some time ago by heterodox dissenters David Gordon and James Galbraith, with Krugman providing only orthodox references. Colander et al. (2010: 403) say that this situation arises because “the heterodox classification is a signalling statement that the self-­described heterodox economist is someone who wants to attack rather than enter a two-­way conversation”. Later they say this is a signalling

30   M. Lavoie device for someone poorly trained in mainstream economics. If this is so, then the only way to enter into a conversation with orthodox economics is to cite only orthodox papers, and to erase any heterodox reference. As Vernengo (2010: 392) notes: “The acceptable critiques of orthodoxy must come from mainstream insiders.” In our terminology, it would be that acceptable critiques can only come from orthodox dissidents. As a consequence, Vernengo (2010: 394) concludes that encouraging heterodox economists to engage in a dialogue with the cutting edge of the orthodoxy “is at best naïve”. He is thus much less optimistic about the ability of heterodox dissenters to move the mainstream views by impacting upon the orthodox dissenters. A similar point is made by Engelbert Stockhammer and Paul Ramskogler (2009: 240) when they maintain that whether post-­Keynesians “put more effort into entering a dialogue with the mainstream will make little difference, simply because there is little indication that the core of the mainstream is interested in this dialogue”. They conclude on this issue by saying that post-­Keynesian economists should not waste their time “trying to reformulate PK models such that they are easy to understand for mainstream economists (if they care to listen)” (Stockhammer and Ramskogler, 2009: 243). Colander’s overall view on heterodox economics can probably be summarized by this sixth and last piece of positive advice: “Be economists, not heterodox economists” (Colander, 2009a: 65). Since this advice might be a bit ambiguous, some precision is provided in a later paper, where we are told that “heterodox economists should think of themselves as economists first and heterodox economists second” (Colander et al., 2010: 398). Here Colander and his co-­authors fail to notice that they are contradicting a previous statement of theirs, in which they said that “two of us think of ourselves first as heterodox economists” (Colander et al., 2007–2008: 307). But how useful is such advice? Most of us certainly consider ourselves both as economists and heterodox economists. It is true that well-­known researchers such as Tom Asimakopulos and Hyman Minsky were reluctant to classify themselves as post-­Keynesian or heterodox economists, believing that they were economists in their full right. But things were different then. Minsky and Asimakopulos were allowed to publish in mainstream journals at the beginning of their careers, so they felt they were taking part in the conversation. Colander et al. (2010: 400) say that Minsky was an example of a “cutting edge mainstream-­heterodox economist” (whatever that means!), and they encourage us to follow his example in communicating with the mainstream. Colander et al. do not discuss, however, how successful he was in this task. Steve Fazzari (1999) reports that the Web of Science Social Science citation index reveals only 11 mentions of Minsky’s work in mainstream journals between 1989 and 1997, four of which arose from Fazzari himself. This is not spectacular by any means. It is hardly indicative of a significant impact, notwithstanding the recognition accorded to Minsky’s prescience by some mainstream economists in the aftermath of the 2008 sub-­prime financial crisis.

After the crisis   31

Counter-­advice The suggested strategy for the future of post-­Keynesian economics, as reflected in many of the suggestions of Tables 2.2 and 2.3, have drawn responses, as one would expect, with suggestions to post-­Keynesian economists that run against what was discussed above. These responses are brought together in Table 2.4, which identifies the main features of this counter-­advice to young post-­ Keynesians. The key piece of counter-­advice is to stop being obsessed with orthodox theory. As pointed out by Dutt (2003), many methodologists, including Colander et al. (2004: 492), seem to perceive and define heterodox economics in essentially negative terms, as a negative reaction to orthodox theory. Indeed, it is very common to read the claim, even from heterodox colleagues, that heterodox economists have nothing in common but their dislike for neoclassical economics (see Lawson 2006: 485, for a list of these). But as Dutt (2003: 58) continues, heterodox approaches “do not merely have a negative dimension but also have a positive one”. This theme has been well developed recently by Frederic Lee (2008, 2009), who argues that heterodox economists form a tight community, with several institutional and theoretical ties between the members of the various schools. In particular Lee (2011: 545) argues that: “heterodox economics is not defined in oppositional terms or as a ‘dual’ to mainstream economics, but as an alternative to it”, as I have myself tried to show elsewhere (Lavoie, 2006). As a consequence, “if mainstream economics suddenly disappeared, heterodox economics would be largely unaffected” (Lee 2008: 5). This suggests, in line with the view of Vernengo (2010: 395), that while dialogue with orthodox authors, including orthodox dissenters, “is not bad per se and should not be discouraged . . . it is not essential to the development of the heterodox research agenda”. Several recent contributions have underlined the fact that orthodox economics had changed over the last decades, becoming more diverse and fragmented, in particular through the development of orthodox dissent or what Colander used to call Post Walrasian economics, implying that this has severe and important consequences for heterodox economics. Stockhammer and Ramskogler (2009: 228) argue that the debate on how “post-­Keynesian economics relates to the mainstream Table 2.4  Counter-advice for heterodox or post-Keynesian economists Authors

Suggestions

Lee (2008), Stockhammer and Ramskogler (2009), Vernengo (2010) Stockhammer and Ramskoger (2009), Vernengo (2010) Stockhammer and Ramskogler (2009) Dunn (2000), Lawson (2006), Stockhammer and Ramskogler (2009) Fine (2002)

Stop trying to reform the mainstream Focus on real-world problems and target policy makers Expand the research agenda Be eclectic and cooperate with other heterodox schools Cooperate with other social sciences

32   M. Lavoie is, in fact, not an important issue for the future of PKE”, and that the focus on the relation to the mainstream is misplaced. Lee (2011: 545, fn. 14) is exactly of the same opinion. For him, “it does not really matter how mainstream economics is defined, whether it be neoclassical economics or some fractured version of it. . . . Heterodox economics is not out to reform mainstream economics”. Thus, all these authors conclude that post-­Keynesian authors must concentrate instead in building their own models and developing their own agenda, a recommendation that we found already in Hoang-­Ngoc (2008–2009), and which I have put forward, arguing that “the future of heterodox economics rests on the development of its own topics of analysis and on the choice of its own analytical tools” (Lavoie 2006: 90). Nicholas Postel and Richard Sobel (2009: 51) concur when they say that heterodox authors should stop proposing different answers to the same questions being put by neoclassical authors, and start instead to put up their own new questions. But in which direction should this agenda be constructed? Vernengo (2010: 396) suggests that post-­Keynesians target “policymakers who are often more pragmatic and clearly more relevant”. Stockhammer and Ramskogler (2009: 240) make a very similar recommendation: “Be politically relevant.” Because they doubt that changes in economics will come from the inside of the profession, they believe that changes are most likely to arise from outside pressures, such as pressures arising from the need to go back to pragmatic Keynesianism during the financial crisis, despite the plethora of abstract models “demonstrating” that Keynesian policies don’t work. Will the financial crisis induce changes in academia? Perhaps it will. One way to help this process is to produce analysis that is relevant to the financial crisis in the current situation and to other pressing real-­world problems in general. That is the second piece of counter-­advice, and it is already being followed. Post-­Keynesians are filling journals with their papers on economic policy. Stockhammer and Ramskogler (2009: 241) also propose, as a third piece of counter-­advice, to extend the range of problems that post-­Keynesians tackle. They mention the effect of institutions on economic growth, the impact of information and communication technologies, globalization and outsourcing. Obviously, some work is also needed to reconcile the post-­Keynesian target of full employment with the requirements of ecological economics and its call for slower or zero economic growth. So far, post-­Keynesians have written very little on the subject of the environment, a gap which hopefully will start to be remedied (see however the books edited by Lawn (2009) and by Holt, Pressman and Spash (2010)). The fourth piece of counter-­advice seems to generate some consensus. It is a call for pluralism within heterodox economics. The basis for this call for pluralism is that, at least in the eyes of some methodologists, heterodox schools do have a common approach at the methodological level; that is, they have a common set of presuppositions (Lavoie, 1992, 2006). Thus in the view of Lawson (2006: 502), “the individual heterodox traditions are rendered distinct from each other by their particular substantive orientations, concerns and emphases, not by theoretical claims and results, empirical findings, methodological

After the crisis   33 principles or policy stances”. Thus Lawson argues that the different schools represent another example of the division of labour, this time among heterodox economists. Stockhammer and Ramskogler (2009: 241–2) seek pluralism both at the strategic and theoretical levels. At the level of the former, they write that post-­ Keynesians “should strengthen their ties with other heterodox economists to defend space for pluralism in the profession”, while at the level of the latter, they claim that there are “obvious potential gains from cooperation between post-­ Keynesians and other heterodox positions”, notably institutional and evolutionary economics, ecological economics and Marxism. In my view there is certainly a trend in the direction of more eclectic work – doctoral students in recent years being routinely exposed to a variety of heterodox traditions and drawing upon different features of each tradition. Indeed, Dunn (2000) argues that post-­ Keynesians should not bother to engage in discussions with the mainstream for two reasons: first, there is widespread dissatisfaction with mainstream economics, so there is no point in associating post-­Keynesian economics with a declining field; the second reason is that there is a degree of incommensurability in the methodology of orthodox economics and post-­Keynesian economics. As a result, Dunn (2000: 356) advises post-­Keynesians to engage in a debate which is likely to be more productive if conducted with schools of thought that have a compatible methodology, thus cooperating with other heterodox groups. Pluralism is clearly in vogue, as demonstrated by the large number of edited books devoted to the topic. On the institutional front there are some organizations that now encompass various heterodox schools, such as the International Confederation of Associations for Pluralism in Economics (ICAPE) or the newly-­founded Association Française d’Économie Politique (AFEP), the purpose of which is to bring together a large spectrum of schools of thought in economics that favour a pluralism of methods as well as interdisciplinary collaboration. Such institutional cooperation among heterodox approaches is certainly necessary, because in the present situation of mainstream intolerance, the prognosis for those defending eclecticism is not good. As noted by Thomas Palley (1997: 28), drawing on an analogy to the prey–predator model: “A group which adopts pluralistic academic practices and fails to organize may risk extinction when confronted by a group that adopts exclusionary practices and is well organized.” Thus better organization is a necessity for heterodox schools. As is well-­known, one of the organizational battles runs around the issue of citation metrics and journal rankings. But this battle appears to be off to a bad start. On this issue, Leonhard Dobusch and Jakob Kapeller (Chapter 4 of this book) have written a fascinating chapter which demonstrates that heterodox economists in general, and post-­Keynesian economists in particular, tend to cite orthodox economists most often, then cite authors from the journal in which their paper is published, and last cite papers published in other heterodox journals. In other words, heterodox economists cite their enemies first and their allies last. Naturally, as one would expect, mainstream papers hardly ever cite papers

34   M. Lavoie published in heterodox journals. In accordance with Palley’s fears, Dobusch and Kapeller call this behaviour a road to “paradigmatic self-­marginalization”.5 They wonder whether this is tied to the efforts to use formal methods, but conclude that it may not be the case. Clearly if heterodox authors were more concerned with the literature arising from other heterodox schools than with that of the mainstream, heterodox journal rankings based on citations would improve, and so would the situation of all heterodox economists. The fifth and final piece of counter-­advice can be attributed to Ben Fine (2002). Whereas others have advised that more attention be paid to the mainstream, Fine advises orthodox dissenters and members of heterodox schools to engage with other social sciences. Fine (2002: 198) argues that heterodox economics “has the potential to compete successfully with mainstream economics across the social sciences in view of its more acceptable methods and theory to them”. He believes that because heterodox economics is not obsessed with the individual agent, optimization, technical dexterity, and resource allocation, its methodology is akin to that of the other social sciences. Heterodox dissenters would have the potential to prosper across the social sciences, provided they make the effort to disseminate their views, since social scientists often seem to be ill-­informed about alternative economic models. While this may be good advice for survival until the economic profession becomes more tolerant, not all heterodox economists would accept leaving the economic field to orthodoxy.

Advice of my own I shall close this discussion with a few pieces of advice of my own, as summarized in Table 2.5, since, to some extent, I have taken a somewhat neutral stance in the discussion so far. First I would recommend, mostly to fresh Ph.D. or to doctoral students, to stop wasting their time criticizing post-­Keynesian straw men.6 What I have mainly in mind is the well-­known controversy between the so-­called structuralists and horizontalists (sometimes denominated as the accommodationists). The earlier debates were fruitful, but as the discussion kept going on, with new writers relying on secondary sources to assess the claims of each side, straw men kept popping up in the literature. As an early participant to the debate, I can assure all that there is not much controversy left between the original actors, at least among those that kept studying the subject, like myself or Randall Wray. So stay clear of this debate and look for more constructive ventures. Table 2.5  My own advice to post-Keynesian economists Stop criticizing PK straw men Study carefully existing institutions Use econometrics as a tool of rhetoric Be aware of budget and accounting constraints Construct simple models that are useful to decision makers

After the crisis   35 Second, I would recommend studying carefully existing institutions, as they are likely to provide evidence that supports heterodox or post-­Keynesian theoretical positions. This, in some sense, is not surprising, since post-­Keynesian theorists, like other heterodox economists, are concerned with the realism of their assumptions and with their capacity to tell a story which is supported by the facts. Once more I have in mind the banking and the financial system. Post-­ Keynesians have enormous expertise on clearing and settlement procedures and on central bank practices – expertise that can be extremely useful in understanding actual events and in gaining influence with policy makers. Indeed, the so-­ called modern monetary theory is a result of an in-­depth study by some neo-­chartalist post-­Keynesian authors of how the payment system operates. While one may not agree with all the implications that are drawn by neo-­ chartalists, the descriptions that are being provided are undoubtedly consistent both with the actual operations and with post-­Keynesian monetary theory as espoused for the last 50 years or so. My third bit of advice is one that unfortunately I have not much followed myself: do not hesitate to use econometric tools. I see econometrics as a rhetorical instrument, just as good prose and sound logic are part of rhetoric in economics (McCloskey, 1983). Most heterodox economists have deep concerns about econometrics, and these concerns seem particularly justified in the case of time-­series econometrics, which definitely looks like soft econometrics, even when putting aside the issue of ergodicity. But whatever philosophical doubts that we may harbour about the validity of econometric studies and the bias that researchers can impart to their results by torturing the data and choosing samples, techniques, variables, time lags or specifications, econometrics remains too important a rhetorical tool to be left only in neoclassical hands. Post-­ Keynesians need to do more empirical work in general, and more econometrics in particular. As a fourth piece of advice I would encourage post-­Keynesians to pay attention to budget constraints, sectoral accounting constraints and stock-­flow constraints. This suggestion is a plug for the so-­called stock-­flow consistent (SFC) approach that Wynne Godley advocated for over 30 years, and which I have myself recently endorsed (Godley and Lavoie, 2007). While I would in no way force anyone to adopt this SFC approach, since it has some drawbacks related to the cumbersome size of its models, I believe the SFC approach has some distinct advantages when attempting to link real and financial features of the economy, as would be the case when studying financial instability. Dutt (2003: 58) links this to the neostructuralist approach, à la Lance Taylor, describing it as starting “from behavioral and institutional relations that are neither micro nor macro but that refer to empirically observable groups within the economy, providing the flesh of the skeleton constituted by widely accepted stock and flow accounting identities”. It could also be called meso-­analysis. These accounting constraints impose some rigour on what macroeconomists can say about the possible evolution of the real and financial systems, since any flow must have a counterpart outflow, while any financial asset must have a counterpart liability.

36   M. Lavoie As a fifth and last piece of advice, related to the previous one, I would encourage colleagues to construct a relatively simple model that would incorporate the main real and financial interactions found in the more complex stock-­flow consistent models. One would then need to build an empirical version of this model that would be calibrated and estimated. There is no doubt that there is an urgent need for such models in central banks and in Treasury departments throughout the world, as they will attempt to produce some quantitative estimates of transition paths coming out of the sub-­prime financial crises, and as they will want to assess the real consequences of balance sheet and asset price growth in the future.

Conclusion To conclude, let us briefly think about the impact of the financial crisis on heterodox economics. Paul Davidson, who overall was rather pessimistic about the future of post-­Keynesian economics, thought nevertheless that things could improve if there was some cataclysmic crisis, suggesting in an interview that “if there is a great depression, then clearly there’s a possibility of an alternative” (Colander 2001: 106). We have not suffered a second great depression, not so far that is, but a severe global recession occurred in 2008 and thereafter, and the subsequent recovery has been worryingly anaemic. So what is to be expected? I would argue that the fallouts of the financial crisis are unlikely to improve the fate of heterodox dissenters, including post-­Keynesians, within departments of economics, at least in Europe and in North America (the situation will probably be different in emerging economies such as Brazil or in Latin America at large). By contrast, the financial crisis will certainly generate a demand for orthodox dissenters within economics departments; indeed they are likely to be the biggest winners, especially those specializing in behavioural finance and behavioural economics, as they will be sought after by government regulation agencies or such similar institutions, especially following the raving endorsements being given by people like Paul Krugman, who feels quite confident that these pragmatic orthodox dissenters will manage to put macroeconomics back on track. But as John King points out (2009a: 6), “there is little evidence” in Akerlof ’s Bank of Sweden Prize speech “of an emerging school of macroeconomics”. My reading of the book of Akerlof and Shiller (2009) leads me to the same conclusion. When I listened to Shiller a few years back, I got the impression that he was a closet post-­Keynesian economist, who happened to specialize in finance. But while Shiller and Akerlof (2009) clearly indicate that they believe economic agents act on the basis of animal spirits and confidence, as well as on notions of fairness and envy, their book tells the usual stories based on money illusion, efficiency wage theory and loanable funds. It would seem that Krugman and others see potential, when so far, there is just a glimmer of hope. Indeed, Holt et al. (2011: 365) have also come to recognize that mainstream macroeconomics has not been impacted in any way by what they call cutting-­edge work.

After the crisis   37 As a result, I would conclude that it is much too early to decide to give up on heterodox dissent and join orthodox dissent. In particular, it is not at all clear that orthodox dissenters have a full comprehension of the macroeconomic paradoxes that played such a significant role in both the generation and the magnification of the global financial crisis, and which are such an important component of post-­Keynesian economics (Lavoie, 2011c). Furthermore, I would argue that the standing of heterodox dissenters should improve in departments other than economics, such as departments of public administration and public affairs, international affairs, social sciences and political science and political economy in particular, but also in industrial relations and real estate departments, and even in business schools, where post-­ Keynesians have been recruited in the recent past (Dunn, 2000: 361; Dow, 2000: 168). These departments, which are often newly created, also have a much greater potential for future growth than do mainstream economics departments. Indeed, to come back to the suggestion made by Fine and noted earlier, Hodgson believes that heterodox dissenters “may have to abandon the economics label and find an alternative disciplinary description” (in Labrousse and Vercueil (2008: 10). This path is also considered by Postel and Sobel (in Labrousse and Lamarche, 2009: 6), who suggest the creation of departments of “institutionalist political economy” or “heterodox political economy”, which bears some resemblance with the term “radical political economy” proposed earlier by Malcolm Sawyer (1989), as a way to find an academic home for heterodox economists. Indeed, the Association Française d’Économie Politique is now lobbying for the official recognition of such a field. However seducing this avenue is there are also some drawbacks, as the sorry story of the split of the Department of Economics at Notre Dame University reminds us. There have been more successful stories, as with the Department of Political Economy at the University of Sydney (Stilwell, 2006). Time will tell which strategy works best.

Notes 1 This chapter was initially presented at the second Encontro Internacional de Associação Keynesiana Brasileiro, which was held in Porto Alegre in September 2009. I am very grateful to the organizers for having invited me to participate in one of their plenary sessions and I would like to thank in particular Fernando Ferrari Filho for his kind and generous hospitality. I am also thankful for the encouraging comments of Jan Kregel and Gary Dymski during the conference, as well as those of Bruno Tinel, Wladimir Andreff, John King, Gary Mongiovi, Steve Pressman and Frederic Lee on a previous version of this chapter, which was also presented at the University of Lille 1 in November 2009 and at the AFEP annual meeting in December 2010. 2 The statement as written by Colander et al. applies to what they define as orthodoxy. I believe it is more logical to define the mainstream as the textbook view, and to call orthodox economists all those economists who follow most of the strictures of the textbooks, in opposition to heterodox economists who reject most of them. 3 Indeed, the typical graduate macroeconomics and monetary economics training received at Anglo-­American universities during the past 30 years or so, may have

38   M. Lavoie set back by decades serious investigations of aggregate economic behaviour and economic policy-­relevant understanding. It was a privately and socially costly waste of time and other resources. Most mainstream macroeconomic theoretical innovations since the 1970s (the New Classical rational expectations revolution associated with such names as Robert E. Lucas Jr., Edward Prescott, Thomas Sargent, and Robert Barro, etc and the New Keynesian theorizing of Michael Woodford and many others) have turned out to be self-­referential, inward-­looking distractions at best. Research tended to be motivated by the internal logic, intellectual sunk capital and esthetic puzzles of established research programmes rather than by a powerful desire to understand how the economy works – let alone how the economy works during times of stress and financial instability. . . (Buiter 2009) 4 I have some examples in mind, but I will diplomatically omit them. 5 Once again, readers will easily take note of some post-­Keynesian authors who keep citing famous mainstream authors while scarcely mentioning the work of fellow travellers. 6 I realize that two readers may interpret the same text differently. However on the relationship between Sraffian and Keynesian economics, I cannot understand why Dunn (2000: 350) asserts that “Roncaglia (1995) has called for the abandonment of the project to integrate Sraffian and Post Keynesian analysis”, a claim repeated by Sheila Dow (2001: 18), when Roncaglia (1995: 112) himself is actually saying that “the compatibility between the Keynesian and the Sraffian perspectives suggested in Roncaglia (1975, pp. xvii, 23–7) could provide a sufficiently solid and wide foundation for a far-­ reaching non-­neoclassical approach”. Roncaglia (1995: 120) concludes his article by adding that “a solid stream of non-­neoclassical economics is already available, integrating not only Keynes’s and Sraffa’s analyses, but also the contributions of a wide group of economists.” For my own views on this controversial topic, see Lavoie (2011b).

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After the crisis   39 Colander, D. (ed.) (2003) “Post Walrasian macroeconomics and heterodoxy: thinking outside the heterodox box” in International Journal of Political Economy, 33: 68–81. Colander, D. (ed.) (2009a) “How did macroeconomic theory get so far off the track, and what can heterodox macroeconomists do to get it back on track?” in E. Hein, T. Niechoj and E. Stockhammer (eds), Macroeconomic Policies on Shaky Foundations: wither mainstream economics?, Marburg: Metropolis-­Verlag. Colander, D. (ed.) (2009b) “Pluralism and heterodox economics: suggestions for an inside the mainstream heterodoxy” in R. F. Garnett, E. Olsen and M. Starr (eds), Economic Pluralism, London: Routledge. Colander, D., Holt, R. P. F. and Rosser, J. B. (2004) ‘The changing face of mainstream economics’, Review of Political Economy, 16: 485–500. Colander, D., Holt, R. P. F. and Rosser, J. B. (2007–2008) “Live and dead issues in the methodology of economics” in Journal of Post Keynesian Economics, 30: 303–12. Colander, D., Holt, R. P. F. and Rosser, J. B. (2010) “How to win friends and (possibly) influence mainstream economics” in Journal of Post Keynesian Economics, 32: 397–408. Davidson, P. (1989) “The economics of ignorance or ignorance of economics?” in Critical Review, 3: 467–87. Davidson, P. (2005) “Responses to Lavoie, King, and Dow on what Post Keynesianism is and who is a Post Keynesian” in Journal of Post Keynesian Economics, 27: 393–409. Davidson, P. (2009) The Keynes Solution, London: Palgrave Macmillan. Davis, J. B. (2006) “The nature of heterodox economics” in Post-­Autistic Economic Review, 40: 23–30. Online. Avaliable at: www.paecon.net/PAEReview/issue40/ Davis40.pdf (accessed 30 December 2011). Davis, J. B. (2008) “The turn in recent economics and return of orthodoxy” in Cambridge Journal of Economics, 32: 349–66. Dequech, D. (2007–2008) “Neoclassical, mainstream, orthodox, and heterodox economics” in Journal of Post Keynesian Economics, 20: 279–302. Dow, S. C. (2000) “Prospects for the progress of heterodox economics” in Journal of the History of Economic Thought, 22: 157–70. Dow, S. C. (2001) “Post Keynesian methodology” in R. P. F. Holt and S. Pressman (eds) A New Guide to Post Keynesian Economics, London: Routledge. Duménil, G. and Lévy, D. (1991) “Micro adjustment toward long-­term equilibrium” in Journal of Economic Theory, 53: 369–95. Dunn, S. P. (2000) “Wither Post Keynesianism?” in Journal of Post Keynesian Economics, 22: 343–64. Dutt, A. K. (2003) “On Post Walrasian economics, macroeconomic policy and heterodox economics” in International Journal of Political Economy, 33: 47–64. Dutt, A. K. and Amadeo, E. J. (1990) Keynes’s Third Alternative: the Neo-­Ricardian Keynesians and the Post Keynesians, Aldershot: Edward Elgar. Fazzari, S. (1999) “Minsky and the mainstream: has recent research rediscovered financial Keynesianism” in Working Paper #278, Levy Economics Institute of Bard College. Online. Available at: www.levyinstitute.org/pubs/wp278.pdf (accessed 30 December 2011). Fine, B. (2002) “Economic imperialism: a view from the periphery” in Review of Radical Political Economics, 34: 187–201. Fontana, G. and Gerrard, B. (2004) “A Post Keynesian theory of decision making under uncertainty” in Journal of Economic Psychology, 25: 619–37. Fontana, G. and Gerrard, B. (2006) “The future of Post Keynesian economics” in Banca Nationale del Lavoro Quarterly Review, 59 (236): 49–80.

40   M. Lavoie Fontana, G. and Setterfield, M. (eds) (2009) Macroeconomic Theory and Macroeconomic Pedagogy, London: Palgrave Macmillan. Fox, J. (2009) The Myth of the Rational Market, New York: Harper Collins. Garnett, R. F. (2006) “Paradigms and pluralism in heterodox economics” in Review of Political Economy, 18: 521–46. Godley, W. and Lavoie, M. (2007) Monetary Economics, London: Palgrave Macmillan. Henry, J. (1993) “Post-­Keynesian methods and the post-­classical approach” in International Papers in Political Economy, 1 (2): 1–26. Hill, R. and Myatt, A. (2010) The Economics Anti-­Textbook: a critical thinker’s guide of microeconomics, London: Zed. Hoang-­Ngoc, L. (2008–2009) “Où va l’hétérodoxie?” in L’homme et la société, 170–1: 195–218; partially translated in Chapter 13. Holt, R. P. F., Pressman, S. and Spash, C. L. (2010) Post Keynesian and Ecological Economics, Cheltenham: Edward Elgar. Holt, R. P. F., Rosser, J. B. and Colander, D. (2011) “The complexity era in economics” in Review of Political Economy, 23: 357–70. Kaldor, N. (1970) “The new monetarism’” in Lloyds Bank Review, July: 1–17. King, J. E. (1995) Post Keynesian Economics: an annotated bibliography, Cheltenham: Edward Elgar. King, J. E. (2002) A History of Post Keynesian Economics Since 1936, Cheltenham: Edward Elgar. King, J. E. (2009a) “Heterodox macroeconomics: what, exactly, are we against?” in L. R. Wray and M. Forstater (eds), Keynes and Macroeconomics After 70 Years, Cheltenham: Edward Elgar. King, J. E. (2009b) “Microfoundations?” in E. Hein, T. Niechoj and E. Stockhammer (eds), Macroeconomic Policies on Shaky Foundations: wither mainstream economics?, Marburg: Metropolis-­Verlag. Krugman, P. (2000) “Two cheers for formalism” in Economic Journal, 108: 1829–36. Krugman, P. (2009) “How did economists get it so wrong?” in New York Times, 6 September. Online. Available at: www.nytimes.com/2009/09/06/magazine/06Economic-t. html?_r=1&em=&pagewanted=print (accessed 30 December 2011). Labrousse, A. and Vercueil, J. (2008) “Fostering variety in economics: entretien avec Geoffrey Hodgson” in Revue de la régulation, 2. Online. Available at: http://regulation.revues.org/document2853.html (accessed 30 December 2011). Labrousse, A. and Lamarche, T. (2009) “Vers une association d’économie politique hétérodoxe? entretien avec Nicolas Postel et Richard Sobel” in Revue de la régulation, 5. Online. Available at: http://regulation.revues.org/index7540.html (accessed 30 December 2011). Lavoie, M. (1991) “Noyau, demi-­noyau et heuristique du programme de recherché néoclassique” in Économie appliquée, 44: 51–69. Lavoie, M. (1992) “Towards a new research programme for Post-­Keynesianism and Neo-­ Ricardianism” in Review of Political Economy, 4: 37–79. Lavoie, M. (2006) “Do heterodox theories have anything in common? A post-­Keynesian point of view” in Intervention – Zeitschrift für Ökonomie Journal of Economics, 3: 87–112. Lavoie, M. (2011a) “History and methods of post-­Keynesian economics” in E. Hein and E. Stockhammer (eds), A Modern Guide to Keynesian Macroeconomics and Economic Policies, Cheltenham: Edward Elgar. Lavoie, M. (2011b) “Should Sraffian economics be dropped out of the post-­Keynesian school?” in Économies et Sociétés, 44: 1027–59.

After the crisis   41 Lavoie, M. (2011c) “The global financial crisis: methodological reflections from a heterodox perspective” in Studies in Political Economy, 88: 35–57. Lawn, P. (ed.) (2009) Environment and Employment: a reconciliation, London: Routledge. Lawson, T. (2006) “The nature of heterodox economics” in Cambridge Journal of Economics, 30: 483–505. Lawson, T. (2009a) “The current economic crisis: its nature and the course of academic economics” in Cambridge Journal of Economics, 33: 759–77. Lawson, T. (2009b) “Cambridge social ontology: an interview with Tony Lawson” in Erasmus Journal of Philosophy and Economics, 2: 100–22. Lee, F. S. (2008) “Heterodox economics” in S. N. Durlauf and L. E. Blume (eds), The New Palgrave Dictionary of Economics Online, London: Palgrave Macmillan, www. dictionaryofeconomics.com. Lee, F. S. (2009) A History of Heterodox Economics: challenging the mainstream in the twentieth century, London: Routledge. Lee, F. S. (2011) “The pluralism debate in heterodox economics” in Review of Radical Political Economics, 43: 540–51. Lucas, R. F. (1981) Studies in Business Cycle Theory, Cambridge: MIT. Mankiw, N. G. (2006) “The macroeconomist as scientist and engineer” in Journal of Economic Perspectives, 20: 29–46. McCloskey, D. (1983) “The rhetoric of economics” in Journal of Economic Literature, 21: 481–517. Palley, T. (1997) “The academic jungle: social practice and the survival of economic ideas” in Review of Radical Political Economics, 29: 22–33. Postel, N. and Sobel, R. (2009) “Institutionalism as the way of unification of the heterodox theories” in Journal of Philosophical Economy, 3: 47–77. Roncaglia, A. (1995) “On the compatibility between Keynes’s and Sraffa’s viewpoints on output levels” in G. Harcourt, A. Roncaglia and R. Rowley (eds), Income and Employment in Theory and Practice, London: Macmillan. Rutherford, M. (2000) “The prospects of heterodox economics: a comment” in Journal of the History of Economic Thought, 22: 185–8. Sawyer, M. (1989) The Challenge of Radical Political Economy, Brighton: Harvester Wheatsheaf. Setterfield, M. (2003) “What is analytical political economy?” in International Journal of Political Economy, 33 (2): 4–16. Stilwell, F. (2006) “The struggle for political economy at the University of Sydney” in Review of Radical Political Economics, 38: 539–50. Stockhammer, E. and Ramskogler, P. (2009) “Post-­Keynesian economics – how to move forward” in Intervention, 6: 227–46; reprinted in Chapter 3. Vernengo, M. (2010) “Conversation or monologue? On advising heterodox economists” in Journal of Post Keynesian Economics, 32: 389–96; reprinted in Chapter 8. Wray, L. R. (1998) Understanding Modern Money, Cheltenham: Edward Elgar.

3 Post Keynesian economics – how to move forward1 Engelbert Stockhammer and Paul Ramskogler

Introduction Post Keynesian Economics (PKE) is at the crossroads. While Post Keynesians (PKs) have established their niche, they have become marginalized and are effectively ignored by the mainstream. At the same time new challenges have arisen. The academic climate at universities has become more hostile to survival, with research assessments and journal ratings degrading their work. The mainstream has become more diverse internally. A heterodox camp of diverse groups of non-­mainstream economists is forming. How should PKE deal with these challenges? Fontana and Gerrard (2006) argue that many PKs lack sufficient knowledge of mainstream economics and that it is vital that PKs enter a dialogue with the mainstream. Addressing the question of the relation of the mainstream and heterodox economics more generally, Colander et al. (2004) have argued that the mainstream is in a process of transition to a new orthodoxy that is based on a Post Walrasian revolution in microeconomics. The new mainstream would be open to consider all arguments provided they are presented in a formalized way. These claims have been critiqued by Dutt (2005) and King (2008), who question that Post Walrasian microeconomics is becoming a new mainstream and argue that macroeconomics has become more rather than less orthodox. This chapter argues that the debate on how PKE relates to the mainstream is, in fact, not an important issue for the future of PKE. The debate has so far strangely overlooked the dialectics between academic hegemony and economic (and social) stability. In times of crisis the dominant economic paradigm becomes vulnerable, which opens possibilities for heterodox streams. The hegemony of the mainstream will thus crucially depend on the viability of the socio-­economic regime. In order to formulate a strategy for PKE to move forward the paper investigates changes in the regime of accumulation, developments within the mainstream and achievements and shortcomings of PKE. Rather than clarifying PKE’s position with respect to the mainstream, the important issue is, whether PKE offers useful explanations of ongoing socio-­ economic transformations. Here our assessment will be mixed. To be clear, our criticism is a friendly one, coming from within. We are working in this paradigm

How to move forward   43 ourselves and strongly believe that it is superior to the mainstream in terms of realism of assumptions and the relevance of the analysis. Based on the principle of effective demand and a focus on uncertainty and income distribution, it has generated insights on core areas such as monetary macroeconomics and medium­term growth theory. Thus it provides analyses and answers for many of the most pressing economic problems such as financial crises and mass unemployment. However, there is no reason for PKs to rest on their laurels. Exactly because PKE is so fruitful and promising it is a real pity that there is little PKE has to say on important real world issues that range from supply-­side phenomena like the increasing use of ICT and the globalization of production to social issues like precarization and the polarization of income distribution or ecological challenges like climate change. It is these issues that will decide the future of PKE. We conclude that PKE offers an excellent starting point for macroeconomic analysis, but should develop its analysis further. In doing so, it should seek cooperation with other heterodox approaches in developing politically relevant problem-­ oriented alternatives to mainstream analyses. The chapter is structured as follows. Section 2 opens with a brief overview of important social and economic changes in the post-­Fordist mode of development. We identify a neoliberal era and an era of enlightened neoliberalism. Section 3 discusses the development of the mainstream during this time. Section 4 turns to the development of PKE and aims to identify achievements and weaknesses. Section 5 outlines a possible strategy for the future development of PKE. Finally, section 6 concludes.

Changes in the accumulation regime: from Fordism to neoliberalism and enlightened neoliberalism Given the interdependencies between the political economic development and the fate of economic theories we start with a brief overview over the most significant economic developments of the post-­war period. The 1950s to the mid-­ 1970s marked what has been called the ‘golden age’ of capitalism or Fordism.2 Based on a class compromise (or truce) between labor and capital, it was characterized by high growth and an active state. The international financial system was dominated by the Bretton Woods system of fixed exchange rates. Most states where characterized by an expanding public sector that procured the basic infrastructure of the economy and governments (in most developed countries) were committed to expansionary interventions in case of recessions. The welfare state emerged in many countries and provided a social safety net. This stable international and domestic background brought an unprecedented economic boom leading to high employment growth. The period of rapid growth came to an end in the mid-­1970s. The prolonged period of full employment put the working class in a powerful position and led to a systematic upward pressure on wages. Industrial conflict soared. In combination with increased international competition this led to what later came to be called ‘profit squeeze’ (Glyn et al., 1990). Productivity growth slowed in part

44   E. Stockhammer and P. Ramskogler because of a slowdown in capital investment. The economic slowdown was further aggravated by the general hike in commodity prices and the oil price shocks. This external inflationary pressure triggered a wage-­price spiral. Simultaneously the Bretton Woods system broke down under the pressure of persistent payment imbalances. This led to a stagflationary period and unemployment rates soared (by the times’ standards) which was widely conceived as a crisis of the contemporary Keynesian policy framework. Political economists (Smithin, 1996; Glyn, 2004) have argued that with a militant labor movement and a surge in inflation (that had turned interest rates negative in the 1970s) industrial capital ended its truce with labor and realigned with financial capital. This new alliance abandoned Keynesian policies. The mid-­1970s marked the turn to neoliberal policies and the beginning of what we call the neoliberal age.3 An imperturbable belief in the efficiency of free markets became the key element of the new catechism. At the core of the neoliberal agenda has been a redefinition of the role of the government. The political shift occurred in several areas. First, monetary policy acted as spearhead of the change of tides; by sharply increasing interest rates in the early 1980s central banks accepted mass unemployment and the debt crisis in Latin America as the cost for reducing inflation. The abstinence from fiscal activities and independence of central banks in order to facilitate conservative monetary interventions was promoted and accomplished in many countries. Waves of privatization and cutbacks of the public sector followed suit. Second, strong labor unions were identified as an important cause of the stagflationary crisis and came under massive political pressure. Directly attacked by governments in the Anglo-­Saxon countries and drained by persistent unemployment in (Western) Europe, they lost organizational strength and political influence. The insistence on free markets justified cutbacks in the welfare state and the international opening of most economies – labeled globalization – further increased the pressure on national working classes. The inability of unions to counteract these developments resulted in substantial redistribution of income from labor to capital, in a polarization of income distribution (even within the working class) and in a precarization of employment. Third, domestic and international financial markets were gradually deregulated and liberalized. The belief in free markets led to a large-­scale promotion of the ideas of free trade and international capital mobility. This led to fundamental changes in the financial landscape. At the international level capital flows were liberalized. Domestically, changes in the financial framework gave rise to a rapid pace of financial innovation, eventually increasing the scope for speculation. Both developments strengthened the influence of the financial sector. Real interest rates rose well above the growth rates of real GDP. Financial ratios such as stock market capitalization, derivatives turnover or cross-­border lending soared (Glyn, 2006: 51). Overall the income shares of financial capital increased considerably (Duménil and Lévy, 2001; Power et al., 2003). Moreover, the influence of financial investors on non-­financial businesses has increased substantially under the so-­called shareholder value revolution (Lazonick and O’Sullivan,

How to move forward   45 2000). These structural changes have been summarily called financialization; the structure of accumulation is now dominated by the financial sector (Stockhammer, 2008a). A crucial side effect of this development has been that financial crises – always intrinsic to capitalist economies (Kindleberger, 2005) – accelerated in both frequency and impact. From the debt crisis of the early 1980s, the EMS crisis of the early 1990s, to the South-­East Asian and Latin American crises of the late 1990s, to the bursting of the dotcom bubble of early 2000s in the USA, to the present crisis emanating from the sub-­prime mortgage sector – financial crises have been a recurring feature of finance-­led capitalism. In the early 1990s neoliberalism gave way to what we call enlightened neoliberalism. This was a shift from free market ideology to a free market cum limited (and biased) state intervention. This more pragmatic approach incorporated interventions to address some market failures. While neoliberalism (as in Friedman and Hayek) was an outright attack on the state and the claim that free markets would take care of themselves, enlightened neoliberalism accepts a role for the government as long as it is temporary and consistent with market incentives. Implicitly it was recognized that markets need institutions and governments (World Bank, 2002). The central bank is thought to actively intervene in cases of financial crises. Not by chance is today’s chairman of the Fed an eminent scholar on the economics of the great depression and the popular Taylor rule recommends anti-­cyclical monetary policy. However, in the long run only free markets would be desirable. In terms of labor market policies the emphasis shifted from an outright dismantling of the welfare state to restructuring the welfare state such as to guarantee that market incentives are operational. In Europe this approach has come under the heading of flexicurity (European Commission, 2007; ETUC, 2007). State intervention in enlightened liberalism has always been biased. First, there is class bias. While in case of a financial crisis state support has been coming quickly and substantially, in the case of unemployment state activism was restrained at best. Second, there is a double standard for core and peripheral countries. While expansionary government policy was considered necessary in case of a financial crisis in the North, the free market catechism was forced upon the countries of the developing world (see the special issue of the JPKE on the Washington Consensus in 2004–2005). Whilst the labor movement has been substantially weakened and has so far proven unable to effectively counter neoliberalism, two waves of new social movements have ideologically challenged neoliberalism: in the 1980s, the environmental movement, the peace movement, and the feminist movement and, in the 1990s, the alter-­mondialist movement.4 These largely operate aside conventional institutional forms of political participation. Compared to traditional labor movements this made it easier to develop a distinctly international dimension – an asset that can hardly be overstated in an age of international capital – but made it more difficult to exert direct influence. The fact that there has been no fusion of the labor movement and the new social movements is one of the causes for the weakness of the left.

46   E. Stockhammer and P. Ramskogler The neoliberal regime with deregulated finance has led to lingering social tension due to increasing social polarization and to a succession of financial crises. As the world goes through financial and economic turmoil even the enlightened version of neoliberalism is under pressure and increasingly questioned (Stiglitz, 2008), even by former proponents (Wolf, 2008). This in all likelihood will have some feedback on the dominant academic theories. To what extent this will benefit PKE is open. We do not intend to imply that the present crisis (or any of the ones that will inevitably follow in a deregulated financial regime) will bring about a (Post) Keynesian renaissance in academia, but it does create ideological discord and confusion within the mainstream and thus creates opportunities for heterodox economists.

The mainstream: plus ça change . . . It has never been straightforward to define the mainstream. In order for the mainstream to be convincing it has to be broad enough to allow for debates. It cannot be completely homogenous but has to allow for conflicting views. Rather than identifying the mainstream with a particular theory, we define it as a common ground for debate (that excludes some arguments or theories).5 Let us circumscribe the mainstream institutionally with respect to two dimensions: what is published in the leading journals (or by economists at leading research institutions) and what leading economic policy institutions and governments use as theoretical foundation for their policies. The latter dimension is important because it highlights that mainstream economics is not a purely academic affair. It also will become obvious that there is substantial disagreement within the mainstream and there will be inner rings (where these dimensions overlap) and outer rings of the mainstream. Clearly there can be dissent within the mainstream. We will highlight some changes over time and address the issue of what the mainstream is with respect to micro, macro and policy. Let us thus begin by reviewing the post-­war mainstream, that is, the Neoclassical-­Keynesian synthesis (called ‘Bastard Keynesianism’ by Joan Robinson). Its grand achievement was to maintain and reformulate the neoclassical research program while giving room for some Keynesian arguments. The Neoclassical-­Keynesian Synthesis had three important features. First, there was an uneasy split – one is tempted to say schizophrenia – between microeconomics and macroeconomics. While microeconomics was the world of rational behavior, utility functions, optimizing behavior and clearing markets (short, based on first principles), macroeconomics for large parts more pragmatically aimed at ‘realism’ often taking social groups (rather than individuals) as starting point. Behavioral functions were intended to be realistic (plausible in an inductive sense) and non-­clearing markets (in particular labor markets) were taken for granted. To be sure, there was no lack of tension between microeconomics and macroeconomics, which in turn fueled research. A second feature is closely related to this schizophrenia: a sharp distinction between the short run and the long run (in particular in macroeconomics). This allowed leading economists

How to move forward   47 (such as Samuelson or Solow) to be Keynesian (in the short run) as well as neoclassical (in the long run). Third, in economic policy the mainstream was post-­ liberal (the term embedded liberalism has been coined for the post-­war system): important parts of the economy were heavily shaped by state intervention, in particular the welfare state cushioned the market mechanism and financial markets were strongly regulated. Countercyclical policy was part of the policy agenda (Glyn, 2006). In the course of the 1970s and 1980s substantial changes occurred in all three fields: policy, macro and micro. The shift in economic policy has already been discussed in section 2. The break in macroeconomics was a conspicuous one, which ended with a redefinition of how macroeconomics had to be done – there had to be microfoundations. The neoclassical attack took several forms (a rediscovery of Hayek, Monetarism, New Classical Economics, Real Business Cycle theory) and succeeded in establishing that in macroeconomics behavioral functions had to be derived from ‘first principles,’ i.e., behavioral functions had to be derived from individual optimizing behavior. Eventually there was a reformulation of Bastard Keynesianism: New Keynesianism. It accepted the dogma of microfoundations and, by introducing transaction costs, sought to generate pseudo-­Keynesian results. It is a resurrection of the Synthesis, but more thoroughly grounded in neoclassical principles than the old version. It deviates from the neoclassical research program: non-­clearing markets are frequent (in the short run). New Keynesianism has become a powerful applied research program that informs policy making: from the NAIRU theory to business cycle theory. New Keynesianism, in particular in the form of the so-­ called New Consensus Model (NCM), can now be considered mainstream with respect to macroeconomic policy making, and is providing the theoretical basis for enlightened neoliberalism.6 However in academia and in the leading journals, New Classicals are well and alive.7 The break in microeconomics was more of a shift (or a growth of niches) than a break. At the same time that New Classicals were resurrecting neoclassical macroeconomics it became increasingly acceptable to transcend the neoclassical research program in microeconomics itself. Colander et al. (2004a, 2004b) define the neoclassical research program as the holy trinity of rationality, greed and equilibrium. Each of these has been questioned. First, a powerful literature emerged demonstrating that under asymmetric information (and rational behavior), markets will typically not clear (Akerlof, 1970; Stiglitz, 1987). The implications of this approach are profound theoretically but ambiguous politically. Unlike the transaction costs of New Keynesian macro, information asymmetries do not disappear in the long run. Competitive equilibrium will not be Pareto efficient and the First Welfare Theorem does not hold (Stiglitz, 1994). Unlike the old Keynesian argument about the lack of effective demand, however, there usually is no quick fix (in terms of government policy) for the inefficiencies. Second, there has been a growing empirical literature demonstrating that people do, in many circumstances, not behave rationally and that they often do not behave selfishly. Slowly, experimental economics was born. People were

48   E. Stockhammer and P. Ramskogler shown to be sensitive to irrelevant details (framing), they include irrelevant information (anchoring) etc. and they happily cooperate in prisoners’ dilemma experiments.8 Representatives of both streams have received the highest honors of the profession: the Nobel Prize and a publication in the AER. They are thus part of the academic mainstream while they have strong Post Walrasian elements. Unfortunately the vice versa does not hold here. While (some) Post Walrasian economists (or arguments) clearly have become mainstream, it is much less clear whether the mainstream of microeconomics has become Post Walrasian. Microeconomics has become a much more diverse field. Arguments can be made now, that only two decades ago would have been frowned upon and dismissed as irrelevant or, worse, sociological.9 Institutionally, however, the mainstream has become more rather than less exclusive. The high degree of formalization of economics is probably one of the most important barriers for heterodox economists (Lawson, 2006). But many heterodox papers are formal. A frequent experience of heterodox economists is that their papers are rejected by mainstream journals without even being sent out to referees. The establishment of journal ratings and their use in tenure and hiring decisions is stifling innovation (Frey, 2003) and has made it a lot harder for heterodox economists to get their work recognized. And there is a complex intermingling of politics and exclusionary mainstream: there are some theorems that are considered deep truths – for example that free trade is a good thing10 and that minimum wages are bad for employment – that can only be questioned at the cost of potential loss of reputation despite the fact that there is a substantial literature questioning the theorems.11 Economic policy is not only influenced by economic theories, but also by political interests. One should thus not be surprised that economic policy at times conflicts with ideology. Nonetheless one can discern some pattern. In the 1980s neoliberals were ruling the show. Since the mid-­1990s one does notice some less dogmatic positions in the international organizations and the USA (but less so in Europe). Most stark is the double standard about the trust in financial liberalization. While deregulation and liberalization and an anti-­inflationary response in case of financial crisis were forcefully preached to (and often forced upon by the IMF ) the developing world, the policy reaction to the financial crises in the USA seemed to be little inhibited by trust in the self-­healing abilities of the market system that neoliberalism had been preaching for decades. Whether this feeds back into theorizing or not remains to be seen. In terms of analysis there have been some signs that important institutions were getting more open-­minded, albeit within narrowly prescribed borders (OECD Employment Outlook, 2006; World Development Report, 2006). Overall the mainstream appears as a contradictory, if nonetheless repressive, creature. While theoretically the mainstream has become more open, institutionally it has become more closed: heterodox economics is largely excluded from mainstream journals and institutions. In the field of macroeconomics New Keynesians appeared as a remake of the Neoclassical-­Keynesian synthesis cum

How to move forward   49 microfoundations. In the short run demand matters, in the long run it does not. The major difference to the old Synthesis is that today microfoundations (based on optimizing behavior) are accepted as an essential ingredient whereas for the old Synthesis macro was a separate field. Ironically, there is a substantial difference between microeconomics as a field of research and the microfoundations of macroeconomics. In microeconomics, experimental economics, and behavioral economics, questions about the very foundations of homo oeconomicus are discussed (within the mainstream), while on the other hand modern macroeconomics takes optimizing behavior (and the need for neoclassical microfoundations) for granted.

The status quo of Post Keynesian economics Institutionally the history of PKE outside of the mainstream is relatively young. The first generation of PKs (Kahn, Kaldor, Robinson, Sraffa) – that started to evolve in the heydays of Keynesian policies and the Neoclassical-­Keynesian synthesis – was based in top universities and published in leading journals. Their research program initially focused on developing Keynes’ theory of effective demand into a theory of the long run. This led to a focus on theories of growth and distribution (Kaldor, 1956; Robinson, 1956) that was supplemented by monetary and financial aspects by an American line of economists (Weintraub, 1959; Minsky, 1957). These economists were deviants in a theoretical sense but as the capital controversies show they were still taken seriously by the mainstream (Levhari and Samuelson, 1966; Solow, 1975; Harcourt,1969). The issues of distribution and growth have remained prominent in the PK discussion ever since, particularly in the form of Kaleckian models. The foundation of these models is a class-­based analysis of the growth process. They usually entail capacity under-­utilization and mark-­up pricing (Dutt, 1987). The modern appearance of these models has an exogenously determined profit margin (via mark-­up pricing) which implies exogenously determined real wages. Further these models commonly exhibit the paradox of thrift and the paradox of cost. The paradox of thrift results from the assumption that capitalists save more than workers. Since the economy grows until investment equilibrates savings, an exogenous redistribution of income towards workers increases growth. Via accelerated growth thus a reduction in the aggregate propensity to save leads to an increase in aggregate savings. The paradox of costs on the other hand refers to the fact that an increase in aggregate costs (i.e., wages) leads to an increase in economic activity and thus to an increase in profit. In extended versions different accumulation regimes are possible (Blecker, 1989; Marglin and Badhuri, 1990): that is growth may be profit led or wage led. The Kaleckian model further is the basis of the rich PK analysis of inflation. In this literature inflation is regarded as a cost-­push phenomenon or a result of an unresolved distributional conflict (Hein and Stockhammer, 2007). The PK focus on monetary issues was in part a reaction to the rise of monetarism. Long before it was (implicitly) acknowledged by the mainstream, PKs

50   E. Stockhammer and P. Ramskogler insisted on the endogenous nature of the money supply (Kaldor, 1982). This insight led to a focus on the functioning of the banking sector which in the late 1980s triggered a massive debate about the particular shape of the money supply function. The PK views on endogenous money largely fell into two camps. The horizontalist analysis started with the observation that loans create deposits, which at the time was an exact inversion of standard wisdom. Since, thus, the banking sector was not constrained quantitatively, they concluded that the money supply is solely determined by the creditworthy demand for credit; that is the money supply is demand determined (Moore, 1989). Structuralists on the other hand maintained that the asset and liability management of banks matters. From this point of view the money supply is in principle endogenous to the banking system. However, the larger the sum of outstanding credit becomes, and the higher the average risk of credits becomes, the more difficulties arise for banks to maintain the reserve requirements. Consequently, there exists some systematic relationship between the amount of outstanding credit and the interest rate (Pollin, 1991; Palley, 1996). This discussion yielded a deep understanding of the functioning of the banking industry. Despite the fact that it is still ongoing, there seems to be some convergence of the respective positions (Fontana, 2004). Based on this broad theoretical background PK authors recently started to develop a well-­grounded critique of the New Consensus Model (NCM) (Arestis and Sawyer, 2004). An obvious critique originating from the PK understanding of banking is the lack of an analysis of the banking sector. There is some progress compared to earlier neoclassical models in that the money supply is endogenous to the model but it is simply determined as a residual without considering the role of the banking sector. This is particularly surprising given the fact that NCM implicates a massive focus on monetary policy by its insistence on inflation targeting. From a PK point of view this insistence on inflation targeting, however, focuses too strongly on a demand-­pull type of inflation (see special issue of the JPKE, 2006). Finally, the vertical long run Phillips Curve is particularly problematic from a PK perspective (Arestis and Sawyer, 2004). Under such a framework long run effects of effective demand simply do not exist. Related to this literature is a recent stream which is concerned with policy issues and empirical research. In Europe one major objective of this literature has been to critically evaluate the economic design of the European Union and to formulate sensible alternatives. Obvious and important fields of intervention for these contributions are the lack of fiscal coordination in Europe and the contemporaneous monetary policy design. This implies a sound critique of the Stability and Growth Pact and propositions of alternative policies as concerns tax and wage policy coordination (Arestis et al., 2001). The discussion hereby is particularly led in light of the lacking convergence within the European Union (Hein and Truger, 2005) and is concerned with the adjustment of labor market institutions and wage policies (Stockhammer, 2008b). A further field is the critical evaluation of the monetary policy of the ECB. The understanding of the stratification of capitalist societies hereby allows PKs to recognize that the one-­sided focus on price stability mainly serves the interests of specific interest groups.

How to move forward   51 PKs thus actively and continuously make important contributions to the understanding of the macro economy. Their contributions are even more remarkable when the hostile environment under which they had to be developed is taken into account. PKs were able to reach a critical mass at some research institutions and have established specialized journals. However, their existence is heavily contested and they are widely ignored by the mainstream. This is a major difference to the times of the capital controversies when it was still possible for PK authors to trigger a debate with the mainstream. Today only a few PKs are able to publish in mainstream journals (e.g., Arestis et al., 2001): most survive by establishing niches. This of courses reduces their impact as regards quantity of citations and similar criteria, which makes it harder for them when it comes to evaluations and rankings. After the Cambridge Controversies PKs were effectively excluded from the mainstream and have been unable to exploit the contradictions and upheavals within mainstream economics. In particular the innovative fringe of mainstream microeconomics seems to be unaware of PKE (and at times even of macroeconomics as a distinct field). Worse, this neglect of PK ideas occurs at the same time as some long standing arguments of PK theory are usurped by the mainstream. The idea of endogenous money has been tacitly incorporated into models of NCM where the money stock is determined as a residual in these models. Further, it can be argued that the idea of conflict inflation is incorporated in the New Keynesian NAIRU narrative of the short run (Stockhammer, 2008c). Also, the notion of hysteresis incorporates PK ideas of the path-­dependency of the economic growth process. All of this happens without acknowledgment of the widely available pioneering PK literature on those subjects. On the other hand (and partly out of a reaction to their contested situation) PKs indeed tend to be highly critical of the mainstream. The potential scope of fruitful interaction between PK and the innovative edge of mainstream microeconomics remains largely unexplored and there are few attempts to communicate from the PK side (such as the special issue of Journal of Economic Psychology, 2004). If the yardstick for the evaluation of the relevance of an economic theory is its relevance for socially important issues, PKs have to take some blame for certain shortcomings. PKE has been focused on a rather reduced set of key concepts initiated by Keynes. Having their own virtue, this, however, left certain white points on the PK map of the real world: 1

2

There is a strange disparity between the relevance of financial crises in Keynes and the important contributions of Minsky (1982, 1986) and his followers and general PK macro-­models. For example Rochon (1999) and Hein (2007) are two excellent recent treatments of PK monetary theory that do not discuss financial instability as a possible effect of endogenous money. Financial instability still appears as an anomaly in the standard PK macro-­ models.12 Apart from the Kaldor–Verdoon law and certain important exceptions (Arestis and Sawyer, 2005; Dutt, 2006; Bhaduri, 2005) analyses related to

52   E. Stockhammer and P. Ramskogler

3

4

5

the supply side hardly appear in the PK literature. Overall, the supply side thus is largely neglected by PKs. This makes it difficult to consider aspects such as ICT or the ‘knowledge society’. Moreover, the effects of the transnationalization of large corporations and the restructuring of value chains have not received much attention from PKs. Despite the prominence of the effects of distribution in PK growth models there is hardly any analysis of the determinants of distribution. Such crucial factors as union density, the real interest rate, and the mark-­up, enter PK models as exogenous variables. There is hardly any organic PK research on how strong the impact of different institutional factors (such as union density and central bank behavior) on the mark-­up is, or what determines participation in workers’ organizations. Closely related to (3), there exists no PK theory of the state and no systematic analysis of the Political Economy. A benevolent public administrator is still implied in many PK models.13 Keynes’ path-­breaking analysis of effective demand established the basis for full employment oriented economic policy. Seventy years later economists still essentially propose the same kind of pre-­Keynesian macroeconomic policies. PKs lack an explanation of the stronghold that orthodox economics has on the profession and on the state. Kalecki (1943) had highlighted the political contradiction of full employment policies, but this issue has not been addressed systematically by PKs. There is no systematic analysis of the motives and impact of political interest groups. Of course this is a critique that universally applies to economics. Finally, PKE seems to offer little to evaluate such developments as precarization or flexicurity from a social perspective. PKE has little to say on issues by which some important groups of modern societies are concerned.

How to move forward PKE shares its defensive position with most heterodox approaches. Lawson (2006) has argued that methodology is the unifying thread for heterodox economists. This view implies that heterodox economists by definition cannot enter a discussion with the mainstream as they speak a different language – they analyse the economy as an open system rather than as a closed system. More specifically, Lavoie (2006) points out that there are similarities between various heterodox positions on crucial issues like rationality and an organicistic approach to society. This is the background for the ongoing debate on the future of PKE. Two important contributions have recently argued that the key to the future is entering a dialogue with mainstream economics. ‘The way forward is for PKE to engage in a more constructive dialogue with mainstream economics with the objective of encompassing relevant neoclassical models within a more general framework that incorporates PK alternatives.’ (Fontana and Gerrard, 2006: 72). A similar point has been made by Colander et al. in a series of publications

How to move forward   53 (2004a, 2004b, 2007). They argue that heterodox economists should not dwell on the unfairness of being excluded by the mainstream but try to express their arguments in ways comprehensible to mainstream economists. All that would be required is a formalization of the arguments: the cutting edge of the mainstream would be eager to listen (Colander et al., 2004a).14 Colander et al. exclusively refer to microeconomists. However, modern macroeconomics has been largely left untouched in the upheavals of modern microeconomics. There are few (and isolated) attempts to integrate non-­standard microfoundations into macroeconomic models (Akerlof, 2007, being a rare exception). The overriding concern of PKE, however, is with macroeconomics.15 The restricted development of modern macroeconomics and the fact that PKs have been largely ignored even in the few fields where both sides have converged (King, 2008: 21) make the existence of ‘within mainstream’ improbable. This is aggravated by the fact that PK (heterodox) authors are often discriminated against by the mainstream, who in most economics departments enjoy a power position (Dequech, 2007–2008). Our contribution to this debate is not a novel position on whether it is desir­ able to enter a dialogue with the mainstream or not.16 Rather, our point is that the issue of entering into a dialogue is a secondary one for the future of PKE. Whether PKs put more effort into entering a dialogue with the mainstream will make little difference, simply because there is little indication that the core of the mainstream is interested in this dialogue. In fact it typically does not even recognize the existence of PKE (or most other heterodox streams). Despite the fact that we believe that PKE provides an excellent basis for economic analysis, and in many ways provides deeper insights than the mainstream, we think that the focus on the relation to the mainstream is misplaced. Rather PKE should look at the real world (to identify pressing problems), look at themselves (to identify shortcomings in their analysis) and at other heterodox streams (to find specific areas of complementarities). Our first recommendation is rather basic: be politically relevant.17 It is hard to overstate the importance of this. It is crucial to develop analyses and policy suggestions for new social and economic problems and communicate them within the profession and to a broader public. This is crucial to attract new students as well as the attention of the economic policy institutions. While we have little hope of displacing the mainstream in the short run, we doubt that this hegemony will go unchallenged in the future. But change is unlikely to come from within the profession. Economics will be changed by forces from the outside. It’s the economy rather than economics that will call for change. The finance-­dominated accumulation regime is prone to crises due to unregulated financial markets and the neoliberal mode of regulation is leading to a polarization of income distribution and a precarization of employment relations. This does not mean that a systemic crisis or a revolutionary upheaval is around the corner. But it does mean that orthodox economics and the neoliberal mode of development will lose legitimacy. As is already apparent in the handling of the present financial crisis, neoliberal principles are pragmatically jettisoned to save financial institutions. Thus, why should we not also ignore them in

54   E. Stockhammer and P. Ramskogler order to help the unemployed? Different fields of economics will be differently affected by such debates, but macroeconomics will certainly be at the center of many debates. This will be an opportunity for PKE to prove its usefulness. But it also poses challenges for PKE. The present crisis will not be a rerun of the 1930s. Governments as well as New Keynesian economists are much more pragmatic than their counterparts of 80 years ago. At the same time the social movements pressing for change are much more heterogeneous, as are the social tensions out of which they have grown. Nor is there a strong political movement (as the socialist movement of the 1920s) pushing for fundamental societal change. In other words, it is not clear to what extent PKE will be able to benefit from the repercussions that the present financial crisis will have on economics. Developing an analysis (and policy suggestions) for present problems will force PKs not only to develop further their theory of financial crisis but also to address issues that they have had little to say about as of yet: globalization, the working poor, atypical employment relations. While the medium run may offer more room for debates, in the present and the near future, the situation of PK has accurately been described as that of an embattled minority (King, 2002). Among the most pressing problems are the marginalization in academia via research assessments and journal ratings. The formation of heterodox economics as well as (possibly) the consolidation of dissenting views at the fringes of the mainstream offers new chances. Our second recommendation is thus that PKs seek to cooperate institutionally with other heterodox approaches and non-­orthodox streams. PKs alone simply don’t have the critical mass to press for change in economics. The aim of this cooperation is twofold. The first is the fight for a pluralistic economics in general. Many of the heterodox umbrella organizations (such as EAEPE, AHE or ICAPE) have been founded to provide a friendly climate for the discussion of otherwise suppressed research. They should now move forward and try to actively defend heterodox research from (further) marginalization. More pluralism in economics involves many issues, one of the strategically important among them is the fight for more inclusive journal ratings and evaluation mechanisms. For this, large associations are needed as lobbying institutions. Second, these institutions should actively encourage research projects transcending the existing camps among the different streams of heterodox economics. However, a sober assessment would probably conclude that the heterodox umbrella organizations have so far not been very successful in this dimension. But it is a vital issue if heterodoxy is to effectively challenge the mainstream of economics. The third recommendation is that the research agenda of PK requires expansion in several directions. As elaborated in section 3, PKE has in several important aspects kept too closely to its original research program and shows crucial gaps in its analysis. PKE, in other words, should become more Post and less Keynesian – not in term of the analysis, but in terms of the questions asked. Changes in the economy and developments in mainstream economics as well as in other heterodox approaches have made many of these gaps apparent. Some examples will illustrate our case. First, consider the role of institutions. While it

How to move forward   55 may not be very surprising that institutionalists have more to say about institutions in general than PK, it is ironic that mainstream economics now often makes a much more elaborated empirical attempt to include the effects of institutions on economic growth than PKE (even if these attempts in practice often degenerate into an additional dummy variable in econometric analysis). This is in spite of the fact that PKs have long argued (certainly much longer than mainstream growth theory) that institutions matter for growth. Second, there is a broad range of recent social and economic phenomena that PKs have had little to say about: ICT, globalization, precarization and environmental destruction. Many of these changes are either ‘too supply-­side’ or ‘too micro’ for PKs. While some of these issues may seem remote from PK theory, others are close to home, but have been ignored. For example, there is next to no discussion of environmental degradation in PK growth theory. Third, PKE has also failed to elaborate a theory of the state and the social groups that influence government behavior. Essentially PKE has no answer to the question of why pre-­Keynesian economic policies persist. In Keynes’ times it was easy to argue that they didn’t know better. Neoliberalism, however, seems to be based on a deliberate decision not to use Keynesian policies. Enlightened neoliberalism uses government policies selectively and in a class-­biased way. In all these areas there should be obvious potential gains from cooperation between PKs and other heterodox positions. Institutional and evolutionary economics have elaborate theories of institutions, Ecological Economists have done a lot to highlight the detrimental effects of growth, Marxists have developed rich theories of class and the state. We are not advocating a grand heterodox synthesis, but problem-­specific heterodox synthesis approaches.18 Take real world problems and analyse them by making use of different heterodox approaches. PKE is plainly not sufficient to do justice to many of today’s social and economic problems.

Conclusion The debate on the future of PKE has focused on PKE’s relation to the mainstream. This has served to highlight the rich and contradictory developments within the mainstream. There is an intimate, if complex, link between the mainstream in academia and in economic policy. A version of New Keynesian theory has been identified as the core of the mainstream that is consistent with enlightened neoliberalism, i.e. accepting a role for the state in the short run while establishing a competitive equilibrium as the key long run reference point. In academia the mainstream has become more open internally in the past two decades with the development of Post Walrasian ideas in microeconomics (in particular where they have little relation to or effect on economic policy). At the same time the fences around mainstream economics have become high by means of excessive formalization, discriminatory journal ratings and (less subtly) by blatant exclusion. We have argued that this focus on the relation to mainstream economics is misplaced. While the dialogue with the mainstream may be desirable, the key

56   E. Stockhammer and P. Ramskogler questions for PKs lie elsewhere. First, PKE has to be relevant in explaining real world problems. The neoliberal mode of development delivers enough of them as the present financial crisis demonstrates. This may come with its own dilemmas, e.g., academic credibility vs. political applicability, but it will raise more interesting questions than trying to reformulate PK models such that they are easy to understand for mainstream economists (if they care to listen). Second, institutionally, PK should strengthen their ties with other heterodox economists to defend space for pluralism in the profession. Third, PKE should fill the gaps in its theory. Many of the present day social and economic problems are not sufficiently addressed in PK analysis. Doing so will take PKs beyond PKE, they should do so by cooperating with other heterodox streams.

Notes   1 An earlier version of the chapter has been presented at the conference ‘Macroeconomic Policies on Shaky Foundations – Whither Mainstream Economics?,’ Berlin, November, 2008. The authors are grateful to the participants at the discussion there, as well as to Fred Lee, John E. King and an anonymous referee for helpful comments. All remaining errors are the authors’.   2 References include Aglietta (1976), Lipietz (1985), Boyer (1990) for the French Regulation School and Bowles et al. (1986) for the Social Structures of Accumulation Approach. For more recent discussion see the contributions in Marglin and Schor (1990) and Glyn (2004).   3 In regulationist terminology we would speak of neoliberal mode of regulation and a finance-­dominated accumulation regime (Stockhammer, 2008a). See Glyn (2004) and Harvey (2005) for an extensive discussion of neoliberalism.   4 We use this term rather than ‘anti-­globalization movement’ that is used in popular media because most of these movements criticize neoliberal globalization and advocate a different, solidaristic kind of globalization.   5 This is not intended to empty the term mainstream of its ideological content, but merely to dissociate from particular theories. While Monetarism would qualify as mainstream in the early 1980s, by the mid-­1990s both New Keynesianism and Real Business Cycle Theory can be regarded as mainstream. The mainstream does have an ideological core: the belief that flexible markets will in the long run generate optimal outcomes.   6 Two examples will illustrate this point. First, after the South-­East Asian financial crisis there was a short debate on the appropriate economic policies, in particular with respect to the IMF. The main proponents, Stanley Fischer (the IMF ’s chief economist) on the one hand and Joseph Stiglitz (the resigned chief economist of the World Bank) on the other hand, are both leading New Keynesians. Second, the debate on European unemployment is analytically framed within the NAIRU model, again a New Keynesian model. According to the preference of the author it can be used to argue that monetary policy has been too tight (Ball, 1999) or that rigid labor market institutions are to blame (IMF, 2003; Nickell et al., 2005).   7 Basically no central bank is using a RBC model of the economy. It this sense they are all New Keynesians now. However in the form of DGSE models the RBC models sneak in again in policy making.   8 Useful overviews include Bowles and Gintis (2000) and Fehr and Fischbacher (2002).   9 Colander et al. claim that the ‘holy trinity of rationality, greed, and equilibrium is in the process of being replaced with a new orthodoxy, which can be described as an approach based on a holy trinity of purposeful behavior, enlightened self-­interest, and

How to move forward   57 sustainability’ (Colander et al., 2004b: viii), but offer little evidence for this. Their discussion is based on ‘a list of interviewees who were working within this broader mainstream’ (Colander et al., 2004b: viii). While these are certainly ‘cutting edge economists’, as the subtitle of the book reads, it is not obvious in what sense these scholars represent the mainstream. No serious attempt is made to evaluate the reactions of more orthodox parts of the mainstream and their ability to defend orthodoxy. Moreover, the book is practically silent on macroeconomic issues. 10 Telling examples include a comparison of Krugman’s textbook on international trade and his academic writings, Samuelson’s (2005) reply to the reactions on his 2004 JEP paper, or Blanchard’s academic writings and his New School presentation. 11 David Card reports staying away from the minimum wage topic after experiencing intense peer pressure (Hayes 2007). 12 This is not to say that no analysis in this important field occurs (see, e.g., Skott 1994, 1995, and the work at the Levy Institute). Our point though is that this analysis occurs alongside the major analytical tasks and is only rarely integrated. 13 Keynes himself was convinced that his policy recommendations could be implemented by means of persuasion and that the lack of their implementation was mainly due to the administration not having understood them properly (Cardim de Carvalho, 2009). However, he overlooked the possibility that some social groups might oppose policies that lead to superior outcomes (in terms of employment and output) because they worsen their relative or absolute position. 14 Much to their credit, it has to be said that Colander and his co-­authors put their energies where their mouths are. In particular, Barkely Rosser (one of the co-­authors of Colander et al., 2004a) plays an important role as a communicator between this edge of more innovative mainstream and heterodox authors in his role as editor of the Journal of Economic Behavior and Organization. 15 Fred Lee has, correctly, pointed out that this statement does not do justice to those PK economists who have contributed to microeconomic theory like Alfred Eichner, Nina Shapiro, Paul Downward and himself. 16 The main benefit of a dialogue would be that PKE might be noticed by the innovative fringes of the mainstream. The value of Colander et al.’s contribution is – in our view – not their conclusion, but that they highlight many of the interesting and challenging developments at these fringes. 17 This is not intended as the reinvention of the wheel. Indeed, many PKs are well aware of this basic imperative. In particular the Levy Institute, the Political Economy Research Institute (PERI) and the annual conference of (German) Research Network Macroeconomic Theory and Macroeconomic Policies already have a policy-­oriented focus, as do many special issues of the JPKE. Paul Davidson and Henry Liu have initiated an open letter regarding the reform of the financial markets (Davidson and Liu, 2008) and the list could well be extended. 18 A grand unifying heterodox synthesis may be the outcome of such a cooperative project, but it is far from clear whether different heterodox approaches are consistent. However, this does not preclude a problem-­oriented cooperation among heterodox approaches.

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58   E. Stockhammer and P. Ramskogler Arestis, P., Demetriades, P., and Luintel, K. (2001) ‘Financial development and economic growth: the role of stock markets’ in Journal of Money, Credit and Banking, 33: 16–41. Arestis, P., McCauley, C., and Sawyer, M. (2001) ‘An alternative stability pact for the European Union’ in Cambridge Journal of Economics, 25: 113–30. Arestis, P. and Sawyer, M. (2004) Re-­examining Monetary and Fiscal Policy for the Twenty-­first Century, Cheltenham: Edward Elgar. Arestis, P. and Sawyer, M. (2005) ‘Aggregate demand, conflict and capacity in the inflationary process’ in Cambridge Journal of Economics, 29: 956–74. Ball, L. (1999) ‘Aggregate demand and long-­run unemployment’ in Brooking Papers on Economic Activity, 2: 189–236. Bhaduri, A. (2006) ‘Endogenous economic growth: a new approach’ in Cambridge Journal of Economics, 30: 69–83. Blecker, R. (1989) ‘International competition, income distribution and economic growth’ in Cambridge Journal of Economics, 13: 395–412. Bowles, S. and Gintis, H. (2000) ‘Walrasian economics in retrospect’ in Quarterly Journal of Economics, 115: 1411–39. Bowles, S., Gordon, D., and Weisskopf, T. (1986) ‘Power and profits: the social structure of accumulation and the profitability of the postwar US economy’ in Review of Radical Political Economics, 1–2: 132–67. Boyer, R. (1990) The Regulation School: A critical introduction, New York: Columbia University Press. Cardim de Carvalho, F. (2009) ‘Keynes and the reform of the capitalist social order’ in Journal of Post Keynesian Economics, 31: 191–211. Colander, D., Holt, R., and Rosser, B. (2004a) ‘The changing face of mainstream economics’ in Review of Political Economy, 16: 485–99. Colander, D., Holt, R., and Rosser, B. (2004b) The Changing Face of Mainstream Economics: Conversations with cutting edge economists, Michigan: University of Michigan Press. Colander, D., Holt, R., and Rosser, B. (2007–2008) ‘Live and dead issues in the methodology of economics’ in Journal of Post Keynesian Economics, 30: 303–12. Davidson, P., and Liu, H. (2008) ‘Open letter: the way forward’, Asia Times, November 8. Dequech, D. (2007–2008) ‘Neoclassical, mainstream, orthodox, and heterodox economics’ in Journal of Post Keynesian Economics, 30: 279–302. Duménil, G. and Lévy, D. (2001) ‘Costs and benefits of Neoliberalism: a class analysis’ in Review of International Political Economy, 8: 578–607. Dutt, A. (1984) ‘Stagnation, income distribution and monopoly power’ in Cambridge Journal of Economics, 8: 25–40. Dutt, A. (2005) ‘On Post Walrasian economics, macroeconomic policy, and heterodox economics’ in International Journal of Political Economy, 33: 47–67. Dutt, A. (2006) ‘Aggregate demand, aggregate supply and economic growth’ in International Review of Applied Economics, 20: 319–36. European Commission (2007) Towards Common Principles of Flexicurity: more and better jobs through flexibility and security, Luxembourg: European Commission. European Trade Union Confederation [ETUC] (2007) ‘Commission’s communication on Towards Common Principles of Flexicurity: more and better jobs through flexibility and security’, ETUC’s position adopted by the ETUC Executive Committee of October 17–18, 2007. Online. Available at: www.etuc.org/a/4233 (accessed December 29, 2011).

How to move forward   59 Fehr, E. and Fischbacher, U. (2002) ‘Why social preferences matter: the impact of nonselfish motives on competition, cooperation and incentives’ in Economic Journal, 112: C1–33. Fontana, G. (2004) ‘Rethinking endogenous money: a constructive interpretation of the debate between horizontalists and structuralists’ in Metroeconomica, 55: 367–85. Fontana, G. and Gerrard, B. (2006) ‘The future of Post Keynesian economics’ in Banca Nazionale del Lavoro Quaterly Review, 59 (236): 49–80. Frey, B. (2003) ‘Publishing as prostitution? Choosing between one’s own ideas and academic success’ in Public Choice, 116: 205–23. Glyn, A. (2004) Capitalism Unleashed: finance, globalization and welfare, Oxford: Oxford University Press. Glyn, A., Hughes, A., Lipietz, A., and Sing, A. (1990) ‘The rise and fall of the Golden Age’ in S. Marglin and J. Schor (eds.) The Golden Age of Capitalism, Oxford: Clarendon Press. Harcourt, G. (1969) ‘Some Cambridge controversies in the theory of capital’ in Journal of Economic Literature, 7: 369–405. Harvey, D. (2005) A Short History of Neo-­liberalism, Oxford: Oxford University Press. Hayes, C. (2007) ‘Hip heterodoxy’ in The Nation, 284: 23 (June 11). Hein, E. (2008) Money Distribution Conflict and Capital Accumulation: contributions to monetary analysis, Basingstoke: Palgrave Macmillan. Hein, E. and Stockhammer, E. (2007) ‘Macroeconomic policy mix, employment and inflation in a Post Keynesian alternative to the new consensus model’, Department of Economics, Working Paper Series, No. 110, Vienna. Hein, E. and Truger, A. (2005) ‘European Monetary Union: nominal convergence, real divergence and slow growth?’ in Structural Change and Economic Dynamics, 16: 7–33. IMF (2003) ‘Unemployment and labor market institutions: why reforms pay off ’ in World Economic Outlook April 2003: growth and institutions, Washington DC: International Monetary Fund. Online. Available at: www.imf.org/external/pubs/ft/weo/2003/01/ index.htm (accessed December 29, 2011). Kaldor, N. (1956) ‘Alternative theories of distribution’ in Review of Economic Studies, 23: 83–100. Kaldor, N. (1982) The Scourge of Monetarism, Oxford: Oxford University Press. Kalecki, M. (1943) ‘Political aspects of full employment’ in Political Quarterly, 14: 322–31. Kindleberger, C. and Aliber, R. (2005) Manias, Panics and Crashes, Basingstoke: Palgrave Macmillan. King, J. (2002) A History of Post Keynesian Economics Since 1936, Cheltenham: Edward Elgar. King, J. (2008) ‘Heterodox macroeconomics: what exactly are we against?’ in Wray, R. (ed.) Keynes and Macroeconomics After 70 Years, Cheltenham: Edward Elgar. Lavoie, M. (2006) ‘Do heterodox theories have anything in common? a Post-­Keynesian point of view’ in Intervention, 3: 87–112. Lawson, T. (2006) ‘The nature of heterodox economics’ in Cambridge Journal of Economics, 30: 483–505. Lawson, T. (2007) ‘Methodological issues in the study of gender’ in Journal of International Economics Studies, 21: 1–66. Lazonick, W. and O’Sullivan, M. (2000) ‘Maximizing shareholder value: a new ideology for corporate governance’ in Economy and Society, 29: 13–35.

60   E. Stockhammer and P. Ramskogler Levhari, D. and Samuelson, P. (1966) ‘The nonswitching theorem is false’ in The Quarterly Journal of Economics, 80: 518–19. Lipietz A. (1985) The Enchanted Word, London: Verso. Marglin, S. and Badhuri, A. (1990) ‘Profit squeeze and Keynesian theory’ in S. Marglin and J. Schor (eds.) The Golden Age of Capitalism: reinterpreting the postwar experience, Oxford: Clarendon Press. Marglin, S. and Schor, J. (eds.) (1990) The Golden Age of Capitalism, Oxford: Clarendon Press. Minsky, H. (1957) ‘Monetary systems and accelerator models’ in American Economics Review, 47: 859–83. Minsky, H. (1982) ‘The financial instability hypothesis: capitalist processes and the behavior of the economy’ in C. Kindleberger and J.-P. Laffargue (eds.), Financial Crises: theory, history and policy, Cambridge: Cambridge University Press. Minsky, H. (1986) Stabilizing an Unstable Economy, New Haven: Yale University Press. Moore, B. (1989) ‘A simple model of bank intermediation’ in Journal of Post Keynesian Economics, 12: 10–28. Nickell, S., Nunziata, L., and Ochel, W. (2005) ‘Unemployment in the OECD since the 1960s: what do we know?’ in Economic Journal, 15: 1–27. OECD (2006) Employment Outlook 2006, Paris: OECD. Palley, T. (1996) Post Keynesian Economics: debt, distribution and the macro economy, Basinstoke: Palgrave Macmillan. Pollin, R. (1991) ‘Two theories of money supply endogeneity: some empirical evidence’ in Journal of Post Keynesian Economics, 13: 366–98. Power, D., Epstein, G., and Abrena, M. (2003) ‘Trends in the rentier income share in OECD countries 1960–2000’, PERI Working Paper 58a. Robinson, J. (1956) The Accumulation of Capital, London: Macmillan. Rochon, L.-P. (1999) Credit, Money and Production: an alternative Post-­Keynesian approach, Cheltenham: Edward Elgar. Samuelson, P. (2004) ‘Where Ricardo and Mill rebut and confirm arguments of mainstream economists supporting globalization’ in Journal of Economic Perspectives, 18: 242–4. Skott, P. (1994) ‘On the modelling of systemic financial fragility’ in A. Dutt (ed.) New Directions in Analytical Political Economy, Aldershot: Edward Elgar. Skott, P. (1995) ‘Financial innovation, deregulation, and Minsky cycles’ in G. Epstein and H. Gintis (eds.) Macroeconomic Policy After the Conservative Era, Cambridge: Cambridge University Press. Smithin, J. (1996) Macroeconomic Policy and the Future of Capitalism: the revenge of the rentiers and the threat to prosperity, Cheltenham: Edward Elgar. Solow, R. (1975) ‘Brief comments’ in The Quarterly Journal of Economics, 89: 48–52. Stiglitz, J. (1987) ‘The causes and consequences of the dependence of quality on price’ in Journal of Economic Literature, 25: 1–48. Stiglitz, J. (1994) Whither Socialism?, Cambridge, Mass.: MIT Press. Stiglitz, J. (2008) ‘The end of neo-­liberalism’ in New Europe, July 21. Stockhammer, E. (2008a) ‘Some stylized facts on the finance-­dominated accumulation regime’ in Competition and Change, 12: 189–207. Stockhammer, E. (2008b) ‘Wage moderation does not work’ in Review of Radical Political Economy, 39: 391–7. Stockhammer, E. (2008c) ‘Is the NAIRU a Monetarist, New Keynesian, Post Keynesian or Marxist theory?’ in Metroeconomica, 59: 479–510.

How to move forward   61 Weintraub, S. (1959) A General Theory of the Price Level, Output, Income Distribution and Economic Growth, Westport: Greenwood Publishing. Wolf, M. (2008) ‘The rescue of Bear Stearns marks liberalisation’s limit’ in Financial Times, March 25. World Bank (2002) ‘Building institutions for markets’, World Development Report 2002, Washington, DC: World Bank. World Bank (2006) ‘Equity and development’, World Development Report 2006, Washington, DC: World Bank.

4 A guide to paradigmatic self-­marginalization Lessons for post-­Keynesian economists Leonhard Dobusch and Jakob Kapeller Introduction As discussed by a series of recent contributions (see for example Davidson, 2009; Hodgson, 2009; Lawson, 2009a), for many heterodox economic scholars the current economic crisis is also a crisis of mainstream economics and, hence, an opportunity for paradigmatic change. A common critique addresses the mainstream’s failure to recognize the problems leading to the crisis and hence its ­inability to predict it (Bezemer, 2009). This line of critique can even be found among economists not famous for their critical stance towards mainstream economics: Colander et al. (2009) for example, admit a “systematic failure of academic economics” and 83 German professors in the field of economics signed a petition for a methodological reorientation of their discipline.1 Nevertheless, in this chapter we argue that in spite of the partially acknowledged problems in neoclassical economic theorizing made obvious by the economic crisis, such a paradigmatic shift is still highly improbable for at least two reasons: first, many self-­reinforcing mechanisms within the institutional structure of the discipline enable neoclassical economics to perpetuate its paradigmatic dominance. As we describe elsewhere (Dobusch and Kapeller, 2009a), economic education and publishing cultures are highly standardized and exhibit positive network effects for those associated with the dominant paradigm, which are unaffected by the current crisis. Two statements of leading economic textbook authors might serve as a first illustration of our observations concerning the paradigmatic stability of the status quo in economics: Despite the enormity of recent events, the principles of economics are largely unchanged. Students still need to learn about gains from trade, supply and demand, the efficiency properties of market outcomes, and so on. These topics will remain the bread-­and-butter of introductory courses. (Mankiw, 2009; italics by the authors) More economic research (and teaching), not less, is the best hope of both emerging from the current crisis and of avoiding future ones. (McTaggart et al., 2009)

Lessons for post-Keynesian economists   63 Furthermore, a closer look at the suggestions put forward in Colander et al. (2009) exhibit – in spite of all self-­critical intentions – no potential for seriously changing economic theorizing: while calling for more economic modelling, more accurate econometrics, and more complex mathematical models they do not even mention the institutional dominance of a destructive scientific paradigm (see also: Lawson, 2009b). In other words, the central axioms or the “hard core” (Lakatos, 1970) of the neoclassical paradigm are left unchallenged, leading only to “new puzzles to solve” but not to “anomalies” as a precondition to fundamental paradigmatic change – the reaction to extensive empirical failure generally described by Kuhn (1969, 1996) and Feyerabend (1975, 1977). Second, heterodox economic schools such as the post-­Keynesians fail to provide a comprehensive paradigmatic alternative to mainstream economics, which is a necessary precondition for such a paradigmatic change (Kuhn; 1969, 1996; Sterman and Wittenberg, 1999). In what follows we try to assess why heterodox economic schools in general and post-­Keynesians in particular struggle to seriously challenge neoclassical hegemony in economics in spite of the obvious shortcomings of neoclassical theory. While we acknowledge the difficulties for dissenting or minority views posed by the institutional environment and by hegemonial strategies of mainstream researchers in favour of the incumbent paradigm (see Dobusch and Kapeller; 2009a, 2009b), we also see a substantial tendency of “self-­marginalization” within communities of heterodox economists. A general problem in this context is connected to the notion of paradigmatic change: do different heterodox schools want to replace the neoclassical dominance (1) with their own school of thought, or (2) with a pluralistic conception of economics as a discipline containing (and needing) a variety of theoretical starting points. Some kind of consensus on this point is – at least from a theoretical perspective following Kuhn (1969, 1996) and Sterman and Wittenberg (1999) – a necessary precondition for paradigmatic change. This general ambivalence in the relationship of heterodox schools – are they partners or competitors? – is also reflected in the daily routines of heterodox economists as illustrated by the results of our research. Each of the following three sections addresses a set of practices common among heterodox schools that we see as particularly problematic in terms of the current paradigmatic struggle and call them “lessons for paradigmatic self-­ marginalization”. The first lesson, “be exclusive”, deals with a lack of pluralism and openness within and between different heterodox schools. The second lesson, “praise your enemy’s gods”, investigates the partially perverse consequences of following mainstream economics in (1) mathematizing economic research, and (2) identifying “empirical research” with “econometrics”. The third lesson, “make your papers scarce”, analyses how (lack of open) access to heterodox research influences its position in the current paradigmatic struggle. For all three lessons we provide empirical data supporting our main arguments.

64   L. Dobusch and J. Kapeller

“Be exclusive: define true beliefs and ignore the heretics!” In this section we argue that the communication between different heterodox schools is too loose to compete with the mainstream. This fact constitutes a general problem for pluralism inside heterodox economics and is a strategic disadvantage from a paradigmatic perspective. The problem At least in principle, many heterodox scholars from different schools of thought seem to agree on demanding more theoretical pluralism within economics – see for example Garnett et al. (2009) or van Bouwel (2005) for a more critical perspective. As soon as it comes to the definition of pluralism, however, this unity disappears. At least for some heterodox economists, pluralism is a claim only raised vis-­à-vis mainstream economics, leaving out the relationships to other heterodox schools. The controversy between John E. King (2004a, 2004b) and the editor of the Journal of Post Keynesian Economics (JPKE) Paul Davidson (2004) on pluralism in economics may serve as an illustrative example: while King argues that there is no “single correct alternative to neoclassical economics”, Davidson is convinced that “[i]f one wishes to explain (describe) the production, exchange and financial features and operations of a market-­oriented, money using, entrepreneurial economy, then Keynes’s ‘General Theory’ is the sole ‘correct’ alternative to neoclassical economics.” To him, neoclassical economics as well as all other schools such as “Sraffian, Kaleckian, and other heterodox theories” are just “special cases obtained by adding additional restrictive axioms to Keynes’s basic general theory”. From Davidson’s point of view pluralism is at best a rhetorical vehicle to enhance the status of post-­Keynesian economics, by subsuming other heterodox traditions under the umbrella of Keynes’ general theory. This is actually a monistic attitude practically resulting in a form of “pluralism of disinterest” best described as “tolerant ignorance”. Since other heterodox schools of thought are seen as “dealing with special cases” and different aspects of the economy respectively working with alternative methods, their contributions are tolerated on the grounds of a common experience of academic marginalization, but rarely consciously integrated in a common framework. Articles like Lavoie (2006) or O’Hara (2007) trying to combine or compare diverse heterodox approaches are still exceptional.2 In contrast to this asserted “ignorant pluralism” stands the ideal of a “discursive pluralism”, where different heterodox schools consciously interact, discuss and integrate each other’s theoretical propositions and empirical results. Pluralism understood as an active scientific conversation between different heterodox schools would also reflect itself in a quantitative analysis of citation behaviour: heterodox outlets would form a tight citation network as a result of increased cross-­school interaction. “Discursive pluralism” as advocated here is currently not the case in heterodox economics as shown by our subsequent analysis of heterodox citation behaviour.

Lessons for post-Keynesian economists   65 Nevertheless it holds the potential of strengthening heterodox economics from various perspectives. First, an increased debate on common theoretical grounds and perspectives of different heterodox economic schools seems to be a promising route for increasing the overall explanatory power of heterodox economic theories. Second, heterodox economics could – by adopting the idea of a discursive pluralism – serve as an archetype of pluralism in economics. Third, a common pluralist paradigm consisting of various heterodox traditions seems to have a much higher chance of succeeding against an already dominating theory, that is, neoclassical economics, in terms of paradigmatic struggles. Fourth, the tightening of heterodox citation networks seems to be a Machiavellian imperative in the face of modern research evaluation assessments, which are often based on the number of citations gathered by certain researchers, departments, publishers or outlets. One main problem in this context is the ambivalence in the relationships of heterodox schools related to the question of whether alternative heterodox schools should be seen as partners for cooperation or opponents in competition. This ambivalence leads to the curious situation that most heterodox schools have a very pluralistic attitude towards mainstream economists, with whom they communicate a lot, but are at the same time often insensible to contributions from other heterodox strands. An illustrative example for the difficulties arising when integrating different strands of heterodox thought is provided by Marc Lavoie (2006), who tries to connect Sraffian, Marxian, Regulationist and post-­Keynesian concepts and thereby laments the sectarian tendencies incorporated in some of these schools. While Lavoie contributes some important arguments related to the integration of these schools of thought, we, as sympathetic bystanders of post-­Keynesianism, were rather surprised by the scrupulous efforts some authors make to separate the “right” from the “wrong” interpretation of some “sacred” texts. Consequently Lavoie has to work his way through a series of alleged theoretical differences, which seem to be of a primarily hermeneutical nature mainly useful for obscuring the common roots of these strands of thought. This attitude of defining “true beliefs” while ignoring “heretic” contributions is a paradigmatic weakness of heterodox economics, which is documented by the citation data presented in the following section. Empirical observations As already mentioned, we observe several feedback mechanisms in scientific institutions partially leading to path-­dependent processes in the paradigmatic development of economics as a scientific discipline (Dobusch and Kapeller, 2009a). An important ancestor in this line of reasoning is Robert K. Merton (1968), who postulated the validity of the Matthew principle – those who already have, will earn more – for the reputation of Nobel-­laureates. Merton’s asserted principle nowadays – due to the introduction of citation indices as the Social Science Citation Index (SSCI) – also holds for individual authors, departments and outlets. Especially in economics the introduction of citation metrics in the 1970s has benefited the neoclassical paradigm leading to a situation Hodgson and Rothman (1999: F180) characterized as an “institutional oligopoly”:3

66   L. Dobusch and J. Kapeller Institutions with an initial concentration of editors or authors may benefit from processes of positive feedback involving, for example, an increasing ability to attract research grants, increasing visibility and reputation, increasing capacity to recruit leading researchers, and increasing research output. This situation obviously carries paradox or even perverse consequences. So are citations in heterodox articles set to criticize the dominant viewpoint obviously counted in favour of neoclassical economics within the content-­blind logic of citation metrics. On the other hand, the logic of citation metrics might provide an interesting starting point for discussing general paradigmatic strategies of heterodox economists. In this spirit we have analysed the citation behaviour of core heterodox journals vis-­à-vis a set of core mainstream journals in various ways. In total we use two datasets in this section. Whereas our main dataset is based on a 20-year sample (1989–2008) of citations between 26 economic journals (13 orthodox and 13 heterodox) from Thomson Scientific’s Web of Science,4 we also utilize some data provided by Frederic S. Lee (for the latter see the details below). We choose the SSCI as a primary data source, since the calculation of the Journal Impact Factors, which have become the most important standard routine in quantitative evaluation, is principally based on the same data – thus the Web of Science has simply become a “powerful” database. We then use the data from Lee not only to corroborate our findings but also because of major shortcomings within the measures provided by Thomson Scientific: first, the Journal Impact Factor measures the influence of outlets within a given field, not the quality of individual journal publications (Amin and Mabe, 2000) and is not a non-­reactive methodology (Fröhlich, 2008), which fundamentally questions its reliability and validity. These problems are complemented by selection biases in terms of variables and publications as well as technical problems with the automatic scanning of reference lists (for an overview see Kapeller 2010a, 2010b).5 Second, the SSCI partially discriminates against heterodox journals, since many of these journals are not even listed within the SSCI, resulting in a lower Impact Factor (Lee, 2008). For our analysis, however, this is a minor point as we choose “thirteen of every branch” and analyse them relative to each other. Regarding the overall performance of individual journals the SSCI measure rewards paradigm size: the larger the group of journals cross referencing each other, the better for the individual journal. Our sample selection rests upon the Journal Citation Report (JCR) 2007; it includes the top 13 journals of the JCR (that is, the top 13 orthodox)6 and the top 13 heterodox journals7 identified in accordance with Lee’s heterodox directory (Lee, 2009a). We choose 13 of each type since the JCR 2007 contains in total 13 heterodox journals meeting our criterion among the top 150 positions in the category of economics journals. Both networks created this way show a comparable profile; and both sub-­samples contain some general as well as some specialized journals, and journals of distinctly different fields of orthodox and heterodox

Lessons for post-Keynesian economists   67 economics. The following tables created on this basis depict the citation behaviour of the top 13 orthodox and top 13 heterodox journals and might help to focus on problems associated with heterodox citation networks. Tables 4.1 and 4.2 are based on the cumulative citations within our SSCI data. The comparison in Table 4.1 clearly demonstrates that the neoclassical citation network is much tighter, while heterodox economics proves to be “open” for mainstream research. The pluralist claim of heterodox economics is, thus, completely legitimate if directed at the relation of heterodoxy to mainstram economics, which is by far ignoring heterodox contributions. Table 4.2 on the other hand shows that the neoclassical citation network is not only tighter because of its ignorant attitude towards heterodox research, but also because their intra-­ network citations do not so heavily rely on journal-­self-citations. While roughly 70 per cent of all citations within the heterodox community are self-­citations, the same value for the orthodox network is only about 30 per cent. These are the main structural, that is size-­independent, reasons for the relative weakness of the heterodox citation network, which we subsumed under the label of “ignorant pluralism”. These conclusions also hold when analysing the completely different sample of heterodox journals provided by Lee (2009b). His sample is based on the years 1993–2003 and includes 11 heterodox journals, which he selected emphasizing post-­Keynesian, socio-­economic and radical traditions. Only three of these journals, namely the Cambridge Journal of Economics, the Journal of Post Keynesian Economics and the Journal of Economic Issues, are also part of the above sample of the “JCR-­top 13 heterodox”. So, while the sample used in Tables 4.1 and 4.2 is much more diverse in terms of paradigmatical viewpoints (Marxist, Table 4.1  Citation networks constituted by leading orthodox and heterodox journals

in top 13 heterodox in top 13 orthodox

Percentage of citations from top 13 heterodox journals

Percentage of citations from top 13 orthodox journals

52.42 (intra-network)   2.85 (inter-network)

47.58 (inter-network) 97.15 (intra-network)

Table 4.2 The role of self-citations within citation networks of leading orthodox and ­heterodox journals Percentage of intra-network Percentage of journal-self(heterodox/orthodox) citations within a citations excluding selfcommunity’s network citations in top 13 heterodox in top 13 orthodox

13.46 (intra-network) 68.79 (intra-network)

71.71 29.19

68   L. Dobusch and J. Kapeller post-­Keynesian, ecological, evolutionary, feminist journals and a journal very close to the mainstream are included), the results derived from Lee’s much more coherent sample are very similar.8 Table 4.3 gives another impression of our general argument: a stereotypical heterodox economist, and also – as evidenced by the values for predominantly Keynesian journals such as the Cambridge Journal of Economics, the Journal of Post Keynesian Economics or the Contributions to Political Economy – a stereotypical post-­Keynesian economist, exhibits a rather standardized citation routine, which can be described as follows: First:  Cite your enemies, that is mainstream economic journals. Second:  Cite yourself, that is the journal you are submitting to. Third:  Cite your buddies, that is the two journals with the strongest

connection to the journal, you are submitting to. LastlY:  Cite your allies, that is heterodox economic journals except the three already mentioned (that is the 17 remaining journals within this sample). This fatal routine is subtly, but not in full detail, also present in Table 4.2 and can be (roughly) read as 47.5 per cent mainstream-­citations, 39 per cent self-­ citations, 13.5 per cent citations of allies for heterodoxy compared to 70 per cent citations of allies, 27 per cent self-­citations and 3 per cent heterodox citations for orthodoxy. These differences in network density are striking, especially when taking into account that the sample of orthodox journals used in Tables 4.1 and

Table 4.3 Citation behavior among a content-oriented selection of heterodox economic journals9,10 Journal

Total citations

Cambridge Journal of Economics Contributions to Political Economy International Papers in Political Economy Journal of Economic Issues Journal of Post Keynesian Economics New Left Review Review of Black Political Economy Review of Political Economy Review of Social Economy Review of Radical Political Economics Science & Society Average

21,363 2,204 2,164 22,917 10,918 10,451 3,886 9,580 9,067 9,391 7,735 9,971

% mainstream

% self

% buddies

% allies

9.7 9.1 7.1

2.6 1.4 0.3

1.6 2.3 2.9

1.7 1.0 3.0

4.9 13.1 0.0 6.1 9.3 5.5 4.2

7.1 7.6 3.2 3.2 1.5 2.3 4.1

1.0 2.7 0.2 0.6 3.0 2.4 1.8

1.2 1.6 0.1 0.1 2.6 1.9 2.9

3.2 3.32

2.1 1.87

1.4 1.59

0.2 6.29

Note The categories “self” and “buddies” have been added by the authors; in contrast to the other tables the given percentage values are calculated relative to total citations within a certain outlet.

Lessons for post-Keynesian economists   69 4.2 is less homogenous in terms of content than the heterodox sample used in Table 4.3 (the orthodox sample in Table 4.2 includes, for example, the Journal of Accounting and Economics and the Journal of Economic Geography and Economic Geography). In sum our auxiliary data set exhibit exactly the same implications as our main analysis. From a pluralist perspective this leads to a result already sketched in the preceding section: under the assumption that a pluralist attitude, as heterodox economists often invoke it, implies talking to each other (in contrast to “ignorant pluralism”) as reflected by mutual citation flows, we find that heterodox economics – when “en bloc” compared to mainstream economics – is actually very pluralistic (according to Table 4.1, roughly 47.5 per cent of the citations in heterodox journals refer to mainstream journals). On the contrary, our analysis exemplifies that the mainstream in economics is essentially closed, that is not open for alternative theoretical approaches and thus not pluralistic (according to Table 4.1, only about 3 per cent of the citations in mainstream journals refer to heterodoxy). While this observation is compatible with a series of complaints about the discrimination of heterodox ideas within the mainstream journal culture (see Reardon, 2008), it only holds for a broad understanding of heterodox economics as a single paradigmatic alternative to mainstream economics. If we focus on intra-­factional citation-­behaviour it becomes obvious that heterodox economists are more pluralistic in their relation to mainstream than in their internal discourse: only about 13.5 per cent of citations in heterodox journals refer to other heterodox journals in the same sample (68.79 per cent is the corresponding value for orthodox journals; see Table 4.2). Thus heterodoxy imports thrice as many citations from mainstream literature as it produces domestically, a situation calling for reversal if a paradigmatic change is really a substantial heterodox desire. Taken together, the results of our citation analysis strengthen what has already been explained on a general level, namely that heterodox economists should try to partially reorient their pluralist attitude from mainstream journals to other heterodox branches. This might lead to a “win–win situation”: an intensified discourse on theoretical or methodological questions between different heterodox schools of thought might not only improve the theoretical and empirical standards as well as the applicability of heterodox economics in general, but it would also lead to a significant improvement in terms of citation metrics. In any case it seems necessary to alter the current situation, which is characterized by the fact that heterodoxy comparatively strengthens the orthodox position in the content-­blind SSCI logic. This is evidenced by Table 4.4 (again based on SSCI data), which examines the “cross-­border” citation balance between heterodox and orthodox journals. It should be mentioned for clarification that the majority of the 753 citations, which are exported from heterodoxy to orthodoxy, are created by the respective “outliers” of each side: while 340 are exported by the Journal of Economic Behavior and Organization, another 273 are imported by the Journal of Economic Geography respectively (excluding those from the former to the latter journals).11 Thus only 140 export-­citations within 20 years

Citations in top 13 orthodox (export) 46 18 17 55 340 5 98 72 36 7 10 22 27 753

Top 13 heterodox journals

Economy and Society Ecological Economics Work, Employment and Society Review of International Political Economy Journal of Economic Behaviour and Organization New Political Economy Cambridge Journal of Economics Journal of Development Studies Journal of Evolutionary Economics Feminist Economics Journal of Post-Keynesian Economics Journal of Economic Issues Economics and Philosophy Total 69 1,022 47 111 2,605 50 617 672 517 198 407 568 153 7,036

Citations of top 13 orthodox (import)

Table 4.4  Citation trade balance of 13 heterodox journal vis-à-vis the mainstream

–23 –1,004 –30 –56 –2265 –45 –519 –600 –481 –191 –397 –546 –126 –6,283

Difference

1.5 56.78 2.76 2.02 7.66 10 6.3 9.33 14.36 28.29 40.7 25.82 5.67 9.34

Proportional factor

Lessons for post-Keynesian economists   71 (seven per year) remain when subtracting those citations related to outliers on each side. This again illustrates that heterodox economists strengthen the neoclassical paradigm in terms of citation metrics (by a factor of 9 in this sample!), since they import many more citations from orthodoxy than vice versa. Table 4.4 also shows that citing behaviour in this context is not reciprocal: those journals gathering a proportional factor lower than 3, that is, those with a relatively good citation trade balance, all cite only a few articles from mainstream journals (maximum value: 111), while those with the highest proportional factors (>10) all import more than 400 mainstream citations (with the exception of Feminist Economics). Comparing the performance of two leading journals of post-­Keynesian research in this sample makes clear that both of these journals import a lot of citations from the top 13 mainstream journals, but only one of them – the Cambridge Journal of Economics (CJE) – manages to also export a not-­negligible number of citations. This is mainly due to the fact that the CJE maintains contact with the two economic geography journals in the top 13 orthodox journals: 79 of 98 export-­citations are imported by these two journals (four out of ten is the corresponding ratio for the Journal of Post Keynesian Economics [JPKE]). Moreover, the CJE is also much more popular within heterodoxy: according to our data it exports 346 citations to the other 12 heterodox journals, while the JPKE only counts 192 of these intra-­community export-­citations. So the general observation is that the CJE does better in terms of network centrality – a result compatible with results from other, similar studies (see Cronin, 2008, as an example). These results of course also reflect that the CJE is a more “general” journal as compared to the JPKE. Nonetheless, from a strategic point of view, post-­Keynesian journals should seek ways to improve their citation performance in both ways: regarding the questions (1) what to cite, and (2) how to get cited. Regarding the former point, citation patterns differ for non-­formal, formal-­theoretical and empirical articles – an issue we address in the following section. In summarizing this section’s results one could say that – from the standpoint of citation metrics – “ignorant pluralism” is even worse than, for example, wars between heterodox schools, to determine the “unique and best suited” sole competitor to neoclassical economics. While such quarrelsome relationships would surely damage the partial institutional unity of heterodox economics it would lead to far more mutual citations than the status quo, characterized by a pluralism of disinterest. In this sense it would actually be better “to hunt the heretics down” (intellectually of course) than to ignore their false god’s play.

“Praise your enemies’ gods!” In the following section we basically argue that a preferred set of methods also coins the theoretical content and paradigmatical character of a certain discipline or school of thought. Focusing on the post-­Keynesian tradition in this context raises the question why the preferred set of methods within post-­Keynesianism

72   L. Dobusch and J. Kapeller is so similar to mainstream economics (especially when compared to other heterodox schools of thought) and whether this similarity has any effect on inter-­ paradigmatic relations. The problem The stronger focus on formal and econometric methods exhibited in post-­ Keynesian thought as compared to other heterodox traditions parallels the methodological orientation of neoclassical economics. One could even say that from a purely descriptive perspective, focusing solely on methodological orientation, post-­Keynesian economics is much more similar to mainstream economics than to most other heterodox schools of thought. This is evidenced by a short look at the articles in two leading post-­Keynesian journals, the Cambridge Journal of Economics (CJE) and the Journal of Post-­Keynesian Economics (JPKE), where the former journal has a more general, the latter a more specialized, character. Roughly half of the articles depicted in Table 4.5 are of a non-­formal character (about two-­thirds come from the CJE), while the other half focuses on formal or econometric work. This relation is quite surprising from the standpoint of the history of economic thought, since Keynes often opposed econometric techniques, characterizing them as “black magic” (Keynes 1971–1973, 14: 320). Keynes also was critical of the usage of mathematics within economics, as already emphasized in the General Theory: Too large a proportion of recent ‘mathematical’ economics are merely concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols. While it is true that Keynes also had made use of mathematical expressions in the General Theory, we agree with Patinkin (1976: 1094), who argues that “in these instances, the mathematical formulation adds little to Keynes’ literary exposition, and so could be deleted without much loss of continuity”. The relationship of today’s methodological orientation in post-­Keynesian economics to its main intellectual antecedent is, thus, not without ambiguities (see also King, 2002: 30–4). Table 4.5 Non-formal, formal, and econometric articles in two leading post-Keynesian journals between 2007 and 200812 “Non-formal” articles “Formal” articles “Econometric” articles Total articles CJE 58 (58.0%) JPKE 32 (38.5%) Total 90 (49.2%)

16 (16.0%) 22 (26.5%) 38 (20.8%)

26 (26.0%) 29 (35.0%) 55 (30.0%)

100   83 183

Lessons for post-Keynesian economists   73 However our concern is not a historical evaluation of methodological trends in post-­Keynesian thought but an examination of the effects of a certain methodological stance on a theory’s paradigmatical position. Intuitively one could argue that, despite the significant disagreements between post-­Keynesian and mainstream economics, post-­Keynesianism is, due to its methodological orientation, moving closer to neoclassical economics while at the same time partially departing from the heterodox community. The reliance on a set of methods very similar to mainstream economics invokes the idea that post-­Keynesians are “praising their enemies’ gods”: since formalism and econometric methods are often used by mainstream economists to maintain a demarcation line between “economics” and “other stuff not economics” (see also King, 2002: 192–5; Dobusch and Kapeller, 2009a), the strong reliance on these approaches in post-­ Keynesian thought further strenghtens the neoclassical position. In principle post-­Keynesian economics seems to be in line with the sacred duet of “formal theory” and “econometric testing” constituting the “ideal code of conduct” (Veblen, 1898: 382) enshrined by mainstream economics. For all their differences, Post Keynesians share with their neoclassical colleagues substantial components of “the economic way of thinking”. Often in spite of themselves, they are drawn to formal modelling, that is, to the “partial” use of closed-­system reasoning in particular circumstances as a means of seeking answers to specific, narrowly defined questions. (King, 2002: 258) Moreover, formal techniques often legitimize changing or modifying the essence of theoretical statements on its own sake. If a certain verbal, not yet formalized concept, undergoes formalization such changes or modifications are often (seen as) necessary to accomplish the task at hand. Nonetheless, within this procedure it is also possible that essential ideas may change throughout the formalization process: What is often overlooked is that in making the theory more rigorous, the meaning of key concepts has changed. [Self-­interested] Agents have become “rational” profit and utility maximisers; freedom to bring one’s capital into competition with anyone else’s has become perfect competition; and so on. The theorem has changed into something very different from the original. (Backhouse, 1998: 1853) A case related to this phenomenon of changing basic assumptions and to Keynesian economics is represented by John Hicks’ (in)famous article on the General Theory, Mr. Keynes and the Classics (1937). Hicks’ argument is thereby based on an idiosyncratic formalization of Keynes’ theory, resulting in the well-­known IS-­LM diagram, which became the standard model of macroeconomics within the neoclassical synthesis. In this sense a certain perspective on the formalization of the Keynesian theory allowed a theoretical modification and, in succession, the

74   L. Dobusch and J. Kapeller integration (or more critically: assimilation) of some Keynesian notions into neoclassical economic thought. Led by Paul Samuelson in the US and John Hicks in the UK, they set about mathematicising Keynes’s theory. Or, more accurately, a part of his theory. They left out all those bits that were inconsistent with the neoclassical axioms. Their end product was a formalised version of Keynes that is like a Henry Miller novel without sex and profanity. (Fullbrook, 2007: 165) While we do not oppose the use of formal or statistical techniques in general, we just ask intuitively for the paradigmatical effects of a methodological orientation similar to neoclassical economics. In other words, we suspect that “praising the enemies’ gods”, that is a strong focus on formal and econometric methods, may result in adverse effects for post-­Keynesian paradigmatic positioning, which can be summarized as follows: 1 2 3

Post-­Keynesian ideas are more easily incorporated, reinterpreted or modified by neoclassical economists, which are consequently understood as contributions to the mainstream paradigm. Post-­Keynesian economics moves closer to mainstream and further away from heterodox economics, resulting in: Less conversation, that is fewer citations, between post-­Keynesians and other heterodox schools, and more conversation, that is more citations, between post-­Keynesians and mainstream economics.

The first point is not accessible from a quantitative perspective and must be evaluated on a qualitative level, primarily through accurate comparisons of post-­ Keynesian and neoclassical models. In what follows, we want to address the second and the third point of the potentially adverse effects by using citation data from the CJE and the JPKE. Such an analysis might also provide helpful insights regarding the citation patterns of leading post-­Keynesian journals in general. Empirical observations As already mentioned we surveyed all articles in the CJE and the JPKE published between 2007 and 2008. In a first round of coding we identified the general character of the article (see note 14 for details), while in a second round we counted all 1 2 3

citations to journals, which are part of our sample of top 13 orthodox journals (ORT), journal self-­citations (SELF ), and citations to journals, which are part of our sample of top 13 heterodox journals minus the journal currently in question (HET),

Lessons for post-Keynesian economists   75 appearing in those articles. The following Figures 4.1 and 4.2 give an overview about our findings concerning the citation behaviour of the CJE and the JPKE: In both cases – with the exception of non-­formal articles in the JPKE – orthodox articles are cited more often on average than heterodox articles or articles 8

Average number of citations

7

AV. ORT AV. SELF AV. HET

6.88

6 5 4 3.14

3.125 2.8125

3 1.88

1.86

2

1.55

1.31

1.58

1 0

Non-formal (58)

Formal (16)

Econometrics (26)

Figure 4.1  Citation pattern in the Cambridge Journal of Economics. 6

Average number of citations

5

AV. ORT AV. SELF AV. HET

4.79 4.32

4

3

2.78

2.76

2.55

2 1.47 1

0

0.875

Non-formal (58)

1.05

Formal (16)

0.83

Econometrics (26)

Figure 4.2  Citation pattern in the Journal of Post Keynesian Economics.

76   L. Dobusch and J. Kapeller from the respective journal, regardless of the article type. This parallels our results from the second section, indicating that there are, from a strategic point of view, too many mainstream citations in post-­Keynesian articles. In this context it is noteworthy that, while post-­Keynesian journals do not import a significant number of citations from the two journals relating to economic geography, that is most of the citations counted above refer to “pure” mainstream journals, those two journals import a large number of post-­Keynesian citations in our trade-­balance analysis above.13 While in the JPKE (Figure 4.2) the amount of self-­citations and the amount of citations from other heterodox journals is fairly constant regardless of the particular article type, there are significantly more mainstream citations in formal and econometric contributions. This indicates that our intuitive assertion from the second section was partially correct: while the JPKE does not cite fewer heterodox references in formal or statistical articles, that is prolongs the conversation with heterodoxy in this context, the rising number of citations from orthodox articles suggest that the conversation with the mainstream is intensified when it comes to formal and econometric issues.14 In the CJE (Figure 4.1), on the other hand, there are less self-­citations in general, but more citations drawn from the heterodox community as a whole, when compared to the JPKE – an observation resulting from the more specialist (or critically: sectarian) orientation of the latter journal. However, while the CJE also suffers from the phenomenon of a rising number of mainstream citations within econometric articles it somehow manages to avoid the same effect when it comes to formal articles. On the contrary, citations from heterodox journals suddenly begin to rise in the category of formal articles in the CJE. A deeper investigation shows that only two articles decisively influence the average number of citations in formal articles in the CJE (namely Skott and Ryoo, 2008 and Araujo and Lima, 2007). Without these two articles the average number of citations in formal articles in CJE would change to 3.36:1.64:1.57 (orthodox:self:heterodox) and thereby deliver a pattern much more similar to the JPKE. One of these “exceptional” articles (Skott and Ryoo, 2008) relies heavily on sources from the area of radical economics, while the other (Araujo and Lima, 2007) emphasizes post-­Keynesian research and, thus, heavily cites the JPKE. These two articles could therefore serve as role models of how post-­ Keynesian economists could do formal theory, without disproportionally citing mainstream economic journals, that is, “talking” to mainstream economists. Summarizing the findings of this section does not lead to the conclusion that post-­Keynesians should quit doing formal theory or conducting statistical tests, but they should be aware of the fact that they – systematically – come closer to mainstream economics when employing these techniques. This results not only in a methodological similarity, whose merit is not generally discussed here, but also in a substantially stronger connection in terms of conversation, that is citation behaviour. The fact that the introduction of quantitative evaluation schemes within the scientific community (partially) relies on such citation flows has given this purely descriptive account a Machiavellian dimension: how to compose a

Lessons for post-Keynesian economists   77 reference list has thus also become a strategic question – obviously even more in the case of formal and empirical research exhibiting a methodological orientation very similar to the lines of mainstream economics.

“Make your papers scarce!” While in the previous two sections strategic suggestions also required taking a stand in economic debates, in this section we are dealing with a problem relatively independent from the economic discourse: the mere access to the scientific works of heterodox economists. The problem An outlet’s circulation is an important criterion influencing the presence, availability and, thus, citation frequency of an article. Hence the following section is devoted to the question how to increase the visibility and circulation of heterodox articles to increase citations and impact factors of these articles and the associated heterodox journals. As, for example, Thomson Scientific’s most influential performance figure, the Journal Impact Factor (JIF ), is calculated from SSCI data within a two-­year time span, it is obvious that the availability of articles is crucial for the JIF of an individual journal. Some form of publication in advance – for example, a working paper version prior to revisions (pre-­print) – is therefore essential, otherwise the outlet is “hurting itself ” in terms of the JIF calculation. The importance of pre-­print availability of journal articles can be illustrated with a simple example: an article published in December (say, 2009) will be counted in the denominator for the 2010 JIF and citations to this article in 2010 will be counted in the enumerator. But most articles being published in 2010 will already be under review at the end of 2009. So most articles appearing 2010 could not even consider an article published in December 2009 if it had not been accessible earlier via pre-­print channels. But to publish pre-­print working paper versions is not the only possibility of increasing circulation and citation performance by individual authors. Similarly important is making works openly available after they have been accepted in the form of post-­print versions, which include revisions. While many publishers prohibit publishing post-­prints shortly after the first “official” publication of an article, the bigger problem is the reluctance of researchers to care about this issue at all. Related to this problem is the already mentioned relatively low number of heterodox journals included in the SSCI as well as in total. Fully utilizing the capacities of the heterodox economic community could very well require founding new journals in, for example, overlapping or fringe areas, where rejection rates are high. At least in the case of founding a new journal, but also in the case of existing journals, running the journal as an open access outlet with free and immediate online access to all published works would combine low costs with higher circulation (see Harnad et al., 2003; Brody and Harnad, 2004).

78   L. Dobusch and J. Kapeller Table 4.6  Strategies for increasing article circulation Strategy

Description

Pre-prints

Making unrefereed versions of an article available as soon as possible Post-prints Making final, revised versions of an article available Open access option Paying for open access to articles in non-open journals Open access journal Founding new, or converting existing, journals into full, open, access journals

But even if for an established journal a complete switch to an open access model is not feasible, it might participate in one of the optional open access programmes offered by most large publishing houses. Publishers like the Oxford University Press (“Oxford Open”),15 Taylor & Francis Group (“iOpenAccess”),16 Sage (“Sage Open Scheme”) or Springer (“Open Choice”) offer authors or their institutions17 the option of paying for the open availability of their articles. Not all the journals of these publishers, however, participate in these programmes and, of course, not all research-­funding institutions are willing to pay the sometimes-­ substantial amounts necessary to secure this form of open access. Table 4.6 gives an overview of journal-­related possibilities for increasing article circulation. A common feature of all online and freely available research, ranging from open access journals and institutional repositories over authors’ homepages to papers disseminated in digital research platforms (like RePEc or SSRN), is that it gathers significantly more citations (Bergstrom and Lavaty, 2007). Furthermore, Novarese and Zimmermann (2008) report that heterodox articles posted on the RePEc platform, and distributed via the “New Economic Papers” (NEP) mailing lists, are on average downloaded more often than mainstream articles. Thus it seems reasonable to consciously extend the dissemination of heterodox work through digital channels such as research platforms or mailing lists. The possibilities of doing so, however, are regularly restricted (severely) by the institutional circumstances of the publication process, above all by overly strict copyright regulation. So while any heterodox economist can to a certain extent contribute to a wider dissemination of heterodox research, journal editors are in a particularly privileged position to do so: it is they who have the possibility to (re)negotiate with publishing houses over what conditions authors are allowed to (re)publish their works. Empirical observations As both cross disciplinary (for example Harnad et al., 2003; Brody and Harnad, 2004; Antelmann, 2004) and economic (for example Bergstrom and Lavaty, 2007) studies unanimously and unsurprisingly find higher citation impact for openly available research, we do not want to reproduce such a study here. Instead we look at the open access policies in ten leading journal outlets for post­Keynesian research (see Table 4.7).

Allowed Allowed

Sage Taylor & Francis

None 12/18 months after first publication 12/18 months after first publication 12 months after first publication 12/18 months after first publication

None

24 months after first publication 24 months after first publication None None

Post-print**

None

None

None

None None

None

Possible on request None

None

None

Open access***

Notes * defined as as unrefereed author version of the article ** defined as being the final draft author manuscript as accepted for publication, following peer review, but before copyediting and proof correction process *** defined as option to pay for open access of individual article (for example “Oxford Open”, “Sage Open Scheme”)

Review of Radical Political Economics (RRPE) Review of Social Economy (ROSE)

M. E. Sharpe

Journal of Post-Keynesian Economics (JPKE) Metroeconomica Review of International Political Economiy (RIPE) Review of Political Economy (ROPE) Allowed

Metropolis M. E. Sharpe

Intervention Journal of Economic Issues (JEI)

Taylor & Francis

Oxford

Contributions to Political Economy (CPE)

Wiley Taylor & Francis

Oxford

Cambridge Journal of Economics (CJE)

Pre-print* Allowed only before acceptance Allowed only before acceptance Allowed 18 months after first publication 18 months after first publication Allowed Allowed

Publisher

Journal title

Table 4.7  Copyright policies of outlets for post-Keynesian research

80   L. Dobusch and J. Kapeller The reason for comparing journals is twofold. First, while of course it is the publishing houses that draft the copyright agreements, it is the journal editors that not only choose the publisher but are also in the position to (re)negotiate such copyright terms. Second, we find substantial differences among the journals under study with regard to the extent that they allow or prohibit open access publication of their articles. In our sample of ten more-­or-less post-­Keynsian journals we have six different publishers. While four of these publishers (Oxford, M. E. Sharpe, Taylor & Francis Group, and Sage) have optional open access programmes for some of their journals, none of the six journals participates in such a programme. Interestingly, Metropolis – a publisher without such a standardized open access option – offered such a possibility on inquiry. With regard to allowing the publication of pre- and post-­print versions of an article on an author’s homepage or an institutional repository, M. E. Sharpe – publisher of JEI and JPKE – has by far the most restrictive policy: M. E. Sharpe not only forbids post-­print versions of its articles but also requires authors to wait for an “18-month POST-­PUBLICATION EMBARGO”18 before they are allowed to publish an online a pre-­print version of their article. Also very restrictive are Wiley and Metropolis, which forbid any publication of post-­prints, but at least allow the publication of pre-­print versions. Contrary to the ridiculously long “embargo” period of Sharpe, Sage and the Taylor & Francis Group (the latter being the owner of Routledge) generally approve the publication of pre-­print versions and allow post-­print publication not later then 12 to 18 months after the first publication. At Oxford University Press, home of the CJE and the CPE, the pre-­print policy is a little more tricky: pre-­prints are only allowed if they were available online already before the final acceptance decision. Hence the imperative for authors submitting their articles to Oxford journals is to publish a working paper version online parallel to the submission. Otherwise they have to wait 24 months before they are allowed to publish a post-­print version – a period way too long for citations to be included in standard JIF measures. In sum, the ten journals under study are relatively weak in terms of open accessibility. What is more, most of the journal homepages do not offer much information online on their respective copyright policies – if there is any information available at all. While from a publisher’s point of view this might be to some extent understandable, from an editor’s point of view it is not: increasing circulation and hence citation of the journal’s articles is crucial for surviving in a world of journal evaluation by citation metrics. Especially if post-­ Keynesians want to attract researchers to adopt their research programme and to join the post-­Keynesian community, a wider dissemination of post-­Keynesian articles is a relevant precondition.

Conclusions This chapter provides an overview about some idiosyncracies in the citation practices of post-­Keynesian economists. Given that citation habits in different

Lessons for post-Keynesian economists   81 subfields of heterodoxy are rather diverse, it seems necessary to complement this analysis by accompanying studies dedicated to different fields of heterodox economics (as in Starr, 2010). However, the main implication of this article is obviously to intensify and foster the discourse within the heterodox economics community. Such an intensified discourse could lead to the creation of a common paradigmatic umbrella for the different heterodox schools in order to overcome the notion of “ignorant pluralism” delineated in the second section in favour of a “pluralist paradigm”, where cross-­school interaction plays a decisive role. As emphasized throughout the chapter, we neither advocate for a “pluralism for its own sake” nor for a purely strategically motivated pseudo-­pluralist behaviour, but gave a variety of epistemological and strategic reasons for our pluralistic stance. The idea of “pluralist paradigm”, however, requires the appreciation of pluralism as a central paradigmatical cornerstone, differentiating itself from the current situation where “tolerant ignorance” results in a “pluralism of (heterodox) paradigms”; that is a situation where individual traditions choose their paradigmatical foundations in a way that differentiates themselves from other heterodox schools (instead of building on common ground). There are at least four main reasons for developing a “pluralist paradigm”, based on “discursive pluralism”, within heterodox economics. Two of them stem from a strategic and another two from a theoretical perspective. A very general strategic argument is that in the case of interparadigmatic conflict (as in economics), a single competitor to the dominating paradigm has a much higher chance of survival (or even success) than a variety of competitors. This is why we argue to form a unified pluralist paradigm consisting of a series of heterodox traditions as a main competitor to neoclassical economics. The analysis of citation behaviour not only helps to evaluate whether this claim is currently considered by heterodox economics, but it is itself of strategic importance; since the introduction of quantitative evaluation routines in economics has led to self-­ reinforcing feedback mechanisms, even critical citations of mainstream works may further strenghten the latter’s institutional dominance. From a theoretical perspective we strongly believe that an intensified discourse between different heterodox traditions would also improve the theoretical and empirical work conducted in the subfields of heterodox economics, i.e. the individual heterodox schools of thought. Thus, our argument is basically that intensifying discourse among heterodoxy is a merit on its own, independently of any citation metric logic. Moreover, there is also an epistemological advantage associated with a pluralist conception of science. Since the units of analysis in the social sciences are subject to historical and cultural contingency, it is prob­ able that we need a variety of analytical perspectives and conceptions to fully grasp and analyse most (if not all) aspects of a particular social phenomenon. The diversity of heterodox traditions would allow for such a diversity of viewpoints within a common paradigmatic framework, a “pluralist paradigm”, coinciding with what Sheila Dow (1990: 143) called the “Babylonian” mode of thought in economics.

82   L. Dobusch and J. Kapeller Concrete suggestions related to these arguments include efforts to increase the number of articles concerned with integrating or comparing different heterodox traditions, to create special issues of, or commentary sections in, heterodox journals specifically aimed at bringing such contributions together on a common platform or to identify main ideas behind the varying methodological conceptions of heterodox economic thought. All this would help to further broaden and unify the theoretical and methodological basis on which the convergence of different heterodox theories might continue – or at least begin.

Notes   1 See Frankfurter Allgemeine Zeitung, 5 May 2009. However, the petition was initiated and mostly signed by the associates of the ordo-­liberal school of economic thought in defence of their tradition, while a counter-­petition about one month later in the Handelsblatt (8 June 2009) titled “Baut die deutsche VWL nach internationalen Standards um!” [“Rebuild German economics according to international standards!”] was signed by 188 economists; critical voices in economics still seem to be a minority consisting, in this case, of economists generally opposed to Keynesian arguments.   2 See Lee (2010: 27) for a collection of such contributions.   3 Also the famous Diamond List, constituting core journals in economics, is based on citation metrics (Diamond, 1989).   4 All citations to articles published between 1989 and 2008 are analysed. Data from Web of Science suffers from an idiosyncratic definition of “citations”, because it only displays “citing articles”. This implies that an article in journal A citing two articles of journal B is counted as one “citation” for journal B, since there is only one citing article.   5 The use of the SSCI for evaluating individual publication portfolios is, though common, mostly misleading, as citations per article are far from being equally distributed: an article in a high impact journal is not necessarily cited more often (Adler et al., 2008; Thomson Scientific, 2008).   6 The following orthodox journals are included in our sample (Impact Factors in brackets): Journal of Political Economy (4.190), Journal of Economic Literature (3.973), Quarterly Journal of Economics (3.688), Journal of Accounting and Economics (3.034), Journal of Financial Economics (2.988), Econometrica (2.972), Journal of Economic Perspectives (2.831), Journal of Economic Geography (2.679), Review of Economic Studies (2.539), Journal of Economic Growth (2.292), American Economic Review (2.239), Economic Geography (2.065), Journal of Econometrics (1.990).   7 The following heterodox journals are included in our sample (Impact Factors in brackets): Economy and Society (1.678), Ecological Economics (1.549), Work, Employment and Society (1.051), Review of International Political Economy (1), Journal of Economic Behaviour and Organization (0.772), New Political Economy (0.702), Cambridge Journal of Economics (0.7), Journal of Development Studies (0.686), Journal of Evolutionary Economics (0.562), Feminist Economics (0.541), Journal of Post Keynesian Economics (0.493), Journal of Economic Issues (0.47), Economics and Philosophy (0.444).   8 A stronger content-­oriented selection would intuitively imply stronger relationships in terms of citations.   9 All citations to 12 different mainstream journals have been counted: American Economic Review, Economic Journal, Economica, Econometrica, International Economic Review, Journal of Labor Economics, Journal of Political Economy, Journal of Monetary Economics, Oxford Economics Papers, Quarterly Journal of Economics, Review of Economics and Statistics, Review of Economics Studies.

Lessons for post-Keynesian economists   83 10 All citations to 20 different heterodox journals have been counted (see Lee, 2009b: 153–4). 11 Interestingly both journals related to economic geography exhibit a very heterodox-­ friendly citations pattern (while Economic Geography cites heterodox and orthodox sources in more or less equal share, the Journal of Economic Geography has at least a ratio 1 : 3 of heterodox to orthodox citations). The fact that heterodox journals do not import very many citations from these journals parallels our observations so far: paradigmatical enemies are much more cited than potential allies. In this case it is surprising to note that the sphere of economic geography is not even considered as “heterodox” in most accounts. 12 We have surveyed all articles depicted in Table 4.5 and coded them according to our three sub-­groups: We counted all articles with a regression or similar analysis as “econometric” and all articles consisting primarily of formal theoretical arguments as “formal” articles; that is we did not count any article containing a “mathematical expression” as formal, but only those where formal theorizing is at the centre of the argument. The remaining articles are interpreted as “non-­formal” articles based on verbal arguments or simple descriptive statistics. 13 According to our data set from the second section, the CJE (JPKE) imported only 12 (2) citations or 2 per cent (0.5 per cent) of its mainstream-­import citations between 1989 and 2008 from the Journal of Economic Geography and Economic Geography, while it exported 79 (4) or 80.5 per cent (40 per cent) of its total mainstream-­export citations to these journals. 14 Nevertheless, as our analysis from the second section suggests, the “intensified conversation” with neoclassical economics is still a “one-­sided” conversation, since mainstream economists do not respond to the post-­Keynesians – at least in terms of actual citations. 15 See www.oxfordjournals.org/oxfordopen/; list of journals: www.oxfordjournals.org/ oxfordopen/open_access_titles.html (accessed both: 28 December 2011). 16 See www.tandf.co.uk/journals/iopenaccess.asp (accessed 28 December 2011). 17 In Germany, for example, the Max Planck Society forced Springer to generally provide open access to all articles by Max Planck researchers in the form of “Open Choice” by threatening to cancel all its Springer. Besides, more and more research grants (for example by the European Union or the German Research Foundation) include special funds devoted to such author-­pays publication models to enhance open access. 18 Quoted from the official “Journal PDF Policy”-Manual provided by M. E. Sharpe – the capital letters are taken from the original document.

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5 Post Keynesianism, heterodoxy, and mainstream economics1 David Dequech

An interesting debate has emerged in recent years regarding the concepts and the intellectual contents of orthodox, heterodox, and mainstream economics. To a large extent, this debate has been motivated by changes in the mainstream. Post Keynesian economics is part of this discussion. It has been identified as opposed to neoclassical economics, but also accused of not being united around anything positive, beyond this negative stance. Some Post Keynesians have responded that the approach has moved toward coherence. What is Post Keynesian economics nowadays? Does it encompass conflicting ideas? How does it and how should it relate to other non-­neoclassical approaches? Have the changes in mainstream economics implied any changes in its relation to Post Keynesianism? Does Post Keynesian economics remain outside the mainstream? If so, what does this imply? These are the main questions addressed in this chapter. The chapter is structured as follows. Based on Dequech (2007–2008), it begins by briefly presenting the concepts of orthodox, mainstream, and heterodox economics, and applying these concepts to the contemporary period. The second section discusses the concept of Post Keynesian economics, based on some unifying positive ideas, while the third section points out some remaining tensions within the Post Keynesian camp. The fourth section indicates some overlaps between Post Keynesianism and other approaches, before arguing for a careful combination of contributions from different approaches and different disciplines. The fifth section maintains that Post Keynesianism is located outside mainstream economics, although this argument is shown to partly depend on a more precise specification of the concept of uncertainty. In the sixth section, some important implications of the non-­mainstream character of Post Keynesian economics are discussed. This is followed by concluding remarks.

Orthodox, mainstream, and heterodox economics: concepts and application Orthodox economics A useful concept of orthodox economics has been provided by David Colander, Richard Holt, and Barkley Rosser (2004: 490): “Orthodox is primarily an

88   D. Dequech i­ntellectual category [as distinct from a sociological one] . . . . Orthodox generally refers to what historians of economic thought have classified as the most recent dominant ‘school of thought’ .” Although the reference to domination implies a sociological aspect, it is a particular set of ideas that defines a school of thought. In the current period, orthodox economics corresponds to neoclassical economics, which, in turn, is defined here as based on the combination of the following ideas: (1) the assumption of rationality in the specific form of utility maximization; (2) the assumption that the economy or economic section under investigation is in equilibrium or tends toward an equilibrium, which may be unique or one among multiple possible equilibria; (3) the adoption of a concept of uncertainty that is compatible with the utility maximization hypothesis, which has been presented in an axiomatic form since the 1940s.2 Mainstream economics Mainstream economics is that which is taught in the most prestigious universities and colleges, gets published in the most prestigious journals, receives funds from the most important research foundations, and wins the most distinguished awards. This is a sociological concept (less restrictive than the one adopted by Colander, Holt, and Rosser). Mainstream economics is a set of ideas, but, unlike the orthodoxy, it does not need to correspond to any particular school of thought. More broadly, it does not have to be internally consistent. In the contemporary period, from the 1990s to the present, mainstream economics still includes a neoclassical subset, but is not reduced to it. Among the non-­neoclassical approaches that have been incorporated into the current mainstream one can include: behavioral economics, part of experimental economics, part of the new institutional economics, evolutionary game theory, part of the Santa Fe Institute complexity approach, and some formal alternatives to standard expected utility theory dealing with what they often call Knightian uncertainty. The best candidate for a unifying feature of current mainstream economics is the belief in mathematical formalization as the criterion for rigor. Heterodox economics The mainstream and the orthodoxy do not need to always coincide. Heterodox economics is therefore particularly difficult to define. As a general concept, in the sense of one that can be applied to any period of time, heterodox economics must be defined negatively, as that which it is not. There are, however, two alternatives: it can be defined in contrast either to orthodox or to mainstream economics.3 Like its respective opposite, heterodox economics would be mainly an intellectual category, in the former case, or a sociological category, in the latter. Opposed to the orthodoxy, heterodox economics would be defined by its divergence from at least some of the main orthodox ideas; opposed to the mainstream, it would be defined as that which does not have as much prestige and influence.

Post Keynesianism, heterodoxy, and mainstream   89 Which of those two alternatives is better? When part of the mainstream is not orthodox, should it be classified as heterodox (which would mean that part of the heterodoxy is mainstream)? For communication purposes, no perfect answer to these questions exists. The term “heterodox” has been used in both senses: non-­ orthodox and/or non-­mainstream. Communication would perhaps be improved if the part of economics that is less prestigious and influential than the mainstream were simply called non-­mainstream economics (“marginalized economics” would also be descriptive, but more explicitly unattractive).

The concept of Post Keynesian economics Post Keynesianism has been subject to the criticism that it is united around a dislike of neoclassical economics rather than around positive theoretical or methodological propositions. Depending on what one means by Post Keynesian economics, this criticism is unduly severe. Although there is some disagreement among Post Keynesians about the defining positive characteristics of their approach, it is possible to identify a few unifying ideas. This depends, however, on which strands are included under the Post Keynesian umbrella. On the one hand, finding unity within this group has become easier over time. Most of the leading Post Keynesians no longer include the group known as the Sraffians (or neo-­Ricardians) among the practitioners of Post Keynesianism (for example, Vickers, 1994; Arestis, 1996; Davidson, 2005) or at least find their views difficult to reconcile (Dow, 2001).4 Some important Sraffians perhaps agree that the two groups should remain distinct,5 and others do not bother to claim membership to the Post Keynesian club. On the other hand, there are still some Post Keynesians who insist on the proximity or compatibility between their views and those of the Sraffians (Lavoie, 2006; Lee, 1998) or use the label in a very inclusive sense, even if they are skeptical about the possibility of a synthesis of the principal strands (Harcourt, 2006: 2, repeating a stance already taken in Hamouda and Harcourt, 1988). It must be admitted that, even without including some controversial strand(s), there may remain some underlying tensions within Post Keynesianism. Perhaps the most fundamental tenet common to all Post Keynesians is the principle of effective demand. This expression has been given a few different meanings (O’Donnell, 1989: 236), but it is often associated with three interrelated ideas: the determination of income by expenditure; the determination of employment and output by the producers’ expectations of costs and proceeds; and the possibility of persistent involuntary unemployment, due to a low level of aggregate demand. This stands in contrast to Say’s law, which claims that supply creates its own demand. This “law” combines two ideas: production determines income; and, for the economy as a whole, income determines expenditure or demand. This implies the absence of inherent obstacles to full employment in a market economy. With some additional assumptions, such as flexible wages and prices and the absence of destabilizing effects of disequilibrium, Say’s law implies a tendency to general equilibrium and full employment.

90   D. Dequech Another important unifying feature of Post Keynesianism is the emphasis on institutions. This approach has stressed institutions since the beginning, long before it became fashionable (again) to do so. Nowadays, all economists seem to agree that institutions matter, so that this is not distinctive of Post Keynesianism. What is distinctive is the set of institutions that are highlighted by Post Keynesians and why. For them, a crucially important institution is money. Post Keynesians have a conception of a monetary economy as one in which not only is there money (in contradistinction to a barter economy), but money plays a leading role, in both the short and the long run, affecting what standard economics calls real variables, such as production – hence the idea of a monetary theory of production – and employment. Post Keynesians further agree that money is to a substantial degree endogenous (although there is a radical and a moderate version of this argument). Closely related to the emphasis on money is an emphasis on what can be generically, albeit somewhat imprecisely, called Keynesian uncertainty or uncertainty in a strong sense. Post Keynesians have developed the concept of uncertainty and clarified many of their differences with neoclassical conceptions of risk and uncertainty (I shall return to this issue below). Money is strongly connected to contracts, which in turn affect uncertainty, usually reducing it (although sometimes spreading it). Money and other liquid assets are important in that their liquidity gives their owners the ability to meet obligations and flexibility to deal with unexpected events in an uncertain future. In turn, monetary and financial institutions such as banks and the central bank are important because they can provide liquidity – or fail to do so. Finally, conventions have also been emphasized by several Post Keynesians following Keynes’s lead, as well as by Victoria Chick (1995) in her characterization of the approach as a whole. What most people now call Post Keynesianism has two main sources: Keynes and Kalecki. It is thus mainly composed of two strands: one Keynesian and the other Kaleckian, with some authors belonging to both strands.6 This distinction is particularly useful regarding macroeconomics, with the first strand placing more emphasis on uncertainty, money, and financial institutions than the second, while the latter often adopts a class-­based approach, distinguishing between workers and capitalists and highlighting the distribution of income between them. Regarding microeconomics, one can also refer to a Keynesian group that still employs some of Keynes’s Marshallian marginalist apparatus, particularly as the microfoundation of the aggregate supply and demand curves, while another group refuses to do so, but not only under Kalecki’s influence (for a book-­length discussion of Post Keynesian microeconomics, see Lee, 1998). In any case, even the first group differs from neoclassical microeconomics, by emphasizing strong uncertainty and the special role of money, as well as forms of rationality other than axiomatic utility maximization. Methodologically, Post Keynesians embrace some form of realism and are concerned with explanatory mechanisms, distancing themselves from deductivism and excessive formalism. Several Post Keynesians develop mathematical

Post Keynesianism, heterodoxy, and mainstream   91 models. These are not usually in the axiomatic style (for an exception, see Katzner, 1998). Politically, Post Keynesians defend a very active role for government. They range from moderate social democrats to more radical socialists. However, it is not their politics that most distinguishes them from neoclassical economics: not all neoclassicals are free-­marketers or politically conservative. On the other hand, Post Keynesianism has some interesting points in common with the Austrian school, against neoclassical economics, but the Austrians are generally in favor of free markets.

Some remaining tensions A closer look reveals some yet-­unresolved tensions within Post Keynesian economics. Aggregate supply and aggregate demand Regarding the macroeconomic – and most salient – part of Post Keynesianism, there is a lack of consensus about whether to adopt an aggregate-­supply and aggregate-­demand framework for the study of capitalist economies. This framework was originally developed by Keynes, but it does not have to be based on marginalist principles. Alternatives are possible, even if yet underdeveloped – as Philip Arestis (1996: 130) noted about the modeling of aggregate supply; moreover, the framework can be based on very different assumptions regarding market structure and degree of monopoly (Davidson, 1978; Vickers, 1987). The assumptions may vary, depending on the purpose of the analysis, as discussed below.7 Market structure Post Keynesians disagree on the need to assume the presence of large corporations. Some Post Keynesians accept the strategic usefulness of assuming product markets with many small firms, even if this is unrealistic. Others deem it necessary to assume oligopolies or some form of imperfect competition. It is possible to reduce the tensions regarding the kind of market structure that should be assumed if one clearly identifies the specific purpose of the analysis and distinguishes it from that of other investigations. Most Post Keynesians who assume in part or all of their work some form of pure competition do so for strategic reasons, in order to show that unemployment may occur even with flexible prices and wages, contrary to the widespread belief within neoclassical economics that unemployment is caused by price and/or wage rigidity, associated with some monopolistic power of firms or unions. A reconciliation between this and the other group may be facilitated by the acknowledgement by more members of the latter group that even Kalecki, who for most purposes assumed imperfect competition and mark-­up pricing, found it occasionally useful to

92   D. Dequech assume “perfect” (pure) competition and increasing marginal costs in order to criticize the traditional view of the effects of a wage reduction on employment (Kalecki, 1939).8 Uncertainty and related notions Uncertainty and its connections to money, expectations, and the absence of a long-­term gravitation center have been a major point of disagreement between Sraffians and the Post Keynesians. Even if we exclude the Sraffian strand from Post Keynesian economics, as most people on both sides seem to have been doing in recent years, there remain some tensions within Post Keynesianism regarding uncertainty and related issues. These tensions are not necessarily between members of its Keynesian strand, on the one hand, and the Kaleckian strand. Several Kaleckian Post Keynesians have defended a Keynesian notion of uncertainty as an important theoretical principle. Among the main tensions in this regard are those underlying some formal models, which are not necessarily Kaleckian in spirit. Among the potentially controversial points are (1) the assumption of equilibrium, especially in dynamic contexts, and (2) the modeling of expectations and confidence. Paying lip service to uncertainty is not sufficient to ensure internal consistency and relevance. Formal models claiming a Post Keynesian lineage unfortunately often fail to include a clear discussion of what is being assumed that allows the modeled system to achieve an equilibrium, when it does. What is being held constant in the ceteris paribus clause? How is this compatible with Keynesian uncertainty? What are the limitations imposed on the model by its assumptions? These questions are particularly relevant when one is not dealing with short-­period equilibrium. It is not being argued here that one cannot or should not develop formal models while accepting the idea of Keynesian uncertainty and the vital role of liquid assets in a monetary economy. Formal models are useful, but one should be explicit about the assumptions being made and how these assumptions limit the scope of each model. In a closely related issue, any model that is intended to seriously incorporate the existence of Keynesian uncertainty regarding the future – and the roles that liquid assets play because of this uncertainty – should explicitly consider not only expectations, but also the confidence with which these expectations are held. Moreover, when considering confidence, one should not assume that agents unconditionally adhere to whatever way of forming expectations they supposedly adopt. James Crotty (1994) and others have made valuable suggestions regarding conditional expectations. Unfortunately, this is not how most Post Keynesian models have been developed so far. What hypothesis is adopted regarding confidence? Does confidence change depending on the dynamics of the model? If not, why? Clear and satisfactory answers to these questions have not been usually given. The very notion of confidence – which is the main determinant of money’s liquidity premium in Keynes’s theory – has received insufficient attention from

Post Keynesianism, heterodoxy, and mainstream   93 Post Keynesians, and consensus on the issue has yet to be achieved. The same holds true for such a crucial concept as animal spirits and its relation to what Keynes (1936) called spontaneous optimism and the urge to action rather than inaction. What do all these concepts mean? How are they related to each other and to uncertainty? How can they be integrated into a theory of the determination of expectations and confidence? How should such a theory incorporate the agents’ potential innovativeness and creative imagination about the future? Elsewhere, I have shown the varied and often conflicting answers that some eminent Post Keynesians have given – or failed to give – to these questions; I have also offered my own suggestion of a solution to these problems (Dequech, 1999).

Overlaps and combinations: Post Keynesian economics and other alternative approaches When defining Post Keynesian economics, one encounters the question of whether it can be clearly separated from other approaches. In other words, how different from, or similar to, other approaches is Post Keynesian economics? A related, and also important, question is whether Post Keynesian economics is self-­sufficient. If it is not, then we must ask: how compatible with and complementary to other ideas are the main Post Keynesian propositions? Let us consider these questions in turn. It is not always easy to separate Post Keynesian economics from other approaches that offer alternatives to neoclassical economics. Each is a conceptually distinct set of ideas, but there are several partial overlaps or intersections among them. Some of the main Post Keynesian ideas mentioned above are also accepted by other groups. For example, neo-­Schumpeterians also embrace a very strong notion of uncertainty, especially of the fundamental kind. This convergence is not surprising, given that neo-­Schumpeterians are obviously interested in innovation, while Davidson (1982–1983) and other Post Keynesians resort to Schumpeterian entrepreneurship to explain that the future is a result of human creativity. There are also some strong similarities between the treatment of institutions by Post Keynesians and the institutional economics in the tradition of Veblen and Commons.9 Perhaps to a lesser degree the same is true of other approaches to institutions, including the economics of conventions and the régulation school (both originated in France and having Keynes as a major influence), some combinations of Keynesianism and Marxism in the United States, and even some segments of the new institutionalism in economics, as well as in organizational analysis. In all these approaches there are writings that combine institutional and cognitive concerns with a strong notion of uncertainty and a dynamic view of capitalism. Some of them also accept the special role of aggregate demand. Post Keynesian economics is not self-­sufficient, in the following sense. In my assessment of the state of the art in economics, and (with less knowledge) in other disciplines, neither a single school of thought nor even a single discipline can provide a sufficiently adequate and broad approach to all relevant economic

94   D. Dequech issues. It is necessary to combine contributions from different approaches and disciplines. Post Keynesian economics should be part of this effort. It would benefit from this interaction even when dealing with its own questions. At the same time, a great deal of care is necessary to do this in a rigorous and relevant way. There is the risk of creating a strange hybrid. Fortunately, one can find in different approaches and disciplines not only similar ideas, as already mentioned, but also ideas that are compatible with and complementary to each other (see also Dunn, 2000: 356–61). With caution, this can involve even some contributions of non-­neoclassical mainstream economics.

The non-­mainstream character of Post Keynesian economics – or not quite? Since its beginning, Post Keynesianism as a whole has been very much part of non-­mainstream economics at the international level, in several respects. Today there are no Post Keynesian professors in the departments of economics of top-­ranking universities such as Harvard, Yale, Princeton, MIT, Chicago, Stanford, or UC-­Berkeley. There are only one or two very isolated Post Keynesians at prestigious institutions like Washington University and the University of North Carolina. The vast majority of the practitioners of Post Keynesianism in the United States work in academic institutions of lesser renown or, in a few cases, in distinguished undergraduate colleges. The approach still survives in research universities like the University of Massachusetts at Amherst, UC-­Riverside, American University, the University of Missouri at Kansas City, New School University, and the University of Utah. The situation is similar in the United Kingdom. There are no Post Keynesians left at the Department of Economics of Cambridge University, where Keynes and his followers once had a strong presence. The status of Post Keynesianism is higher at the University of Leeds, but not much elsewhere. While other developed countries such as France, Italy, the Netherlands, and Japan may offer better conditions for non-­neoclassical economics in general, the presence of Post Keynesianism in particular does not seem strong. In this general picture, Brazil is a sizeable exception, but it is a developing country with little international weight in academia, especially in the social sciences. Post Keynesians have extreme difficulty in getting articles published in the mainstream journals of economics. The same holds for their chances of getting funding from the main research foundations in the United States or receiving the most celebrated academic prizes. It has been noted, however, that the current mainstream is not exclusively formed by neoclassical economics. Has any Post Keynesian idea been incorporated into the mainstream, even if their Post Keynesian proponents have not? One of the most notable developments in recent mainstream economics is the broadening of the notion of uncertainty. Neoclassical economics has been marked by a weak notion of uncertainty, corresponding to situations in which agents are capable of forming, or act as if they formed, a probability distribution

Post Keynesianism, heterodoxy, and mainstream   95 that is unique, additive, and fully reliable as a guide to conduct. Some critiques of this weak concept and some non-­neoclassical alternative treatments of uncertainty have managed to penetrate mainstream economics, especially since the late 1980s. Indeed, Keynes’s writings on probability and uncertainty have been positively cited in very prestigious economic journals in articles dealing with what is often called Knightian uncertainty or, sometimes as a synonym and other times more restrictively, ambiguity. It is usually Keynes’s Treatise on Probability that is cited, especially in connection with his notion of evidential weight, but Keynes did refer to that book and that notion in crucial passages of The General Theory regarding confidence and the liquidity premium (Keynes, 1936: 148, 240). Does this mean that Keynesian uncertainty is now part of the set of mainstream concepts? The answer depends, of course, on what one means by Keynesian uncertainty. This expression can reasonably be taken to mean the strong type of uncertainty that Keynes wrote about. The problem is that Keynes seems to have actually written (in his Treatise on Probability, and in his later economic works) about more than one type of strong uncertainty. So have, when taken as a whole, the authors who classify themselves as Post Keynesians. Like the notion of strong uncertainty itself, the expression “Keynesian uncertainty” is useful in that it can be contrasted to the weak, neoclassical notion, but it does not suggest a specific type of strong uncertainty. Clarifying the relation between Post Keynesianism and mainstream economics regarding uncertainty requires that Post Keynesians share a more exact definition of this concept. According to the typology presented in Dequech (2011), three types of strong uncertainty must be distinguished from each other: procedural uncertainty, ambiguity, and fundamental uncertainty. Some Post Keynesians have referred more vaguely to uncertainty in a Keynesian sense, while others have defended a notion broadly equivalent to fundamental uncertainty, with Shackle and Davidson as leading examples. Whether the Post Keynesian concept of uncertainty has become part of mainstream economics depends on whether this concept is equivalent to fundamental uncertainty or to something broader. In contrast with procedural uncertainty and ambiguity, fundamental uncertainty does not seem to have become an accepted concept in mainstream economics.10 This is not, however, a trivial point to make regarding some works on the (moving) frontier of the mainstream. Both Post Keynesians and mainstream economists could benefit from further discussions about this. This conceptual issue has important theoretical consequences, as different concepts of uncertainty underlie different theories of money and asset choice. Not surprisingly, mainstream economics has incorporated the concepts of ambiguity and Knightian uncertainty into its monetary and financial models. The relation between these applications and the Post Keynesian views ultimately depends at least in part on the underlying concepts of uncertainty.

96   D. Dequech

Some implications of the non-­mainstream character of Post Keynesian economics The influence on the economy and the danger of “the scholastic fallacy” An important issue concerning the separation between mainstream and non-­ mainstream economics is the distinction between these two types of economics regarding their capacity to influence the economy. This applies to Post Keynesianism as part of non-­mainstream economics. One of the major channels through which the influence of economics on the economy flows is the presence of economists – be they academic or not – as partners, directors, employees, or consultants in private organizations. The non-­ mainstream character of Post Keynesian economics weakens its potential to influence real-­world economic agents in the main organizations of the private sector (including the interesting case of rating agencies), in comparison with its more prestigious, mainstream counterpart. This is important in itself, but it also impacts back on the academic field. In particular, it has consequences related to what the French sociologist Pierre Bourdieu called the “intellectualist” or “scholastic fallacy.” This fallacy consists in mistakenly attributing to people in the real world the model of action constructed by the analyst (Bourdieu and Wacquant, 1992: 70). Bourdieu used this concept to criticize neoclassical economics (see, for example, Bourdieu, 2000: 19; Bourdieu and Wacquant, 1992: 120). The scholastic fallacy is, however, more general: it may be committed by any kind of economist, not only neoclassical ones. The mind of the analyst does not seem to be the right general answer to the question of where the mental models and the motivation of economic agents – or policy makers, for that matter – come from. In this regard, the higher prestige and more widespread influence of mainstream versus non-­mainstream economists must not be ignored by the latter. In particular, this must be borne in mind before non-­mainstream economists assume that economic agents also are, or think like, (their kind of ) non-­mainstream economists. This would be a different version of the same mistake that Bourdieu and others have accused neoclassical economists of making.11 As argued above, neoclassical economics still is part of the mainstream. The following warning is thus still valid and applies both to non-­mainstreamers and to non-­neoclassical mainstreamers: “Care is required to avoid a hasty attribution of irrationality to, say, decision-­makers who hire a neoclassical economist from a top university as a consultant” (Dequech, 1998: 73–4). The argument can be generalized to other forms of mainstream economics. Similar caution is also necessary regarding the use of mainstream formal economic models by economic agents and policy makers. Some of these individuals may believe that academic formal models are rigorous and therefore legitimate; others, concerned with the accountability of their acts, may consider these models appealing because of their social appearance of legitimacy, which facilitates

Post Keynesianism, heterodoxy, and mainstream   97 ­justification in case decisions yield bad results; still others may have studied economics and simply treat these models as the natural way of doing economic analysis.12 The use of some mainstream formal models by economic agents relates, in particular, to an important issue concerning the separation between Post Keynesianism and mainstream economics: the treatment of uncertainty. Post Keynesians emphasize a type of uncertainty that in their view is neglected by mainstream economics – at least in its neoclassical guise – and particularly by the way in which it builds its formal models. The problem raised here concerns the assumptions that are made regarding the economic agents’ awareness or lack of awareness of this type of uncertainty. John Hicks (1977: vii) wrote: “One must assume that the people in one’s models do not know what is going to happen, and know that they do not know just what is going to happen.”13 It is indeed possible that economics agents are or become aware of fundamental uncertainty (as argued by Davidson, 1982–1983 and Crotty, 1994). This awareness underlies the Post Keynesian theory of the use of liquid assets as a reserve of value. One should not, however, always assume that all economic agents are always aware of this variety of uncertainty, regardless of the ideas that dominate economics in a specific historical context, while in reality some agents may be led by mainstream economists to neglect it and employ mainstream formal models. Admittedly, one should not necessarily reprove Shackle (1972) for implying that marginal calculus under fundamental uncertainty is a futile exercise, nor Vickers (1994: 228) for warning against “excessive refinement or appearances of precision where it does not, or cannot, exist.” On the other hand, the perception of uncertainty may be negatively affected by prestigious economic theories (Dequech, 1999); or the very awareness of ignorance may lead agents to resort to the help or the opinion of others. Consequently it is not surprising if the widespread influence and high prestige of neoclassical economics and other forms of mainstream economics lead people in practice to have what seems to Post Keynesians and other heterodox economists as an erroneous belief in the usefulness of some mathematical or statistical techniques in some circumstances. For people to adopt some types of formal procedure, they would need either to be unaware of fundamental uncertainty (and procedural uncertainty) or to believe that it is worth going into this kind of mathematical detail when the choice of the numbers involved (including, when this is the case, the discount rates) is influenced by very imprecise factors. For example, someone aware of fundamental uncertainty may wish to give other people the impression that she knows more than she actually does; or she may wish to reinforce the legitimacy of her decisions. The use of maximization techniques may serve these purposes (most of these arguments are borrowed from Dequech, 1998: 100; see also Palley, 1993 on expected profit maximization and, more broadly, his similar concerns). The existence of mainstream formal models may therefore alter the behavior even of economic agents who are aware of one or more varieties of uncertainty that seriously limit their applicability.

98   D. Dequech In sum, academic prestige and influence may give an approach a head start in the competition to affect the real world. It is not denied here that economic agents and policy makers may conclude (or, from the critics’ viewpoint, learn) that neoclassical economics or perhaps another form of mainstream economics provides useless or erroneous guidance. It would be a mistake, however, to assume that this has already happened or will inevitably always happen. Even if and when this negative assessment does occur, the need for legitimacy and accountability may explain the continuous resort to prestigious forms of (socially recognized) knowledge, at least as “pretty, polite techniques, made for a well-­ panelled Board Room” (Keynes 1937: 215). Another channel for the influence of economics is economic and social policy. Post Keynesians have been very much aware of the fact that policy makers usually are not Post Keynesian economists and do not have Post Keynesian economists as advisors, especially in the developed world. In fact, since the emergence of the Post Keynesian school of thought in the 1970s, its proponents have criticized important aspects of most economic policies that have been implemented in the countries they investigate. Post Keynesian economists are therefore unlikely to commit the scholastic fallacy regarding policy makers. We must, however, go beyond the acknowledgment that Post Keynesian policy proposals may be difficult to implement. In addition to, and in part because of, their marginalization in academia, the ideas underlying these proposals may suffer from the fact that sometimes they are unconventional, not shared by the public at large. Hence, even if these proposals were implemented, there would be another important issue involving the non-­mainstream character of Post Keynesian economics: the possible reaction of economic agents to its policies. Two interrelated aspects come to mind at this point. First, Post Keynesians advocate an active role for government in the economy. Second, Post Keynesians defend large amounts of government spending (regularly, to give stability to the economy, or at least when aggregate demand is low), with much less concern with possible fiscal deficits than most economists. The public in general, as well as entrepreneurs and managers in particular, with the reinforcement of economic analysts in rating agencies, may not be very sympathetic to this kind of policy proposal (see also Keynes, 1936: 162; Kalecki, 1943). Because of their reaction, negative forecasts about the results of some Post Keynesian policies, when made, may turn out to be self-­fulfilling prophecies. To be sure, practical results normally matter more to private agents than economic doctrine. Furthermore, the views that the public has of an active economic role of government oscillate historically, so that they are not always negative. On the other hand, one should not ignore these views or assume that they are always positive. The latter would be another example of the scholastic fallacy. A reproductive difficulty in academia As part of non-­mainstream economics, Post Keynesianism is not well known among economists, and is virtually not taught in the economics departments of

Post Keynesianism, heterodoxy, and mainstream   99 the most prestigious universities of the United States, Great Britain, and other countries. In turn, the prestige and influence of mainstream economics makes it attractive to the students, most of whom, being unaware of the existence of non-­ mainstream approaches, are prone to associate prestige and influence with academic quality. This implies a difficulty to attract many good students to the less prestigious departments of economics where Post Keynesian and other variants of non-­mainstream economics are taught. In the rare economics department of a prestigious university where there is a Post Keynesian professor, graduate students have an essentially mainstream training during the coursework phase. The students who are attracted to Post Keynesian economics, or any other non-­mainstream approach, would have to be willing to go through this, which is not necessarily a bad thing, even from the viewpoint of the critics – after all, both the critique and the alternative view are stronger when there is more knowledge of what is criticized. On the other hand, the critics may understandably worry about two problems: (1) the possibly insufficient graduate training in alternative approaches (which can be remedied after graduate school); and (2) the possibility of serious internal inconsistencies in the student’s overall views, with the mixing of ultimately conflicting mainstream and non-­ mainstream views, when they are indeed conflicting. The latter risk can be smaller if the student has some previous graduate experience in non-­mainstream economics or in another social science before attending the Ph.D. program. Outside the departments of economics, there are good opportunities to obtain a solid graduate training and study economic issues in many prestigious universities. Many interesting works that are critical of neoclassical economics, and a few other variants of mainstream economics, have been written by researchers working in graduate programs in business, organizational behavior, sociology, history, political science, and industrial relations – often as part of the mainstream of these disciplines. Many of these scholars are not economists. Among those who are economists, practically none is a Post Keynesian.14 At least in the developed world, the future of Post Keynesianism is threatened by its difficulties in attracting promising graduate students and in ensuring that students are well and broadly trained in economics or some other social science concerned with economic issues, before writing a dissertation influenced by the Post Keynesian perspective. There are, thus, sociological reasons for Post Keynesians to avoid isolation, in addition to the already-­mentioned intellectual need for further interaction and integration, both with other economists and with non-­ economists. To secure the healthy survival of their ideas, Post Keynesians must attempt to spread at least some of them to other groups, which often turn out to be quite receptive.

Concluding remarks Post Keynesian economics can be characterized on the basis of unifying positive ideas, although some internal tensions or potential inconsistencies continue to exist. At the same time, there are important overlaps between Post Keynesianism

100   D. Dequech and other schools of economic thought. Some of their ideas are thus similar, while others – but by no means all – are mutually compatible and complementary. It is not only possible, but also necessary, to combine contributions from different approaches and disciplines in order to understand several important economic issues. This is not always easy, however, and must be done with attention to both rigor and relevance. Post Keynesianism lies outside mainstream economics, although there have been positive developments in the latter, especially regarding the notion of uncertainty. The non-­mainstream character of Post Keynesian economics has at least two important consequences. First, it limits the ability to influence the economy, so that Post Keynesians must not assume that economic agents always think and behave like them. Second, it worsens the conditions for the long-­term reproduction of Post Keynesianism. This makes the communication and integration with other approaches and other disciplines all the more desirable.

Notes

  1 The author is professor of economics at the University of Campinas, São Paulo, Brazil. He is grateful to Marc Lavoie, Fred Lee, Gary Mongiovi, and Steven Pressman for useful comments on a previous version. This research has been funded by the Brazilian National Research Council (CNPq) and by the São Paulo State Research Foundation (FAPESP).   2 This neoclassical concept can be said to (still) correspond to weak uncertainty, although it may be extended to incorporate ambiguity, if all that is required is the formalization of ambiguity in terms of utility maximization, since this has already been done. See Dequech (2011) for a discussion of these and other types of uncertainty.   3 Lee (2009) opposes heterodox to mainstream economics, but defines both of them in relation to a specific historical period and in positive intellectual terms, seeing more intellectual commonalities to each of them than I do.   4 Similarly, Hyman Minsky (1990) saw Keynes and Sraffa as incompatible. In addition to Sraffa, Paul Davidson also rejects Kalecki, but this has not gained much support within the Post Keynesian group, despite Davidson’s prominence. I return to this below.   5 Dow (2001) attributes this view to Roncaglia (1995), but Lavoie (2011) disputes her interpretation.   6 Davidson (2000) has remained critical of Kalecki, although not necessarily of authors influenced by Kalecki, several of whom embrace Keynes’s main ideas regarding the principle of effective demand and liquidity preference. Victoria Chick (1995) can be classified as a member of the Keynesian strand, like Davidson, but she accepts both Keynes and Kalecki as sources of inspiration for Post Keynesianism.   7 Davidson defends the use of an aggregate-­supply and aggregate-­demand framework as a desirable unifying characteristic of Post Keynesian macroeconomics. Accepting this does not imply agreeing with the more restrictive aspects of Davidson’s (2005) conception of Post Keynesianism.   8 Although Arestis (1992: 89) and Sawyer (1982: 88, cited by Arestis et al., 1999: 543) may seem to defend the assumption of large firms in general terms, they are aware that Kalecki did not always make this assumption and deny that Kalecki’s theory implies full employment in the absence of that hypothesis (Arestis, Dunn, and Sawyer, 1999).   9 Arestis (1996) has even identified this institutionalism as one of the main traditions on which Post Keynesian economics has drawn.

Post Keynesianism, heterodoxy, and mainstream   101 10 Douglass North’s 2005 book has a chapter entitled “Uncertainty in a Non-­Ergodic World,” where he approvingly cites Davidson (1991). This does not mean, however, that Davidson’s concept of uncertainty has been accepted into the mainstream. As defined above, mainstream economics is a set of ideas. Although North is a very prestigious economist, not all his ideas have been accepted into the mainstream. Indeed, North can be described as trying to push the current frontiers of mainstream economics towards acceptance of ideas that are still outside it. One of these ideas is his notion of uncertainty. 11 I warned against this mistake in one of my earlier reflexive efforts (Dequech, 1998: 66). I am grateful to Ana Maria Almeida for pointing out the similarity between my arguments at that time and Bourdieu’s discussion of the “scholastic fallacy.” 12 Sheila Dow (1998: 5) discusses similar issues in terms of rationalization, which “involves the reconstruction, either of real relations or of arguments, according to some principles of rationality. . . . The principles of rationality on which a rationalisation is based may not be those which really underpin economic processes or theorizing about these processes.” She adds that rationalization may become so embedded as to alter actual behavior (Dow, 1998: 13). 13 Mario Possas has a more cautious, dynamic version of this argument: for him, in a context of strong uncertainty, in contrast to the Bayesian updating process and the strong version of the rational expectations hypothesis, “it makes more sense to assume that rational agents, after due experimentation, eventually learn – that they do not learn!” (2002: 129–30). 14 At this time, among the best options for graduate studies, I know of only one possible exception, in the School of Public Affairs of the University of Texas at Austin. Although two Post Keynesians currently participate in a graduate program in the University of Cambridge, they work at the Department of Land Economy, where graduate training is limited by the fact that the coursework is specialized in real estate, land, and related issues.

References Arestis, P. (1992) The Post-­Keynesian Approach to Economics, Aldershot: Elgar. Arestis, P. (1996) “Post-­Keynesian economics: towards coherence” in Cambridge Journal of Economics, 20: 111–35. Arestis, P., Dunn, S., and Sawyer, M. (1999) “Post Keynesian economics and its critics” in Journal of Post Keynesian Economics, 21: 527–49. Bourdieu, P. (2000) Les Structures Sociales de L’économie, Paris: Seuil. Bourdieu, P. and Wacquant, L. (1992) An Invitation to Reflexive Sociology, Chicago: University of Chicago Press. Chick, V. (1995) “Is there a case for Post Keynesian economics?” in Scottish Journal of Political Economy, 42: 20–36. Colander, D., Holt, R., and Rosser Jr., J. B. (2004) “The changing face of mainstream economics” in Review of Political Economy, 16: 485–99. Crotty, J. (1994) “Are Keynesian uncertainty and macrotheory compatible? conventional decision making, institutional structures, and conditional stability in Keynesian macromodels” in G. Dymski and R. Pollin (eds.) New Perspectives in Monetary Macroeconomics, Ann Arbor: University of Michigan Press. Davidson, P. (1978) Money and the Real World, 2nd edition, London: Macmillan. Davidson, P. (1982–1983) “Rational expectations: a fallacious foundation for studying crucial decision-­making processes” in Journal of Post Keynesian Economics, 5: 182–98.

102   D. Dequech Davidson, P. (2005) “The Post Keynesian school” in B. Snowden and H. Vane (eds.) Modern Macroeconomics, Cheltenham: Elgar. Dequech, D. (1998) Rationality and Institutions under Uncertainty, Ph.D. dissertation, University of Cambridge. Dequech, D. (1999) “Expectations and confidence under uncertainty” in Journal of Post Keynesian Economics, 21: 415–30. Dequech, D. (2007–2008) “Neoclassical, mainstream, orthodox, and heterodox economics” in Journal of Post Keynesian Economics, 30: 279–302. Dequech, D. (2011) “Uncertainty: A Typology and Refinements of Existing Concepts” in Journal of Economic Issues, 45: 621–40. Dow, S. (1998) “Rationalisation in economics: theory, methodology and action” in Dennis, Ken (ed.) Rationality in Economics: alternative perspectives, Boston: Kluwer. Dow, S. (2001) “Post Keynesian methodology” in R. Holt and S. Pressman (eds.) A New Guide to Post Keynesian Economics, London: Routledge. Dunn, S. (2000), “Wither Post Keynesianism?” in Journal of Post Keynesian Economics, 22: 343–64. Hamouda, O. and Harcourt, G. (1988) “Post-­Keynesianism: from criticism to coherence?” in Bulletin of Economic Research, 40: 1–30. Harcourt, G. (2006) The Structure of Post-­Keynesian Economics, Cambridge: Cambridge University Press. Hicks, J. (1977) Economic Perspectives, Oxford: Oxford University Press. Kalecki, M. (1939, 1966) “Money and real wages” in M. Kalecki, Studies in the Theory of Business Cycles 1933–1939, New York: Augustus M. Kelley. Kalecki, M. (1943) “Political aspects of full employment” in Political Quarterly, 14: 322–31. Katzner, D. (1998) Time, Ignorance and Uncertainty in Economic Models, Ann Arbor: Michigan University Press. Keynes, J. M. (1921) A Treatise on Probability, London: Macmillan. Keynes, J. M. (1936) The General Theory of Employment, Interest and Money, London: Macmillan. Keynes, J. M. (1937) “The general theory of employment” in Quarterly Journal of Economics, 51: 209–23. Lavoie, M. (2006) Introduction to Post-­Keynesian Economics, London: Palgrave Macmillan. Lavoie, M. (2011) “Should Sraffian economics be dropped out of the post-­Keynesian school?” in Économies et Societés, 44: 1027–59. Lee, F. S. (1998) Post Keynesian Price Theory, Cambridge: Cambridge University Press. Lee, F. S. (2009) A History of Heterodox Economics, London: Routledge. Minsky, H. (1990) “Sraffa and Keynes: effective demand in the long run” in K. Bharadwaj and B. Schefold (eds.) Essays on Piero Sraffa, London: Unwin Hyman. North, D. (2005) Understanding the Process of Economic Change, Princeton: Princeton University Press. O’Donnell, R. (1989) Keynes: Philosophy, Economics and Politics, London: Macmillan. Palley, T. (1993) “Uncertainty, expectations, and the future: if we don’t know the answers, what are the questions?” in Journal of Post Keynesian Economics, 16: 3–18. Possas, M. (2002) “Elementos para uma integração micro-­macrodinâmica na teoria do desenvolvimento econômico” in Revista Brasileira de Inovação, 1: 123–50. Roncaglia, A. (1995) “On the compatibility between Keynes’s and Sraffa’s viewpoints on output levels” in in G. Harcourt, A. Roncaglia, and R. Rowley (eds.) Income and Employment in Theory and Practice, NewYork: St Martin’s.

Post Keynesianism, heterodoxy, and mainstream   103 Sawyer, M. (1982) Macro-­economics in Question, Brighton: Wheatsheaf. Shackle, G. (1972) “Marginalism: the harvest” in History of Political Economy, 4: 587–602. Vickers, D. (1987) “Aggregate supply and the producers’ expected demand curve: performance and change in the macroeconomy” in Journal of Post Keynesian Economics, 10: 84–104. Vickers, D. (1994) Economics and the Antagonism of Time, Ann Arbor: University of Michigan Press.

6 Heterodox economics and its critics1 Frederic S. Lee

HETERODOX CRITIc:  We want to change heterodox economics. HETERODOX EcONOMIST:  What kind of change are you talking about? HETERODOX CRITIc: The kind that does not mess with the mainstream

quo.

status

Although heterodox economics began in the 1960s, it remained relatively dispersed among the different approaches through the 1980s. However, in the 1990s, Post Keynesian, Marxist-­radical, Institutional-­evolutionary, social, and feminist economists recognized that in terms of methodology, theory, and policy, they had much more in common than they had differences. Consequently, they began to view themselves as belonging to a common community of heterodox economists and that the community and its theory were distinct from the mainstream community and its theory. Indicative of this were the formation of the Association for Heterodox Economics, Society of Heterodox Economists, and the Heterodox Economics Newsletter, all occurring in the five-­year period of 1999–2004 (Lee, 2009a). Coinciding with this community-­building, community-­ emerging process was the emergence of heterodox critics. Initially the critics concentrated on the issue of pluralism, especially pushing the thesis that heterodox economics cannot really be distinct from mainstream economics, that the former cannot be an alternative to the latter, and that economics is not a contested discipline (Lee, 2011a). Assuming a degree of commensurability between mainstream and heterodox economics, the arguments of the critics evolved to advocating that heterodox economists should become more like mainstream economists; and when there was not an immediate mass conversion, their arguments evolved even further to challenging the existence of heterodox economic theory and the community of heterodox economists as manifested through their graduate programs, conferences, journals, and identity. In particular, some of these critics argue that current changes in the mainstream theory offer points of intersection with heterodox theory while others argue that it is impossible in principle for heterodox theory to be totally separate from mainstream theory; either argument implies that heterodox theory is not theoretically distinct relative to mainstream theory and that it is necessary for heterodox economists to become more like mainstream economists if they want to survive.

Heterodox economics and its critics   105 This more virulent criticism emerged after 2004 when it appeared that heterodox economics had established itself as an alternative to mainstream economics. The most outspoken, recognized critic is David Colander, followed by his co-­ authors, Richard Holt and Barkley Rosser. There are other visible critics, such as Giuseppe Fontana; but Colander’s extensive published writings on the subject have appeared in many heterodox publications, which suggests that his critical views are not dismissed and perhaps even supported by at least some heterodox economists whom themselves have not published on the subject. The fact that Colander’s views have gained wide circulation within the heterodox community is somewhat puzzling since he has made no contribution to any aspect of heterodox theory, applied work, or policy recommendations. However, this curiosity is not pursued here. But what is important to note is that there have been few responses (Dequech, 2007–2008; Stockhammer and Ramskogler, 2009, reprinted as Chapter 3 of this book; Vernengo, 2010, also see Chapter 8 of this book), thus giving the impression that Colander’s and the heterodox critics’ arguments are near unassailable. And if this perception takes hold within the heterodox community, it will collapse and disappear. Hence, it is important that there are vigorous and extensive responses to Colander and the critics. It is curious that the critics of heterodox economics do not actually focus on its theoretical conception of economics as an area of study, on its ontological and methodological foundations, on its methods of economic analysis, on its theoretical arguments, or on its economic policy prescriptions. In short, they do not critically engage and find fault with the substantive content of heterodox economics, implying that it is a sound, coherent, and accurate, and thus a legitimate scientific alternative to mainstream theory.2 Not willing to give such consent, the critics just ignore it and assume that heterodox theory is commensurable with mainstream theory to at least some degree. Moreover, the critics observe that the academic status quo in economics as manifested in its department and journal rankings, rules of academic engagement, and its institutions and organizations, favor mainstream economics and that it is unlikely to change in the future. Consequently, they argue that heterodox economists can only survive if they become more like mainstream economists. With focus on assimilation, the critics direct their criticisms towards the social and personal characteristics that they attribute to the heterodox community. Among the social characteristics variously attributed to the heterodox community: ignorance of mainstream theory; refusing to engage with the mainstream and court mainstream allies; the inferiority of heterodox graduate programs because they do not teach near exclusively the most-­up-to-­date mainstream theory qua models and econometric practices, leaving their students poorly trained and hence inferior relative to students in mainstream programs; and hurting the feelings and sensitivities of mainstream economists by criticizing their theories and advocating pluralism. The counterproductive personal traits attributed to heterodox economists include complaining too much about the injustices committed by the mainstream and adopting the heterodox identity or other ways of establishing an identity separate because of a contrarian tendency to distinguish oneself

106   F. S. Lee from mainstream economists (Colander; 2009a, 2009b, 2010; Colander et al., 2010; Fontana and Gerrard, 2006). It is true that heterodox economists do engage in critical analysis of mainstream economics and its organizational, institutional, and exclusionary manifestations. But their criticism emanates from their critical inquiry into mainstream theory. If mainstream theory proved to be broadly coherent and correct, then there would be no heterodox criticism and hence no heterodox economics. But this is not the case. Thus the critics of heterodox economics are quite different from the heterodox critics of mainstream economics, suggesting that the concerns that drive these critics are not one of intellectual inquiry and further development of economic knowledge about the social provisioning process, or even about preserving heterodox economics in the long run. Rather the aim of the critics of heterodox economics seems more about preventing heterodox economics from disrupting the status quo. The organization of the chapter is as follows. To show that there exists a body of heterodox theory that does try to explain the social provisioning process and which could be (but is not) the focus of the heterodox critics, the first section of the chapter will delineate it and its theory of value.3 The second section deals with heterodox economists’ critiques of mainstream theory, the issue of pseudo-­ knowledge, and the social role of mainstream economics. The third section deals with the broad question of quality in terms of research, department and journal rankings, employment, and training. The fourth section deals perhaps with the most fundamental issue of identity—whether there is a heterodox identity that is distinct, has intellectual integrity, and embraces pluralism, followed by a conclusion.

Heterodox economic theory and its theory of value As I have noted elsewhere (Lee, 2008a, 2009a, 2009b), heterodox economics is a specific term, like classical political economy or neoclassical economics, that refers to a particular group of contemporary theories aimed at explaining the social provisioning process, to economic policy recommendations predicated on the theories, and to a community of economists engaged in this theoretical and applied scientific activity. Thus heterodox economics is not (at least for the past two decades) defined in negative, oppositional terms or as a dual to mainstream economics but as a positive alternative to it. So if mainstream economics disappeared, heterodox economics would be unaffected. Therefore, from a heterodox perspective, mainstream economics is not the enemy to be vanquished, but a body of ideas and arguments that have no substantive meaning or explanatory power regarding the social provisioning process. However, this ‘theoretical incommensurability’ does not preclude academic engagement. For example, in the area of research dealing with pricing and price flexibility, the empirical data regarding frequency of price changes are accepted by both mainstream and heterodox economists. Hence engagement exists over both the delineation and nature of the data and the theoretical arguments utilizing the data. In particular,

Heterodox economics and its critics   107 it is possible to engage in a theoretical-­empirical debate about whether mainstream theory is or is not supported by the data (the marginalist controversy of the 1940s–1950s is an example of such engagement). This kind of engagement is possible and extremely important even though mainstream and heterodox theories are incommensurable, as long as the opponents have a good working knowledge of each other’s theories. Yet, altering opponents’ views and convictions may be somewhat improbable when they hold clearly incommensurable theoretical positions. In this case, the purpose of academic engagement is important for those who have not made an intellectual commitment to one or the other positions (such as students). So while the opposing professors may speak past each other, the uncommitted are learning, taking stock, and comparing the incommensurable theories in a variety of ways. The point of academic engagement, the sharpening of distinctions and differences, is for the benefit of the uncommitted third party. It is this twofold vision of theoretical engagement between mainstream and heterodox economists that permeates this chapter—being theoretically incommensurable is not about going separate ways but about being cross-­paradigm engaged. But the fact remains it is only the heterodox economists that embrace this vision of engagement and its pluralism.4 Being a specific, contemporary, and alternative theory, heterodox economics started in the 1960s, but a coalescing theoretical core did not emerge until the 1990s; there are not multiple kinds of heterodox economics; there have not been cycles of orthodox-­heterodox economics; and heterodox economics does not have a core-­periphery relationship with orthodox economics.5 Moreover, because heterodox economics is an alternative to mainstream economics, economists that deviate only in part from the mainstream (or even neoclassical) theory are engaged in heresy not blasphemy; they are heretics not blasphemers, and are heretical mainstream but not heterodox economists. Finally, being engaged in alternative theorizing, applied work, and economic policy analysis in a contested environment, heterodox economists often develop their arguments through critical engagement with mainstream theory. This gives the appearance (but without substance) that the only common element among heterodox economists is their critical evaluation and then rejection of mainstream economics. What all of this means is the various definitions and portrayals of heterodox economics delineated by the heterodox critics (and many others as well) are without substance, without meaning, which means that the critics toss their barbs and dismissals at a fictitious target of their own making and not at the ‘concrete’ entity of heterodox economics (Lee, 2008a, 2009a, 2009b, 2011a; Lavoie, 2006; Colander, 2005b, 2009a; Colander et al., 2004a, 2004b, 2010; Dequech 2007–2008, Chapter 5 of this book). Heterodox economic theory The intellectual and theoretical roots of heterodox economics are located in heterodox traditions of Post Keynesian-­Sraffian, Marxist-­radical, Institutional-­ evolutionary, social, feminist, and ecological economics, all of which emphasize

108   F. S. Lee the social surplus, accumulation, justice, social relationships in terms of class, gender, and race, full employment, and economic and social reproduction.6 Hence, as a scientific research field, heterodox economics is concerned with explaining and proposing and advocating changes in the historical process of producing the social surplus that provides the flow of goods and services required by society to meet recurring needs and promote the well-­being of those who participate in its activities. That is, heterodox economics is a historical science of the social provisioning process, and this is the general research agenda of heterodox economists. Drawing from all heterodox approaches, its explanation involves both human agency embedded in a transmutable, hence uncertain, world with fallible knowledge and expectations and in a cultural context and social processes in historical time affecting resources, consumption patterns, production and reproduction, and the meaning (or ideology) of market, state, and non-­market/state activities engaged in social provisioning. This implies that agency can only take place in an interdependent social context which emphasizes the social and deemphasizes the isolated nature of individual decision-­making; and that the organization of social provisioning is determined outside of markets, although the provisioning process itself will, in part, take place through capitalist markets. Thus, heterodox economic theory is a theoretical explanation of the historical process of social provisioning within the context of a capitalist economy; hence it is also a historically contextual explanation. Therefore it is concerned with explaining those factors that are part of the process of social provisioning, including the structure and use of resources, the structure and change of social wants, structure of production and the reproduction of the business enterprise, household, state, and other relevant institutions and organizations, and distribution. In addition, heterodox economists extend their theory to examining issues associated with the process of social provisioning, such as racism, gender, and ideologies and myths. Because heterodox economics involves issues of ethical values and social philosophy, and the historical aspects of human existence, heterodox economists feel that it is also their duty to make heterodox economic policy recommendations to improve human dignity, that is, recommending ameliorative and/or radical, social, and economic policies to improve the social provisioning for all members of society and especially the disadvantaged members. Moreover, they adopt the view that their economic policy recommendations must be based on an accurate historical and theoretical picture of how the economy actually works—a picture that includes class and hierarchical domination, inequalities, social-­ economic discontent, and conflict. The distinction between theory and policy is not the same as the positive-­normative distinction found in mainstream economics. Heterodox theory is an explanation of how the social provisioning process actually operates, not how it is supposed to operate under ‘ideal conditions’; while heterodox policy aims at altering the actual process to achieve a particular historically contingent outcome. Thus, the ethos embedded in heterodox economic theory is that the social provisioning process is to be accurately explained so that it can be changed—an accurate explanation is not the same

Heterodox economics and its critics   109 thing as a value neutral explanation, which implies that derivative economic policy is not value qua ethically neutral (Polanyi, 1968; Foster, 1981; Gruchy, 1987; Stevenson, 1987; Dugger, 1996; Bortis, 1997; Hodgson, 2001; Power, 2004; Jo, 2011). Theoretical core Since the economy is an emergent system with various sub-­systems, the heterodox theory of the social provisioning process is also an emergent theoretical system with various theoretical sub-­systems. This implies that it cannot be divided into disjointed sub-­systems of microeconomics and macroeconomics, which in turn are based on quite different theoretical arguments. In particular, the core theoretical elements generate a three-­component structure-­organizationagency heterodox economic theory. The first component of the theory consists of the productive and monetary structures of the social provisioning process and together they form the structure of a real capitalist economy. The former represents production as a circular process in that the production of goods and services requires goods and services to be used as inputs. Hence, with regard to production, the overall economy (which includes both market and non-­market production) is represented as an input-­output table of resources, material goods, and services, combined with different types of labor skills to produce an array of resources, goods, and services as outputs. Many of the outputs replace the resources, goods, and services used up in production and the rest constitute a surplus to be used for social provisioning: that is for consumption, private investment, government usage, and exports. The latter depicts the structural relationships between the wages of workers, profits of enterprises, and taxes of government, and expenditures on consumption, investment, and government goods, as well as non-­market social provisioning activities which are facilitated by a flow of funds or state money accompanying the production and exchange of the goods and services. Together the two structures produce a monetary input-­ output structure of the economy as a whole where transactions in each market are a state-­money transaction; where a change in price of a good or in the method by which a good is produced in any one market will have an indirect or direct impact on the entire economy; and where the amount of private investment, government expenditure on real goods and services, and the excess of exports over imports determines the amount of market and non-­market economic activity, the level of market employment and non-­market laboring activities, and consumer expenditures on market and non-­market goods and services. The second component of heterodox theory consists of three categories of economic organizations and institutions that are embedded in the monetary input-­output structure of the economy. The first category is particular to a set of markets and products and consists of the business enterprise, private and public market organizations (such as cartels and government marketing boards) that regulate competition in resource, good, and service markets, and the organizations (such as trade unions) and institutions (such as minimum wage laws) that

110   F. S. Lee regulate the wages of workers. The second is spread across markets and products, or is not particular to any market or product and includes the state and various subsidiary organizations as well as particular financial organizations; that is, those organizations (such as Congress and the central bank) which make decisions about government expenditures and taxation, and determine the interest rate. Finally the third category consists of non-­market organizations and institutions that promote social reproduction and include the household and state and private organizations (such as charities) that contribute to and support the household. The significance of organizations is that they are where agency qua the socialized individual, the third component of heterodox theory, is located. That is, agency, which consists of decisions made by individuals, concerning the social provisioning process and social well-­being takes place through these organizations. And because the organizations are embedded in both instrumental and ceremonial institutions, such as gender, class, ethnicity, justice, marriage, ideology, and hierarchy as authority, agency acting through organizations affect both positively and negatively, but never optimally, the social provisioning process. In short, heterodox economic theory is an emergent whole and the economy is conceived as a disaggregated interdependent system. Consequently, to theorize about the social provisioning process in terms of a disaggregated, interdependent economy, it is necessary to delineate and explain its constituent parts and their reproduction and recurrence, their integration qua interdependency by non-­market and market arrangements and institutions, and how the system works as a whole, which implies examining how changes in one part of the economy produces changes in other parts as well as the economy as a whole. As a result heterodox microeconomics is concerned with delineating and explaining the constituent parts or sub-­systems of the economy and their interdependencies, while heterodox macroeconomics is concerned with the economy as a whole and changes that occur as a result of changes in various parts of the economy7 (Lee, 2009c, 2010a, 2011c, 2011d; Jo, 2011). Heterodox theory of value and the social provisioning process Emerging from heterodox theoretical explanation of the social provisioning process are accounts about the origins of the social surplus (or the questions of the origins of profits, wages, and rents) and access to the provisioning process (or the question of producing and distributing the surplus). Through dealing with these issues, the theoretical narrative of the provisioning process is transformed into a theory of value. That is, a theory of value is a narrative which is linked to a quantitative analysis (usually a model or a concatenated set of models) that succinctly explains why and how the particular goods and services that constitute the social provisioning process get produced and how the households, business enterprises, and the state get access to them. Consequently, the particulars of the explanation include the origins of the income variables (wage rates and profit mark ups) that give access to the surplus and hence to the provisioning

Heterodox economics and its critics   111 process; the determination of prices and their role in affecting economic activity; the determination of the social surplus, total social product, and employment; the ‘real costs’ of producing the social surplus; the distribution of the consumption goods between and within the three social classes; and the distribution of fixed investment goods and state financial assets among business enterprises (Dobb, 1945: 1–33). The explanation also includes an examination of the state as the political unit in which the provisioning process is located, and its role in affecting and directing economic activity. The narrative of heterodox value theory is quite explicit. It starts (and also ends) with the observation that the material basis of the social provisioning process is determined by the ruling class—the capitalist class and the political elite of the dependent capitalist state—for society as a whole. This is possible since the composition and amount of the total social surplus is determined by the ruling class, as they have the dominant influence qua control over the economy and society; and since the capitalist class via the business enterprise administratively set going enterprise prices, profit mark ups, and wages, while the state sets wages, employs people, and makes government and interest payments, the ruling class determines through non-­market decisions both the general access and the differential access to social provisioning. Expanding upon the narrative, the  ruling class determines the surplus goods and services they want, and hire the surplus labor to produce them; and the production of surplus goods and services for workers are an unintended by-­product. That is to say, the production decisions are controlled by the ruling class. This means that the capitalists’ decision to produce consumption goods and services for workers governs the workers’ access to the social provisioning process by simultaneously creating the wage rate as an income category. In a similar manner, the capitalists and state decisions to produce fixed investment and consumption goods and services for the capitalists and for the state governs the capitalists’ and the state’s access to the social provisioning process by simultaneously creating the profit mark-­up and state money as a income categories. In short, because the capitalist class and the state determine the production of the surplus, and with it wage rates, profit mark-­ups, and state money, they govern the real direction of the capitalist economy, control the volume of and access to the social provisioning process (while the price system plays a secondary role of governing the access of particular capitalists and workers to social provisioning and ensuring the reproduction of the business enterprise), and maintain the capitalist (dominate)-worker (subordinate) social relationships necessary for capitalism to exist. What this clearly implies is that the creation and distribution of the surplus is effectuated through the social relationships that sustain the ruling class, while the trappings of market forces are a veil that obscures them; or more strongly put, it is social relationships coupled with social agency that are the primary movers of economic activity and the provisioning process, while the role of markets and the price system play both a secondary role and an obscuring role. This means that heterodox economic theory is fundamentally incompatible with mainstream theory in that it conceives the provisioning process and the working

112   F. S. Lee of the economy quite differently. Thus heterodox economics is independent of and hence an alternative to mainstream theory. But more importantly, heterodox value theory ensures that heterodox theory is open to engagement with any form or type of analysis that is based on capitalist social relationships and social agency that deals with any aspect of the social provisioning process. Hence, it is unsurprising that feminists and ecological economists are engaged in heterodox economics, that economic sociology seems in many ways to be heterodox economics except in name, and that work in social and economic geography, urban planning, political science, economic anthropology, and industrial sociology are drawn upon to enrich and develop heterodox analysis of social provisioning. This rich interdisciplinary engagement has the additional benefit of adding to and enhancing the social networks, worksites, and publication outlets that constitute the community of heterodox economics (Lee, 2011c).

Heterodox economists and mainstream theory For the heterodox critics, neoclassical economics does not accurately describe the leading edge of research carried out at the top universities and published in the top journals. Rather, the appropriate nomenclature is mainstream economics, which includes both neoclassical economics and the economics at the frontier that builds upon it but also deviates from it in some ways but never completely breaks away or deviates to the point of blasphemy. They then argue that heterodox economists’ knowledge of mainstream theory is inadequate at best, although they provide no evidence, explanation, or qualification (Colander, 2000, 2003; Colander et al., 2004a, 2004b, 2010; Fontana and Gerrard, 2006; also see Vernengo, 2010). For this to be the case heterodox economists must either lack the capabilities and training to master mainstream theory, or deliberately decide not to acquire knowledge of mainstream theory. There is no evidence that heterodox economists are innately less capable than mainstream economists or that their training is inferior (since most heterodox economists have been trained in mainstream doctoral programs.) The suggestion that heterodox economists consciously decline to learn mainstream theory is also questionable, but it is complex as well. There is extensive literature throughout the twentieth century, and especially from the 1970s onwards, in which heterodox economists have critically evaluated mainstream theory in its various historical and contemporary forms over all JEL research areas.8 Part of this literature argues that neoclassical economic theory is incoherent and thus fundamentally incapable of developing theoretical explanations of the social provisioning process that are grounded in the real world. This claim merits some further discussion. First, the objects of study of neoclassical theory, such as preferences-­utility, marginal products, demand curves, rationality, relative scarcity, and homogeneous agents, are ill-­defined, have no real world existence, and (where relevant) are non-­quantifiable and non-­ measurable. Consequently, the issues and problems for which the objects are relevant, such as competitive markets, efficiency, and optimality, are either

Heterodox economics and its critics   113 fictitious in that they are unrelated to the real world; or if the issues and problems are clearly located in the real world, such as prices or unemployment, the objects have no bearing on their existence. Secondly, the methods used by ‘neoclassical’ economists to develop theoretical explanations addressing the issues and problems, such as deductive methodology and ontological and methodological individualism, generally include fictitious objects and utilize concepts that have no empirical grounding and hence no meaning in the real world. Together, the heterodox critiques have established that it is not possible for economists to conjure up any neoclassical theoretical explanations relevant to the social provisioning process that takes place in the real world. In addition, the neoclassical theory of the provisioning process, which is as Hirshleifer argues (1985: 53) the area of study of neoclassical economics, is itself problematic. The core propositions of the theory, such as relative scarcity, preferences and utility functions, technology and production functions, rationality, equilibrium, ontological and methodological individualism, heterogeneous agents, and positivist and deductivist methodology, have all been subject to intensive heterodox critiques and found to be theoretically incoherent; and in many cases there are multiple, overlapping, heterodox critiques of core propositions. But even if the critiques are ignored, it is well-­known that it is not possible to generate internally coherent explanations or stories or parables of market activity at either the micro or the macro level; and even if particular stories (represented in terms of models) of market activities are accepted, such as general equilibrium, game theory, or IS-­LM, they have been shown, on their own terms, to be theoretically incoherent and empirically unsupported (Eichner. 1983, 1985; Rizvi, 1994; Lawson, 1997; Keen, 2001; Davis, 2003; Lee and Keen, 2004; Ackerman and Nadal, 2004; White, 2004; Petri, 2004; Palacio-­Vera, 2005; also see Vernengo Chapter 8: Addendum of this book). The above arguments suggest that because neoclassical theory is not grounded in reality, does not deal with social considerations, and is internally theoretically incoherent, it lacks truth and value and contributes nothing to explaining the social provisioning process in a capitalist economy. That is, neoclassical theory is a pseudo-­science with illusory knowledge or pseudo-­knowledge, and hence is not a scientific theory and cannot be a scientific research program. And since the critics of heterodoxy have been silent (even when they acknowledged the correctness of the heterodox criticisms), they implicitly accept the above conclusions: that heterodox economists are extremely knowledgeable about neoclassical economic theory (which at one time was the theoretical frontier) and that neoclassical theory including its one-­time cutting edge theory is pseudo-­knowledge. Thus, neoclassical theory was never a rival scientific theory to heterodox theory because it was not ‘scientific.’9 But this raises some issues related to the notion of the leading edge or frontier of research since the critics acknowledge that the frontier maintains some degree of continuity with neoclassical theory (Colander, 2000, 2005a, 2005b; Colander et al., 2004a, 2004b, 2010). That is, if neoclassical economics is pseudo-­knowledge, then any theoretical developments or deviations based on it are, arguably, questionable if not also pseudo-­knowledge.

114   F. S. Lee Moreover, if neoclassical theory is pseudo-­knowledge, then the mainstream qua neoclassical theory texts used for undergraduate and graduate instruction contain nothing but illusory knowledge. With nothing but pseudo-­knowledge behind the frontier, it is not apparent that a frontier exists at all and hence that the top economics departments are producing and the top economics journals are even publishing scientific knowledge (Bunge, 1983, 1998; Mahner, 2007). Since the entire theoretical corpus of neoclassical economics is pseudo-­ knowledge, it is not clear why heterodox economists should pay attention to the mainstream frontier advances. Yet, in contrast to the assertions by the critics, heterodox economists do engage with past and current mainstream literature, including the cutting-­edge research. In fact, as noted above, many heterodox economists obtained their doctorates in programs that near-­exclusively taught mainstream economics; and the rest had to learn both heterodox and mainstream economics. Furthermore, all have taught mainstream economic courses, attended seminars and conference sessions at which mainstream economists have presented papers, and most significantly, engaged qua wrestled with mainstream theory on their own writings and publications. Their knowledge of and engagement with mainstream theory is evident in the citation data. In the period 2002–2008, 62 heterodox journals cited 26 mainstream journals for the period 1970–2008 25,435 times; and in 2008, the heterodox journals cited the mainstream journals 5,343 times and 15 per cent of the citations are to mainstream journal articles published between 2003–2007 (Lee, 2010b; also see Kapeller, 2010, Dobusch and Kapeller, Chapter 4 this book).10 Moreover, there are contemporary heterodox critical engagements with mainstream economics across the JEL classification codes, as indicated in Table 6.1—as one heterodox economist remarked: ‘I have critiqued Bernanke’s alternative monetary policy, so I think I know what the cutting edge in mainstream macroeconomics is!’11 Finally, heterodox economists have specifically engaged with the frontier mainstream research identified by the critics as classical-­evolutionary-behavioral game theory, evolutionary-­behavioral-experimental economics, neuroeconomics, and agent-­based complexity economics, as indicated in Table 6.2.12 As a whole, they find the frontier research very much solidly rooted in neoclassical method and theory. This conclusion is also explicitly and implicitly supported by mainstream economists as well. For example, the research in neuroeconomics, experimental, and behavioral economics are directly tied to conventional neoclassical concepts of utility and utility functions (Harrison, 2008; Rubinstein, 2001; Levitt and List, 2007; Muramatsu, 2009; Berg and Gigerenzer, 2010; Santos, 2011). Thus, it cannot escape being pseudo-­knowledge; and if the frontier research is pseudo-­ knowledge, then there is no reason for heterodox economists to devote their energies to engaging with it. So the critics’ assertion of ignorance is not just baseless, they are not factual claims directed at the intellectual character of heterodox economists. A common feature of the frontier research is that it appears to consist primarily of methods (as opposed to substantive content) to be used to do economics. In particular, the research is predicated on two highly questionable assumptions

Heterodox economics and its critics   115 Table 6.1 Examples of critical engagement with mainstream economics by JEL codes JEL code

Heterodox engagements

B C D E F G

Boylan and O’Gorman, 2008 Mirowski, forthcoming Fine, 2009 Hannsgen, 2008 Skarstein, 2007 Grahl and Lysandrou, 2006

Dorman, 2008 D’Ippoliti, 2011 Downward, 2004 Rogers, 2006 Shaikh, 2005 Tymoigne, 2009

H I J K L O

Kelton, 2011 Branco and Henriques, 2010 Kaufman, 2010 White, 2006 Elsner et al., 2010 Stein, 2010

Tcherneva, 2011 Hodgson, 2008 Spencer, 2009

P Q R

Bigo, 2008 Velupillai, 2010 Rizvi, 2001 Dutt, 2003 Milberg, 2004 Findlay and Williams, 2000–2001 Hart, 2009 Dunn, 2006 Fleetwood, 2006

Bina and Vo, 2007 Roncaglia, 2003 Alam, 2004 Felipe and McCombie, 2003 Palermo, 2007 Chang, 2002 Vlachou and Konstantinidis, Spash, 2006 Gowdy and 2010 Erickson, 2005 McMaster and Watkins, 2006 Olsen, 2010 Lambert and Meyer, 2006

Notes JEL Codes: B – History of economic thought, methodology, and heterodox approaches C – Mathematics and quantitative methods D – Microeconomics E – Macroeconomics and monetary policy F – International economics G – Financial economics H – Public economics I – Health, education, and welfare J – Labor and demographic economics K – Law and economics L – Industrial organization O – Economic development, technological change, and growth P – Economic systems Q – Agricultural and natural resource economics; environmental and ecological economics R – Urban, rural, and regional economics

that conflate economics with mathematics and that mathematics and mathematical models are not at all empirically constrained. As a result, mathematical techniques and models, many of which are borrowed from other disciplines, are used without any consideration of their actual applicability to the real economy. Moreover, this reliance on techniques and models is the continuation of a secular trend in which mainstream theory has become increasingly separated from its subject matter and progressively engaged in articulating properties of internally generated models (which turn out to be theoretically barren and perhaps even mathematically qua computationally incoherent).13 Thus, the mainstream’s

116   F. S. Lee Table 6.2 Examples of critical engagement with frontier mainstream research Frontier mainstream research

Heterodox engagements

Agent-based complexity    economics Behavioral Economics

Hodgson and Knudsen, 2008 Jefferson and King, 2010–2011 Dopfer and Potts, 2008 Lee and Mirowski, 2008 Pusch and Heise, 2010

Evolutionary economics Experimental economics Game theory Neuroeconomics

Martins, 2011

Cojanu, 2008 Pietrykowski, 2009 Varoufakis, 2008 Fung, 2006 Hargreaves-Heap and Varoufakis, 2004 Herrmann-Pillath, 2009

Dow, 2011 Potts, 2000 Siakantaris, 2000

method of evaluating its fictional theories is to compare the projected fictional outcomes of a fictional model to actual data, as if this had any meaning. To circumvent the arguably irrefutable accusation of pseudo-­knowledge, it is not surprising that mainstream economists and the heterodox critics are increasingly defining economics as a particular method of inquiry without ideological, theoretical, or factual content, and without any aim of analyzing and explaining the provisioning process (which raises the unanswered question of ‘is this really economics?’). But even this has been subject to criticism by critical realists and others, in part on the grounds that no method of inquiry is neutral with respect to content.14 So, given the theoretical and methodological arguments for the rejection of mainstream theory and method, combined with numerous negative comments made by mainstream economists about mainstream theory15 (which the critics have not explicitly rejected), there is little reason for heterodox economists to pay much attention to mainstream theory, especially when there is important and exciting research to do in heterodox economics. Heterodox economists take orthodox [mainstream] economics seriously enough to argue carefully why they choose not to adopt that approach. There is thus an important asymmetry between orthodox [mainstream] economics and heterodox economics in terms of engagement. (Dow 2008: 16) In this light, the critics appear to believe (1) that whatever the mainstream frontier is must be scientific knowledge that must command the attention of all; (2) that what they think is important mainstream theory must be uncritically accepted by all heterodox economists; and (3) that the absence of content and concern about the provisioning process is what makes mainstream economics scientific (Colander, 2000, 2009b, 2010; Colander et al., 2004a, 2004b, 2007–2008, 2010; Holt et al., 2011; Koppl, 2006; Fontana and Gerrard, 2006;

Heterodox economics and its critics   117 Davis, 2006; Vernengo, 2010; Velupillai, 2005; also see Lavoie, 2009; Fine and Milonakis, 2009; Lawson, 2009). Contrary to the assertions of the critics, the heterodox critiques of mainstream economics are not recognized or understood by mainstream economists (Colander, 2009b, 2010). This is not surprising since mainstream economists exist in a closed intellectual environment in which their training does not equip them to be theoretically reflective and skeptical. They are true believers with confidence in their own paradigm that leaves them disinclined and ill-­prepared to pursue any heterodox criticism to the point where they might begin to question their own beliefs (Earl, 1983, 2010; also see Chapter 9 of this book). But there is more. As argued above, heterodox and mainstream economics are fundamentally divided by theory, method, and methodology. In addition, they are divided by their ‘social’ roles in a capitalist society. Neoclassical economics did not arise in the nineteenth century out of some pre-­existing pluralist environment, nor did it incorporate heterodox ideas. Both classical and neoclassical theories developed within particular social contexts and neoclassical theory emerged in political opposition to classical economics. The central issue contested was not theory per se, but theory as a reflection of one’s position on capitalism. As a consequence of the changes in social structure induced by the industrial revolution, classical theory, with its production-­based, social surplus approach was providing aid and comfort to the class enemies of the larger property owners (both landed and manufacturing), and this development became more pronounced with the publication of Ricardo’s third edition of On the Principles of Political Economy and Taxation. And it is important that this was coupled with organized opposition to capitalism itself. Early neoclassical theory attempted to defend capitalism through its individualist, exchange-­based approach where participants are portrayed as equals in that all have the same rights and roles in the exchange process as no one would undertake voluntary exchange unless it was to her benefit. Coupled with a productivity theory of distribution, this approach eliminated from consideration any examination of inequality or exploitation as the source of property owners’ incomes. And, with the housing of economics in the university, a secure institutional structure could ensure that the prevailing theory would be supportive of those propertied arrangements that lay behind the university itself. Any opposition could be contained to fairly mild criticism of the dominant theory and the development of alternative approaches that did not challenge those arrangements. Neoclassical theory continued its social role throughout the twentieth century and mainstream theory has taken on this role as well.16 In contrast, first Marxism, then Institutionalism and the left-­wing Keynesians, and after 1970 heterodox economics, argued that the social provisioning process can be and should be altered in favor of the disadvantaged, the victims of discrimination, the unemployed and poorly employed, and the working and dependent classes of society. This would require more than economic efficiency; it would require altering state-­property-social relationships. It is this threat that emanates from heterodox theory that mainstream theory must counter; and this ‘social duty’ is inculcated

118   F. S. Lee into mainstream economists from the day they attend their first economics lectures. The critics fail to acknowledge this fundamental divide between mainstream and heterodox economics (Henry, 2009; Lee 2009a).

The question of quality: research, departments, employment, and training The heterodox critics connect cutting-­edge frontier research with top, leading, prestigious, or elite departments qua doctoral programs whose faculty and doctoral students publish in the top, leading, prestigious, or elite journals.17 In turn, the dissertations emerging from the top programs define both the frontiers of research and the changes in the frontier, that is, the most cutting edge of research. Moreover, the top departments are the preferred employment locations for newly-­minted Ph.Ds. and cutting-­edge economists. Finally, the top departments are the best at training qua inculcating their doctoral students with the technical skills, theoretical knowledge, applied research capabilities, and mores and values needed to succeed in obtaining and retaining employment in top and lesser mainstream departments. The linkages between frontier research, top departments-­doctoral programs, preferred employment, and best training are so tight that they constitute a self-­referential system. Thus, if any one component is independently identified, then all the others are identified. Consequently, the criteria of what constitutes cutting-­edge research only has meaning relative to the top departments that carry out such research and the top journals that publish it; and what are well-­trained students only has meaning relative to the doctoral programs that trained them and the departments that hire them. In short, the quality of mainstream research, economists, departments, programs, and students is not independent of the self-­referential system of mainstream economics (Colander, 2000, 2010; Colander et al., 2004a, 2004b, 2007–2008; Lee, 2006, 2009a). Since heterodox economics is distinct from mainstream economics, the latter’s frontiers of research, top departments, and journals, and appropriate graduate training are irrelevant to heterodox economics. The top heterodox journals and departments, the appropriate training mores and values needed for engaging in heterodox research, the desirable heterodox employment locations, and the frontiers of heterodox research are all different from mainstream economics; and as a whole form a self-­referential system similar to that of mainstream economics. However, unlike mainstream economics, mores and values which inform the research and professional conduct of heterodox economists promote theoretical and empirical engagement across the heterodox-­mainstream divide as well as interdisciplinary (non-­imperialistic) engagement in terms of method and content,18 and pluralism that is intellectual tolerance towards different economic theories, towards the right to think differently. Because of the paradigm differences, students of mainstream and heterodox programs have a local employment­seeking advantage and a cross-­paradigm employment-­seeking disadvantage. Moreover, the top departments, top journals, and cutting-­edge research in mainstream economics have no standing in heterodox economics and vice-­versa.

Heterodox economics and its critics   119 Consequently, in spite of the claims of the heterodox critics, there is no unambiguous cutting-­edge research, and no top journals, top departments qua desir­ able employment locations, or well-­trained student. It is possible, however, to make some cross-­paradigm comparisons. For example, comparative department rankings show that some heterodox doctoral programs are on par with top mainstream programs (Lee et al., 2010); and top heterodox journals are on par with top mainstream journals (Lee et al., 2010). Moreover, cross-­paradigm studies show that heterodox economists are engaged with mainstream theory, economic policy, and applied work, whereas mainstream economists are not; and that heterodox economists are more interdisciplinary than mainstream economists. Finally, the evidence derived from national research quality exercises, department and journal rankings, department histories, interviews, and participant observations strongly indicate that heterodox economists are intellectually tolerant of mainstream theories whereas mainstream economists are not tolerant of heterodox theories (Lee, 2009a, 2010b, 2011a; King and Kriesler, 2008; Vlachou, 2008). These comparisons help highlight further differences between mainstream and heterodox economics in terms of professional values and mores.

The question of identity A core position of many heterodox critics is that the economics profession should be homogeneous in that all economists should conform to a single professional identity of being a (mainstream) economist. Thus, identifying oneself as a heterodox economist, that is being a different kind of economist, reflects the professional character defects of sectarianism, delusions of grandeur, and intellectual inbreeding, all of which arise from the intellectual delusion that there is a scientific alternative to mainstream theory. In other words, some critics deny that it is possible for an economist of sound mind to choose, after serious consideration, to identify oneself as a heterodox economist (Colander, 2009a, 2009b, 2010). However, this view conflicts with arguments made above (which the critics do not reject) that neoclassical-­mainstream economics is pseudo-­ knowledge and heterodox economics is engaged in trying to produce scientific knowledge; that is, it conflicts with the position that heterodox economists have substantive reasons to identify themselves as such. Although heterodox economics is an alternative to mainstream economics, the orientation of being heterodox does not promote separatism or sectarianism vis-­à-vis mainstream economics for two reasons. The first is the value of pluralism. All heterodox economists consider themselves economists, but they also equally see themselves as heterodox economists.19 Recognizing the existence of distinctly different paradigmatic approaches to examining the social provisioning process and the existence within a paradigmatic approach of different perspectives, pluralism is an important value for heterodox economists. Pluralism has two substantive meanings relative to heterodox identity. The first is intellectual tolerance (like religious, political, and racial tolerance) in that different

120   F. S. Lee p­ aradigms have a right to exist. Thus, heterodox economists oppose intellectual intolerant acts where political, organizational, and social activities are used to suppress unacceptable thinking (Lee, 2011a). The history of neoclassical-­ mainstream economics from the 1880s to the present day demonstrates that mainstream economists (including those from the top programs and working on cutting-­edge research) have routinely engaged in intellectual intolerance relative to heterodox economics (Lee, 2009a, 2010b, 2011a; King and Kriesler, 2008; Vlachou, 2008; various issues of the Heterodox Economics Newsletter: www. heterodoxnews.com). Consequently, another part of being a heterodox economist is the long memory of intellectual intolerance and the efforts to eliminate it. The fact that the critics spurn intellectual tolerance and are dismissive of the long memory of the long history of intolerance is indicative of the degree to which they oppose intellectual non-­conformity, dissent, and contested scientific inquiry (Colander 2005b, 2009b, 2010; Colander et al., 2004b, 2007–2008). The second meaning of pluralism is engagement with a range of different theoretical views within a paradigm and across paradigms. The evidence is overwhelming that both mainstream and heterodox economics are intra-­paradigms pluralistic while only heterodox economists are inter-­paradigm pluralistic. That is to say, mainstream economists and heterodox economists are both open to any arguments that are framed in terms of their paradigms, but only heterodox economists initiate the attempts at cross-­paradigm conversations and are willing to accept and deal with the sharp, negative criticisms that come with it.20 Thus, cross-­paradigm engagement is what heterodox economists do. Hence, as the historical record and current situation show, the breakdown in the heterodox-­ mainstream conversation, the decline in heterodox visibility and influence in the economics profession arose because of actions initiated by mainstream economists and not because heterodox economists simply decided to separate themselves from the profession and set up their own enclaves.21 When claiming otherwise, the heterodox critics are rewriting history to blame the victims for their own marginalization and demise (Lee, 2009a; Lawson, 2009; Colander 2010; Colander et al., 2010; also see Stockhammer and Ramskogler, 2009 reprinted as Chapter 3 of this book; Vernengo, Chapter 8: Addendum of this book; Rochon and Docherty, Chapter 11 of this book). In addition to pluralism, the identity of heterodox economists has three other components. The first is that the process of developing heterodox theory, engaging in applied work, and developing economic policies, involves a critical engagement with their mainstream counterparts; the second is that the process of developing heterodox theory also involves an engagement with the history of economics (which includes the history of economic thought); and the final component is that heterodox theory is fundamentally distinct from mainstream theory. Thus, heterodox economists value not just the right ‘theory-­applied work-­policy’ configuration, but also how and why it is different from mainstream conclusions. Knowing the latter is just as important as the former. Similarly, they value the historical understanding of how and why heterodox theory-­applied work-­policy emerged and evolved; thus the history of economics

Heterodox economics and its critics   121 is considered indispensable to doing heterodox economics. Linked together, the two components make heterodox economists critically reflective, provide them with a sense of where they stand in the profession and why, and enable them to engage across paradigms as an important (perhaps necessary) way to develop heterodox economics. As a result heterodox economists are aware that different economic paradigms exist and why, and recognize the fundamentally distinctive nature of heterodox economics. The four components of the heterodox orientation and attitude, irreducibly linked together, create an economist that is tolerant of alternative theories, excited about cross-­paradigm engagement, values the history of economics, and is reflectively confident that heterodox economics is the best way to understand and affect the social provisioning process. Clearly the heterodox identity is distinct, has intellectual integrity, and rejects intolerance towards alternative economic approaches.

Conclusion The heterodox critics do not assess the substantive content of heterodox economics and find it defective; nor do they assess and reject the heterodox criticisms of the substantive content of neoclassical-­mainstream theory. Hence, they are unable to provide a reasoned argument why heterodox economists should, on scientific grounds, accept mainstream economic theory and become mainstream economists. Rather, they argue that the only reason for heterodox economists to become part of the mainstream, to work inside the mainstream, is to be able to communicate with mainstream economists and possibly influence the cutting-­ edge of mainstream research (Colander, 2010).22 That is, it is for the sake of respectability (and with it some hope of surviving) rather than science, that heterodox economists should become part of the mainstream. If the acquisition of respectability is the only objective of the heterodox critics, then they can be ignored and their arguments dismissed as without merit, substance, and evidence. However, this would miss the aim of their voluminous criticisms on heterodox economics and heterodox economists. Although their arguments can be dismissed, the language of their arguments, or at least some of their arguments, should not be. To differentiate between mainstream and ‘within the pale heterodox’ economists, and those outside the mainstream, the critics juxtapose the benign and professional discourse qua language of the former to the allegedly hostile and intemperate discourse qua language of the latter, ‘simply economists’ to heterodox economists, well-­trained to not well-­trained, economic scientists to policy-­oriented political economists or non-­economists, and team players to separatist. In short, the critics’ language characterizes heterodox economists as inferior, uncivil economists at best that have no respect for mainstream economics and its practitioners. Thus, for the critics, the refusal of mainstream economists to not include heterodox economists in their conversations is expected and there is nothing unseemly about efforts to squeeze them out of the profession or at least out of departments; these are the foreseeable outcomes that heterodox economists bring upon themselves.

122   F. S. Lee There is also another aspect of the critics’ language that points to submission and conversion under duress. To survive as an academic economist, they suggest, means to be inside-­the-mainstream; and the price of survival is submissive, deferential, civilized language that broaches only the mildest of heretical views. Thus, for the heterodox critics, the survival of heterodox economics necessitates that heterodox economists prostrate themselves on the altar of mainstream economics.23 Not once do the critics question the actions of mainstream economists; not once do they berate the mainstream for intolerance when heterodox economists are shut out of the conversation, squeezed out of economics departments, or converted under duress to mainstream economics. Rather, it is their own fault because they prefer to be different, having their own identity, theory, and community organizations and activities, much like many well-­known twentieth century events where the victims are blamed for their own demise. Jewish Americans, African Americans, Mexican Americans, trade unionist Americans, and communist-­anarchist Americans are all different—have different identities and different ideas and beliefs, and belong to different communities, but they are all considered Americans and are expected to at least acknowledge if not engage with each other. Moreover, their civil rights ensure that state-­backed or any other efforts to cleanse them from American society or convert them to another social group is illegal, socially unacceptable, and un-­American—at least this is the public position. The heterodox critics argue as though there is not an equivalent set of academic rights for heterodox economists; for them it is acceptable for mainstream economists to engage in activities that homogenize the profession and if heterodox economists are to stay professionally alive, they must adapt and convert. Instead of capitulating to the critics’ choice, it is time to stop listening to them and reading their papers and do something positive for the future of heterodox economics. This can simply be to continue teaching heterodox economics to students and engage in heterodox research and publishing; or it can be something more proactive, such as organizing local, national, and international seminars, conferences, and heterodox organizations, establishing post-­graduate heterodox programs, promoting the hiring of heterodox economists, and/or seeking ‘partnerships’ with non-­academic organizations—trade unions, local government, philanthropic foundations, cooperatives, and even local exchange trading schemes. More confrontational activities are also important, such as challenging national research assessment exercises, protesting national mechanisms for appointing professors, and/or even protesting at national or international mainstream conferences by putting on a competing ‘fringe’ conference. No single one of the activities is more important than another; all are necessary if heterodox economics is to have a future. And they are certainly more interesting and fun to do than reading the papers of the heterodox critics.

Heterodox economics and its critics   123

Notes   1 This chapter benefitted from earlier comments from Wolfram Elsner, John Henry, John King, Marc Lavoie, Bruno Tinel, and Matias Vernengo. An earlier version of Chapter 6 appeared in Revue Francaise De Socio-­Economie (2011).   2 For the absence of critical engagement with the substantive content of heterodox economics by the critics, see Colander (2009a, 2009b, 2010), and Colander et al. (2004a).   3 This overall delineation of heterodox economic theory is sometimes objected to by heterodox economists. But the objections are not based on an alternative view of what constitutes heterodox theory. Thus, they indicate that heterodox theory is a work in progress and not a finished product—see for example Chapter 9 of this book.   4 See Lee (2011a, b) for further discussion.   5 For contrasting arguments, see Davis (2008, 2009).   6 Since its beginnings in the 1960s, and particularly since 1990, heterodox economists have been melding together aspects of different heterodox approaches, see Lee (2009a, 2009b) and Hoang-­Ngoc (Chapter 13 of this book). Contrasting my view of a half-­full glass are those who see it half-­empty (King, Chapter 1 of this book; Dequech, Chapter 5 of this book; Hopkins, Chapter 7 of this book). Citation data of heterodox journals support both views. Heterodox journals associated with particular heterodox approaches, such as the Journal of Economic Issues, import citations from other heterodox journals, such as the Cambridge Journal of Economics, thus indicating a melding of Institutional and Post Keynesian approaches. On the other hand, several heterodox journals self-­cite much more than they import heterodox citations, suggesting a lack of theoretical melding—see Lee (2008b, 2009a: 213–14, 2009d: A.27, 149–52), Kapeller (2010), and Dobusch and Kapeller (Chapter 4 of this book).   7 For example, dealing with the business enterprise and changes in anti-­trust laws is not per se microeconomics, and dealing with government expenditure decisions and fiscal policy is not per se macroeconomics, which means that fiscal policy in principle is of no more or less importance that antitrust policy; rather they are differently important.   8 Heterodox critiques often incorporate critiques made by mainstream economists. The mainstream critiques (see fn. 15), while quite penetrating, never broach the issue of whether mainstream theory is problematic as a whole. That is, they retain the faith à la Ferguson (1979: xv–xvi; also see Carter, 2011) that ultimately mainstream theory will overcome its fundamental deficiencies. The questioning of mainstream theory as a whole is, as a result, left to heterodox economists—for example see Keen (2011) and Lee and Keen (2004).   9 Other characteristics of a scientific research field include intimate relations (as opposed to imperialistic relations) with other research fields, direction of scientific activity determined internally to the research field as opposed to compliance to government, ecclesiastical, or business demands, and an ethos of free search for truth rather than an ethos of ideological faith, a quest for power or consensus, or an enforced blindness of the research community to alternative theories. Mainstream economics falls short on all three accounts, most notably in countries subject to national research assessment exercises and where state power is used to legitimate particular approaches in a research field (Lee, 2009a; Bunge, 1998; Mahner, 2007). 10 Whether the citations are to cutting-­edge research or not is uncertain, but suggesting that none of the citations are to such research belittles the mainstream journals and the economists who publish in them. 11 For example, see Tcherneva (2011). Since the distinction between textbook delineation of neoclassical-­mainstream theory and that found in scholarly books and mainstream journals is obscure at best (and has never been rigorously established by the critics), heterodox criticisms have included both. 12 By limiting the economic frontier to these research areas qua methods, the heterodox

124   F. S. Lee critics consign most mainstream research and mainstream economists to the intellectual bookshelf if not ‘dustbin.’ For example, they have categorically stated that mainstream macroeconomics is not engaged in any frontier research (Holt et al., 2011). Minimizing the research of other economists appears to be a constant theme of the critics. 13 The heterodox critics note the interdisciplinary nature of the frontier. But this is an odd notion of interdisciplinarity in which formal disciplinary methods are borrowed from other disciplines while the substantive content is ignored: mainstream journals cite social science mathematical methods’ journals significantly more than any other kind of social science journals, including business and finance journals (Kodrzycki and Yu, 2006). It is also important to note that the frontier mainstream interdisciplinary engagement does not include the substantive content of history, sociology, geography, and gender studies. 14 Since the critics define mainstream economics in terms of methods, their call for heterodox economists to stop worrying about methodology is an effort to suppress the research that leads to these negative criticisms and the acceptance of the status quo (Vernengo, 2010, also see Chapter 8: Addendum of this book). 15 For example, Lawson (2003: Chapter 1; 2009: 293 fn. 5) has assembled a number of such statements. In addition, Levitt and List (2007) suggest that the results of experimental economics are not readily transferable from the laboratory to the real world, although they have faith that one day it will occur; while Harrison (2008) provides a quite dismal picture of neuroeconomics, although he also has faith that it will amount to something. Finally, Solow (2003, 2008) and Kirman (2009) have argued that mainstream theory has little sense and no sensibility. 16 This is well documented in the professionalization of economics literature, especially with regard to neoliberalism in Latin America. For example, see Babb (2001), Biglaiser (2002), and Montecinos and Markoff (2009). 17 The critics often connect the terms ‘top’ or ‘leading’ to ‘prestigious,’ ‘respected,’ and/or ‘elite’ to convey academic social status of particular department-­programs, economists, research, doctoral students, and training. Since it is possible to convey the same information without the latter terms, the critics utilize the social status terms to legitimize their arguments and to promote invidious comparisons with their heterodox counterparts. 18 The attitude of mainstream economists towards interdisciplinary engagement is perhaps best exemplified by Hirshleifer (1985). For a critique of this mainstream view, see Fine (1999) and Fine and Milonakis (2009). 19 Being different does not make heterodox economists any less of an economist, just as being a mainstream economist does not make one less of an economist: heterodox and mainstream economists are different yet equal. The heterodox critics dismiss this because they believe that there should be no differences. 20 It is often argued that heterodox economics exhibits more intra-­heterogeneity and fragmentation than mainstream economics—for example see Colander et al. (2004a, 2004b), Davis (2008, 2009), George (2008), and Hopkins (Chapter 7 of this book); also see Lawson’s (2009) rejection of it. However, the criterion to measure or quantify more or less is not given, and no studies supporting greater fragmentation are cited. In fact, the only study to date that specifically examines the question concludes that, in the case of Italian economists, when asked about the Italian economy and economic policy proposals, the heterodox community exhibited less internal disagreement than the mainstream community—see Di Maio (2012). But whether being more or less internally homogeneous is desirable or not is quite a different matter from inter-­paradigm comparisons of heterogeneity. 21 As argued above, heterodox economists engage in cross-­paradigm conversations whereas mainstream economists do not. The same can also be said with regard to economic history in that economic historians cite mainstream economists, but not vice-­ versa. Moreover, the citation evidence indicates that mainstream economics is

Heterodox economics and its critics   125 relatively isolated from most other academic disciplines. Other disciplines do import some citations from mainstream economic journals whereas the latter seldom imports citations from the other disciplines. Thus, mainstream economics is a relatively isolated discipline compared to other disciplines and within its own discipline. It is not because the other disciplines and sub-­disciplines do not want to engage with mainstream economics, but because mainstream economics has little interest in engagement outside its own perimeters (Pieters and Baumgartner, 2002; Lockett and Williams, 2005; Kodrzycki and Yu, 2006; Di Vaio and Weisdorf, 2009]. 22 The critics’ claim is not persuasive since, as they have argued, those who influence the cutting edge are trained and teach at the top-­ranking departments; and heterodox economists have neither of those characteristics. 23 For further discussion of this and related themes, see Hopkins (Chapter 7 of this book) and Vernengo (Chapter 8: Addendum of this book).

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Appendix: bibliography for Tables 6.1 and 6.2 Alam, M. S. (2004) ‘Colonialism and industrialization: a critique of Lewis’ in Review of Radical Political Economics, 36: 217–40. Bigo, V. (2008) ‘Explaining modern economics (as a microcosm of society)’ in Cambridge Journal of Economics, 32: 527–54. Bina, C. and Vo, M. (2007) ‘OPEC in the epoch of globalization: an event study of global oil prices’ in Global Economy Journal, 7.1: Article 2. Online. Available at: www. bepress.com/gej/vol. 7/iss1/2. Boylan, T. A. and O’Gorman, P. F. (2008) ‘Axiomatization and formalism in economics’ in D. A. R. George (ed.) Issues in Heterodox Economics, Oxford: Blackwell Publishing. Branco, M. C. and Henriques, P. D. (2010) ‘The political economy of the human right to water’ in Review of Radical Political Economics, 42: 142–55. Chang, H.-J. (2002) ‘Breaking the mould: an institutionalist political economy alternative to the neo-­liberal theory of the market and the state’ in Cambridge Journal of Economics, 26: 539–59. Cojanu, V. (2008) ‘Theorising uneven development: the epistemic value of history and complexity in the study of economic evolutions’ in Trames, 12: 450–69. D’Ippoliti, C. (2011) Economics and Diversity, New York: Routledge. Dopfer, K. and Potts J. (2008) The General Theory of Economic Evolution, Routledge: London. Dorman, P. (2008) ‘What would a scientific economics look like?’ in Post-­Autistic Economics Review, 47: 166–72.

130   F. S. Lee Dow, S. C. (2011) ‘Cognition, market sentiment and financial instability’ in Cambridge Journal of Economics, 35: 233–49. Downward, P. (2004) ‘On leisure demand: a Post Keynesian critique of neoclassical theory’ in Journal of Post Keynesian Economics, 26: 371–94. Dunn, S. P. (2006) ‘Prolegomena to a Post Keynesian health economics’ in Review of Social Economy, 64: 273–99. Dutt, A. (2003) ‘On Post Walrasian economics, macroeconomic policy and heterodox economics’ in International Journal of Political Economy, 33: 47–67. Elsner, W., Hocker, G., and Schwardt, H. (2010) ‘Simplistic vs. complex organization: markets, hierarchies, and networks in an organizational triangle’ in Journal of Economic Issues, 44: 1–29. Felipe, J. and McCombie, J. S. L. (2003) ‘Some methodological problems with the neoclassical analysis of the east Asian miracle’ in Cambridge Journal of Economics, 27: 695–721. Findlay, M. C. and Williams, E. E. (2000–2001) ‘A fresh look at the efficient market hypothesis: how the intellectual history of finance encouraged a real “fraud-­on-the-­ market” ’ in Journal of Post Keynesian Economics, 23: 181–99. Fine, B. (2009) ‘The economics of identity and the identity of economics?’ in Cambridge Journal of Economics, 33: 175–91. Fleetwood, S. (2006) ‘Rethinking labour markets: a critical-­realist-socioeconomic perspective’ in Capital and Class, 89: 59–89. Fung, M. V. (2006) ‘Developments in behavioral finance and experimental economics and Post Keynesian finance theory’ in Journal of Post Keynesian Economics, 29: 19–39. Gowdy, J. and Erickson, J. D. (2005) ‘The approach of ecological economics’ in Cambridge Journal of Economics, 29: 207–22. Grahl, J. and Lysandrou, P. (2006) ‘Capital market trading volume: an overview and some preliminary conclusions’ in Cambridge Journal of Economics, 30: 955–79. Hannsgen, G. (2008) ‘The welfare economics of macroeconomics and chooser-­dependent, non-­expected value preferences: a Senian critique with an application to the costs of the business cycle’ in Journal of Socio-­Economics, 37: 1980–93. Hargreaves-­Heap, S. and Varoufakis, Y. (2004) Game Theory: a critical introduction, 2nd edition, London: Routledge. Hart, N. (2009) ‘Discretionary fiscal policy and budget deficits: an “orthodox” critique of current policy debate’ in Economic and Labour Relations Review, 19: 39–58. Herrmann-­Pillath, C. (2009) ‘Elements of a neo-­Veblenian theory of the individual’ in Journal of Economics Issues, 48: 189–214. Hodgson, G. M. (2008) ‘An Institutional and evolutionary perspective on health economics’ in Cambridge Journal of Economics, 32: 235–56. Hodgson, G. M. and Knudsen, T. (2008) ‘The emergence of property rights enforcement in early trade: a behavioral model without reputational effects’ in Journal of Economic Behavior and Organization, 68: 48–62. Jefferson, T. and King, J. E. (2010–2011) ‘Can Post Keynesians make better use of behavioral economics?’ in Journal of Post Keynesian Economics, 33: 211–34. Kaufman, B. E. (2010) ‘The theoretical foundation of industrial relations and its implications’ in Industrial and Labor Relations Review, 64: 74–108. Kelton, S. (2011) ‘Limitations of the government budget constraint: users vs. issuers of the Currency’ in Paneconomicus, 1: 57–66. Lambert, T. E. and Meyer, P. B. (2006) ‘Ex-­urban sprawl as a factor in traffic fatalities

Heterodox economics and its critics   131 and EMS response times in the Southeastern United States’ in Journal of Economics Issues, 40: 941–54. Lee, K. S. and Mirowski, P. (2008) ‘The energy behind Vernon Smith’s experimental economics’ in Cambridge Journal of Economics, 32: 257–71. Martins, N. (2011) ‘Can neuroscience inform economics? rationality, emotions and preference formation’ in Cambridge Journal of Economics, 35: 251–67. McMaster, R. and Watkins, C. (2006) ‘Economics and underdetermination: a case study of urban land and housing economics’ in Cambridge Journal of Economics, 30: 901–22. Milberg, W. (2004) ‘The changing structure of trade linked to global production systems’ in International Labour Review, 143: 45–90. Mirowski, P. (Forthcoming) ‘The unreasonable efficacy of mathematics in modern economics’ in U. Mäki (ed.) Handbook of the Philosophy of Science, Vol. 13, Philosophy of Economics, Amsterdam: Elsevier. Olsen, E. K. (2010) ‘Class conflict and industrial location’ in Review of Radical Political Economics, 42: 344–52. Palermo, G. (2007) ‘The ontology of economic power in capitalism: mainstream economics and Marx’ in Cambridge Journal of Economics, 31: 539–62. Pietrykowski, B. (2009) The Political Economy of Consumer Behavior: contesting consumption, London: Routledge, Chapter 4. Potts, J. (2000) The New Evolutionary Microeconomics: complexity, competence and adaptive behaviour, Cheltenham: Edward Elgar. Pusch, T. and Heise, A. (2010) ‘Central banks, trade unions, and reputation—is there room for an expansionist maneuver in the European Union?’ in Journal of Post Keynesian Economics, 33: 105–25. Rizvi, S. A. T. (2001) ‘Preference formation and the axioms of choice’ in Review of Political Economy, 13: 141–59. Rogers, C. (2006) ‘Doing without money: a critical assessment of Woodford’s analysis’ in Cambridge Journal of Economics, 30: 293–306. Roncaglia, A. (2003) ‘Energy and market power: an alternative approach to the economics of oil’ in Journal of Post Keynesian Economics, 25: 641–59. Shaikh, A. (2005) ‘The economic mythology of neoliberalism’ in A. Saad-­Filho and D. Johnson (eds.) Neoliberalism: a critical reader, London: Pluto Press. Skarstein, R. (2007) ‘Free trade: a dead end for underdeveloped economies’ in Review of Political Economy, 19: 347–67. Siakantaris, N. (2000) ‘Experimental economics under the microscope’ in Cambridge Journal of Economics, 24: 267–81. Spencer, D. A. (2009) The Political Economy of Work, London: Routledge. Spash, C. L. (2006) ‘Non-­economic motivation for contingent values: rights and attitudinal beliefs in the willingness to pay for environmental improvements’ in Land Economics, 82: 602–22. Stein, H. (2010) ‘Financial liberalisation, institutional transformation and credit allocation in developing countries: the World Bank and the internationalization of banking’ in Cambridge Journal of Economics, 34: 257–73. Tcherneva, P. (2011) ‘Bernanke’s paradox: can he reconcile his position on the federal budget with his recent charge to prevent deflation?’ in Journal of Post Keynesian Economics, 33: 411–33. Tymoigne, E. (2009) Central Banking, Asset Prices and Financial Fragility, London: Routledge.

132   F. S. Lee Varoufakis, Y. (2008) ‘Capitalism according to evolutionary game theory: the impossibility of a sufficiently evolutionary model of historical change’ in Science and Society, 72: 63–94. Velupillai, K. V. (2010) Computable Foundations for Economics, London: Routledge, Chapters 1, 4 and 8. Vlachou, A. and Konstantinidia, C. (2010) ‘Climate change: the political economy of Kyoto flexible mechanisms’ in Review of Radical Political Economics, 42: 32–49. White, M. (2006) ‘A Kantian critique of neoclassical law and economics’ in Review of Political Economy, 18: 235–52.

7 Building heterodox community Pluralism in fragmented epistemological communities Barbara E. Hopkins

Pluralism in economics requires the right for alternative perspectives to exist. Unfortunately, the right to exist does not prevent structural barriers from undermining the development and advancement of alternative perspectives. The structural barriers that threaten heterodox existence involve processes that evaluate heterodox work more harshly than mainstream work (Lee and Harley, 1998; Lee et al., 2010). In order to support the existence of alternative paradigms, the community of heterodox economists should be a space in which scholars can work with like-­minded economists to develop and refine alternative ideas. In addition to a purely intellectual function, a community of heterodox economics also serves as a collective voice defending pluralism and the academic freedom of economists. Unfortunately, heterodox economists can inadvertently participate in building or reinforcing structures and engaging in behaviors that serve to suppress alternative heterodox approaches although they believe in the right for alternative approaches to exist. Heterodox processes of review can reproduce the exclusion of mainstream economics by universally applying criteria or expectations that are not universal, but specific to a narrower subset of heterodox economists. The current review process is limited in its ability to be truly inclusive by an image of a heterodox community shaped by the desire for a coherent and manageable body of knowledge that allows scholars to evaluate knowledge claims using a set of criteria that has broad appeal and is universally applicable. The mainstream pretends to offer such criteria, but can do so only by excluding heterodox approaches. In response, calls for pluralism challenge the criteria applied by mainstream economists and offer alternative sets of criteria to allay fears that broader inclusion will undermine the critical evaluation of knowledge, but different heterodox scholars propose different sets of criteria based on different visions of what is wrong with the mainstream (King, 2005). Thus, different heterodox approaches draw different barriers of exclusion. In this chapter, I apply the concept of epistemological communities (Assiter, 1996; L. H. Nelson, 1993) to reconsider the community of heterodox economists. I question whether the heterodox community meets the definition of an integrated epistemological community and instead argue that it represents a ­collection of fragmented epistemological communities. This reimagining of the

134   B. E. Hopkins heterodox community requires rethinking the processes of evaluation that inadvertently imposes unnecessary barriers to the success of heterodox scholars. It also allows us to reconsider how best to develop a genuinely pluralistic economics.

Epistemological communities and economics The concept of epistemological communities begins with the rejection of the individualistic formulation of knowledge creation. Building knowledge, the process whereby human beings determine what is and is not true, takes place through a process of social interaction. This notion parallels the various heterodox frameworks that emphasize the socially embedded nature of economic processes, but conflicts with the idea of the individual researcher objectively observing truth, or as in economics, objectively running a series of unbiased statistical tests. The mainstream tendency to define economics in a way that excludes heterodox economists can be interpreted as a vigorous defense of the idea that the economics discipline is a unified and coherent epistemological community, in spite of that theoretical inconsistency with individualism. Epistemological communities are groups of knowledge seekers who share “dominant ways of looking at a social reality, a set of shared symbols and references, mutual expectations” (Ruggie, quoted in Doucet, 2008: 81). The basis for epistemological communities includes shared positions on the traditional subjects of philosophy of science such as methodology or ontology, but also implies shared experience. Assiter (1996), also argues that epistemological communities share a particular set of values such as the emancipation of women. Through interaction, whether through simple communication or through a more formal review process, the community critiques and validates knowledge claims based on their ability to achieve that goal and their proper application of methodology and ontology. It is communities that set up the rules and criteria for evaluation of knowledge claims. The medieval guild is a metaphor for epistemological communities because the guilds were the enforcers of the proper way to do things. Like the guilds, epistemological communities also have the responsibility to train members in the proper methods for knowledge production to ensure quality. But, epistemological communities do more than just train master craftsmen. Knowledge production remains a process carried out not by individuals, but by communities. In communities “evidence, methods, and presuppositions can be subjected to critical scrutiny” (Assiter, 1996: 80). Epistemological communities also share a core body of knowledge that forms the foundation for further knowledge development. In modern academia, the processes of apprenticeship in graduate school, tenure review, and review of journal articles and books are the mechanisms used to enforce the standards of quality. Disciplinary boundaries demarcate epistemological communities. However, the set of symbols, references, values, and methodologies that define the economics profession are contested. Mainstream economists describe the discipline as free of values, and, thus, might be more comfortable thinking in

Building heterodox community   135 terms of an economics defined simply by a shared set of assumptions or methodologies. However, as heterodox economists have pointed out, the assumptions of neoclassical economics do express a particular set of values (Fullbrook, 2009). These implied values, masked as principles of scientific inquiry, form the basis of the mainstream vision of economics. Heterodox economists have criticized these values as well as the assumptions of neoclassical economics and the various methodologies of mainstream economics more generally. The details of these critiques are not important here. The main point is that the values, symbols, references, assumptions, and methodologies are contested and that, as a basis for defining the boundary of the economics profession, the shared assumptions and methodologies of the mainstream excludes heterodox economists. Mainstream critics of neoclassical economics and of the assumptions, values, and methodologies of “economics” do exist. What distinguishes them from heterodox economists is the constraint on that critique. Epistemological communities can and do have disagreements. However, some assumptions, values, or methodologies are open for debate and some form the basis for our understanding of the world and can only be changed by a paradigm shift. The test for which is which – another topic on which economists will not agree – is the trump card response to critique: “Okay, but that is not economics. It is sociology or women’s studies or something else.” No epistemological practice would consider this argument a valid piece of evidence as to the “truth” of the claims being made or the quality of a journal article; it merely defines the boundaries of economics in the mind of the speaker. Economists as a whole do not share a particular set of symbols, references, values, or methodologies. The very existence of heterodox economics with its varied methodologies, different symbols, and references is evidence that different epistemological communities exist within the field of economics. However, since most economists are trained in the mainstream, exposed to mainstream economists in heterodox departments, or forced to read mainstream theories so as to better understand the heterodox critiques, economists can all recognize and understand most of the symbols, references, values, and methodologies of the mainstream. Indeed, the shared experience of economists includes sitting in a principles of economics class, reading texts that describe the dominant ideas, and passing comprehensive exams. The barrier to success for each heterodox economist is not that he or she is excluded from obtaining the intellectual capital required for participation in the discussion of mainstream economics. The problem is that the set of symbols, references, values, and methodologies excludes certain kinds of knowledge. As the feminist critique points out, the shared experience of the economics profession is more than training and has often also implied the experience of being male, white, and economically privileged (Ferber and Nelson, 1993). The counterfactual of different experiences and, thus, different observations (see for example, Folbre, 1994), quickly leads to the rejection of claims to objectivity, and the feminist rejection of universal application of knowledge. This cognitive dissonance between life experience and the presentation of “the” body of economic knowledge is part of the origin story

136   B. E. Hopkins not just for feminists but for radical political economists, post-­colonial and post-­ development economists, and others. Alternative experience requires the development of alternative epistemological communities that generate different symbols and build on references to those alternative experiences. Seen in this context the conclusions to debates over methodology are generally the result of a process that is more political than an application of objective reasoned analysis. The concept of methodological pluralism highlights the failure for any particular methodology to gain primacy in its ability to settle disputes over knowledge. Claims by the mainstream that its methodologies represent the objective and reasoned choice simply do not hold up. Econometrics, for example, which is the standard for rigorous empirical research in mainstream economics, has not been able to settle disputes over the importance of discrimination in the gender wage gap (J. A. Nelson, 1999). Indeed it may not have been able to settle any disputes at all (Roberts, 2010). Nevertheless, econometrics has become synonymous with “empirical” in mainstream economics and is imposed as part of the rules and expectations for acceptance in the community of economists, with many heterodox economists adopting its methods in part to get a voice in the debates of economics (van Staveren, 2004).

Imagined communities of economics: exclusion of scholars with alternative views The concept of community in academia should be understood as an imagined community after the fashion of the imagined communities described by Anderson (1991). Communities are imagined in the sense that the commonalities do not reflect an objective reality, but instead are based on mental constructs. In this context, to say that the boundaries of the community of economists are contested means that different economists imagine the community differently. Since economists do not share a consistent set of symbols, references, values, or metho­ dologies, the economics profession cannot be considered an integrated epistemological community. However, the practice of review tends to be based on a faith that it is and manifests as a practice of excluding those who think differently. Seen in this way, practices by the mainstream that exclude heterodox economists represent efforts to maintain the boundaries of a coherent epistemological community. Imagined communities like economics have boundaries that are not formal. Unlike the medieval guilds or the practice of medicine or law, practicing economics does not require membership in the American Economic Association and membership does not require adherence to a rigid set of rules. Heterodox enclaves can grant Ph.Ds, hire rogue economists, set up journals with alternative standards, and generally subvert the authority of the American Economic Association to some degree. However, this does not prevent many mainstream economists from asserting that feminist economics does not exist or that Marxist economics is a historical artifact. As with the imagined nationalist communities described by Anderson, imagining community requires that one separate the

Building heterodox community   137 group from others. In an academic context, this separation is often characterized as maintaining rigorous standards for scholarship. By imagining the community as an epistemological community with shared symbols, references, and methodologies, exclusion is based on the use of those symbols, reference to a particular canon, and application of the accepted methodologies. As in Anderson’s communities, an implicit hierarchy that privileges one’s own grouping over that of the other is part of the nature of imagining community. In other words, it would not be acceptable to most economists to simply say that anyone who wants to claim to be an economist, is. This would be tantamount to relativism, rejecting the idea that there is any “truth” to be found in economic research, and abandoning the standards that have allowed economists to imagine their community as the Queen of the social sciences. Similarly, many calls for pluralism in economics can be perceived as efforts to redefine a single epistemological community based on different sets of methodological criteria. Unfortunately, these imply several different alternative conceptions of epistemological communities. Consider the debate over the use of econometrics between Lawson and Bechtold (van Staveren, 2004). Both offer alternatives to the mainstream’s standards for research, but they are mutually exclusive. These conflicts are fundamentally different from the conception of methodological pluralism set forth by Fullbrook (2009). He cites two theories in physics that are not compatible with one another, yet were formulated by the same man, and presumably coexist comfortably in the minds of most physicists. These theories exist in a context whereby physicists recognize that knowledge is partial and two theories that cannot both be true at the same time can, nevertheless, represent two pieces of the puzzle that is our understanding of the known universe. While economists may recognize that knowledge is partial, our conflicts run deeper. Economists not only have different theories, we think the other guy is wrong, and, often, not just wrong, but dangerously wrong. This is true even within the mainstream. However, channeling Pareto, mainstream economists can imagine their community as value free and dismiss such disagreements by resorting to evaluation methods based primarily on whether the author has the math right. The astute reader can no doubt recognize that they do not have the math right and they do not agree with each other that they do, but I would remind the reader that communities are imagined. Heterodox economists have responded to their exclusion with two possible imaginings of community: one, an encompassing epistemological community of economists, which despite differences can find common ground, and two, various imaginings of a separate epistemological community of heterodox economists with an alternative set of symbols, references, values, and methodologies. For the advocates of the first approach this implies downplaying the significance of differences in symbols and methodologies. Writers on this side of the debate emphasize the increasing existence of mainstream economists who are critical of many of the same propositions and assumptions that heterodox economists criticize. The point is that the mainstream is more pluralistic than it used to be. In this vision, by focusing on the similarities rather than the differences, a single

138   B. E. Hopkins pluralistic discipline can emerge, but only if heterodox economists stop isolating themselves from the mainstream by being heterodox economists. This vision seems problematic in two ways. First, within the framework of epistemological communities the symbols and methodologies do matter for academic freedom. Second, the existence of mainstream critics and mainstream economists who support a pluralist community does not guarantee acceptance of this strategy in the mainstream more generally. Those that attempt to use the symbols and follow the methodologies of mainstream economics are not always accepted as part of the community. Indeed mainstream economists do not all share the same imagining of the economics community. Some accept a broader range of symbols and methodologies and some accept a narrower range. Colander (2009) is among those who argue that the symbols or the specific methodologies do not matter that much. He takes the position that the differences are more form than substance, a matter of taste. He advises young economists to pursue their ideas within the context of the symbols of mainstream economics because they need to accept that heterodox economists may have won a few battles, but have lost the war. It is important to recognize that Colander is not arguing that the encompassing epistemological community of mainstream economics offers academic freedom to mainstream critics. It would be more accurate to characterize this argument as “no one has academic freedom, get over it, and start teaching your students how to survive in the world we actually live in.” Therefore, before I argue that the symbols and methodologies do matter, I want to consider Colander’s argument on its own terms. I attempted Colander’s strategy. I was accepted to UMass for graduate school, but chose instead to learn from mainstream critics. In a sense, the strategy worked. At the time I was hired, I could “pass” for mainstream to some of my colleagues. However, our department’s last two hires were from UMass and UMKC because my presence helped contribute to a critical mass of heterodox economists, so, I would not say the strategy worked the way Colander envisions. I would not have survived long as a mainstream critic. I found the lack of academic freedom stifling. One of the things I learned from mainstream critics was that if you read Soviet economic journals in translation you notice a pattern. The author begins the chapter paying homage to Marx, goes on to say whatever they really meant to say, and then in the conclusion returns to make some very tenuous link to Marx again. I noticed the same pattern in my advisor’s work, although, of course, rather than Marx, he was linking to neoclassical economics. Now, Colander might argue that this is proof that you can really say anything you want in mainstream economics as long as you dress it up in the proper ceremonial language. However, I would argue that it represents a powerful and unnecessary constraint. If, as Colander argues, neoclassical economics does not dominate the mainstream any more, why does it remain the reference point that everyone must acknowledge. Furthermore, the proposition that mainstream economics maintains the same standards of academic freedom granted by a totalitarian state is hardly worth celebrating. One of the other insights I gained from my advisor was that in comparative economic

Building heterodox community   139 systems you have to spend half of your chapter just defining your terms. If you combine these two insights, the standard 7,500-word journal article demands about 2,500 words of homage to neoclassical principles and another 2,500 words of definitions. What you are left with is less space to get your point across than in an article in a typical proceedings issue. If the war is truly lost, rather than advising students to sell their soul and follow Colander’s suggestion, I would encourage students to study international political economy, which is a sub-­discipline of political science that has a reasonably large feminist sub-­group and is open to post-­colonial thought. Returning to my original point about the symbols and methodologies, the norms of the epistemological community do matter. Different rules limit thought in different ways. As Waller (2009) argues, even though instances of convergence can be found between mainstream and heterodox economics, an opportunity for innovation comes from the recognition that an overlap in thinking has occurred. The recognition of mutual interest creates opportunities to explore ideas in new and different ways. Waller is effectively arguing that economics benefits from a diverse gene pool, or rather meme pool (the equivalent of genes in the realm of ideas.) What intellectual diversity offers is an opportunity to consider ideas from other schools of thought without the intellectual constraints of that school of thought. In my own experience, when my institutionalist colleagues told me repeatedly that my criticisms of neoclassical theory had all been made before by institutionalists, I realized that institutional economics offered a much better and liberating framework in which to consider the questions I had. If we were all constrained by the same norms caught in a single epistemological community, ideas would suffer the consequences of inbreeding. Given that economics exists within a wider political context, we also need to consider whether the institutional constraints imposed by mainstream economics contribute to reinforcing a particular political agenda. As Lorde (1983: 98) has said “the master’s tools will never dismantle the master’s house,” or rather, the epistemological strategies of the dominant community will not be successful if applied to liberate the dominated. The point is that such strategies for evaluating knowledge developed in order to reinforce the existing power structure, and those who want to challenge the existing power structure, are going to have to break free of the mental constraints, or as an institutionalist might say “habits of thought,” that it imposes. As in the social context in which heterodox economists observe economic actors engaging in economic behavior, the shared symbols and references and the mutual expectations matter. Indeed, “the epistemic communities within which we work, and for whom we write, exert subtle pressures on our knowing processes” (Doucet, 2008: 81). This is why feminist philosophers emphasize shared values as a key component of epistemological communities. Clearly many economists interested in presenting alternative experiences of reality have chosen to package alternative ideas in the symbols or methodologies of mainstream economics. Kandiyoti (1988) calls this the “patriarchal bargain” – the compromises we all make in the face of oppressive power structures to

140   B. E. Hopkins survive and perhaps even achieve marginal positive reform. By repeating Lorde’s words, I do not mean to dismiss this strategy. Returning to Waller’s discussion of convergence, one can see that the two strategies, that of making compromises to be accepted among the mainstream and choosing to define oneself as outside of it, are complementary. Two individuals with similar goals that choose different strategies face different intellectual constraints. If the convergence is recognized, opportunities for innovation develop. Unfortunately, often enough, the two strategies are perceived as alternatives and the existence of the heterodox alternative poses a perceived threat to the legitimacy within the mainstream of those who choose to compromise. This leads to the second point, whether the mainstream does indeed accept those with alternative views that follow the rules. Colander (2009) points out that there are many mainstream critics and that there are heterodox economists who are as insular as the mainstream. If we apply the analogy to political struggles of marginalized groups, this is like arguing that the presence of white anti-­ racists and black nationalists is evidence against the concept of structural racism. Colander’s observation simply is not an argument against the proposition that many of the institutions of the economics discipline disadvantage heterodox economists. Many of these also disadvantage mainstream critics. There are many scholars in the heterodox camp who actually do follow the institutional norms requiring mathematical or econometrics skills, but sought acceptance among the various heterodox groups after being denied tenure or having their articles rejected for publication. Many who do succeed are still baited and harassed for their views. My advisor has been a successful mainstream economist, but when I was working for him, he received a great deal of criticism from those who thought his work was not neoclassical enough. To be clear, the criticism was not that they thought he was wrong; it was that he was not neoclassical. This was an example of drawing boundaries around one’s imagined community, not of an epistemological process for determining the validity of various theories. I was asked by scholars from my generation if I was as heretical. As a feminist, who had yet to pursue feminist research, I perceived myself as more heretical and, thus, unlikely to survive in a mainstream epistemological community. Joseph Stiglitz provides an interesting example. He holds a prestigious position at Columbia University and the Swedish Bank Prize, but he was not reappointed at the World Bank, presumably because of his views about markets (Hirsh, 2009). Stiglitz is less an example of the mainstream’s openness than of the way that political interests can and do influence the limitations the economics profession imposes on its members. At the average economics department, which in some cases has to justify itself to a local business community or a board of trustees chosen for their deep pockets and donations to elected officials, what are the chances that someone who agrees with Stiglitz’s views on markets is likely to survive an attack like the one allegedly launched against Stiglitz? Mainstream critics often have little influence. Consider the attitude of self-­ described mainstream critic, Steven Levitt, to the awarding of the Swedish Bank

Building heterodox community   141 Prize to mainstream critic, Oliver Williamson, and political scientist, Elinor Ostrom: I suspect most assistant professors of economics have barely heard of [Williamson].  . . . If you had done a poll of academic economists yesterday and asked who Elinor Ostrom was, or what she worked on, I doubt that more than one in five economists could have given you an answer. (Levitt, quoted in Izzo, 2009) Levitt is probably optimistic. Mainstream economists rarely cite authors outside the discipline and Ostrom is a political scientist (Lee, 2011a). Despite the existence of mainstream critics, the failure to take advantage of opportunities for convergence is undeniably the fault of the mainstream. Lee (2011a) argues that heterodox economists are clearly engaged with the mainstream, but that mainstream economists are much less likely to cite heterodox economists. In the past this might have been explained by the failure to adequately index heterodox journals in EconLit. This was clearly a structural barrier for the acceptance of heterodox economics, but it has largely been removed as indexing has shifted to electronic format, which has negligible marginal costs for expanding the journals covered. Nevertheless, biases in citation metrics continue to reinforce a perception of heterodox journals as of lower quality. Furthermore, there have been notable efforts by mainstream economists to apply heavy handed techniques to deny heterodox economists the academic right to exist as economists (Lee, 2011a): the ranking of journals for the research assessment exercise in the United Kingdom (Lee and Harley, 1998), the removal of heterodox economists at the University of Notre Dame, and the plans by the AEA to dissolve the ASSA, which would mean excluding the Association for Social Economics and eliminating sessions granted to the smaller economics organizations from the program of the annual meetings. This narrow imagining of the community of economists, even if informal, clearly has real consequences for those excluded. Dissertations are not approved. Jobs are not found. Available jobs pay less. Journal articles are rejected. Tenure is denied. Departments are disbanded. As arguments supporting pluralism emphasize, it also has consequences for the quality of economic knowledge. As heterodox economists have pointed out, the focus on a particular set of assumptions or a particular methodology can limit the development of knowledge and restrict methodological innovation. Defining “the economy” in narrow terms not only excludes heterodox economists, it limits understanding. Any formulation of the boundary of economics that relies on methodological tools leaves economics closed to potentially superior methods.

Heterodox community: integrated epistemological community or fragmented pluralistic community The second view of the heterodox community is the idea of an alternative epistemological community (Lee, 2008). Lee’s imagining of the heterodox community

142   B. E. Hopkins has an integrated body of knowledge that offers a coherent alternative to mainstream economic theory (Lee, 2009, 2011a). Lee (2011b) and others (Wrenn, 2008) argue that heterodox approaches are substantively different to mainstream approaches and that the various strains of heterodoxy have something in common with one another. These arguments are primarily about heterodox economics as a body or bodies of knowledge, but they imply that the community of heterodox economists forms an epistemological community with shared knowledge, values, and methodologies. A heterodox community clearly exists. There are economists who refer to themselves as heterodox economists. There are editors who label the journals they edit heterodox. There are organizations of scholars who have defined their organization as heterodox. There are conferences labeled heterodox. However, as Davis (2006) points out, heterodox economics has become more heterogeneous since the 1980s. I question whether the commonality imagined by the heterodox community also implies a viable epistemological community. I argue that a more accurate representation of the heterodox community is as a fragmented community – a pluralistic coalition of many overlapping epistemological communities. In later sections, I will describe the implications of this alternative representation. Lee (2009) argues that heterodox economics forms a coherent whole based on three propositions. First, that it has shared values and topics of study. Second, that a significant number of heterodox economists are members of two or more heterodox organizations, which implies knowledge of two or more heterodox approaches. And third, that there are numerous examples of intersections of theory between different heterodox approaches. The first assertion is the most relevant to the idea of an epistemological community. Lee (2008: 3) argues that heterodox economics is about the social provisioning process and that the various different traditions to which it refers share the following themes: “the wealth of nations, accumulation, justice, social relationships in terms of class, gender, and race, full employment, and economic and social reproduction.” Elsewhere, Lee adds the value of anti-­capitalism (Lee, 2011b). As King (this book, Chapter 1) points out, this notion is particularly problematic given the awkward inclusion of Austrians in the heterodox “big tent.” Although Lee specifically mentions Austrians in some articles, for the sake of argument, let us consider the idea of a heterodox-­minus-Austrian-­economists community. Two questions could be asked of this list. First, do heterodox economists from different traditions share these themes? And, do they understand the symbols in the same way? Second, would heterodox economists agree that this is the list? As King (this book, Chapter 1) points out, the inclusion of anti-­capitalism is problematic even for many non-­Austrian heterodox economists. Feminist economics is an interesting case to consider. Many feminist economists are not anti-­ capitalist. However, feminist economics represents a rather awkward location in Lee’s two-­community model of economics. The International Association for Feminist Economics participates in ICAPE and many members are heterodox

Building heterodox community   143 economists, but a fairly large contingent of feminist economists perceive themselves as mainstream critics rather than heterodox economists (Strassmann et al., 2009). Feminist economists have seen a great deal of conflict between feminists more sympathetic to Marxist positions and feminists with free market views (Orr, 1997). Furthermore, heterodox feminist economists do not necessarily perceive non-­feminist heterodox economists as sharing their values. Indeed, I have heard feminists say that the heterodox economists are as sexist as the mainstream. Even for feminists with Marxist leanings it has often been an awkward relationship, or, as Heidi Hartmann argues an “unhappy marriage” (Hartmann, 1981). Feminist economics originates not just as a critique of mainstream economics, but also as a critique of Marxism (Folbre, 1994). Despite these conflicts, feminist economists imagine their community as the pluralistic big tent that includes all economists concerned with gender and sex inequality. Given Lee’s list, that should include his imagined community. Indeed feminist economics appears to be the utopian pluralistic community that Lee is imagining. Marilyn Power’s (2004: 3) description of feminist economics shares the centrality of social provisioning with Lee’s description of heterodox economics. The rest of her list is surprisingly similar. Her list includes incorporation of caring and unpaid labor as fundamental economic activities; use of well-­being as a measure of economic success; analysis of economic, political, and social processes and power relations; inclusion of ethical goals and values as an intrinsic part of the analysis; and interrogation of differences by class, race-­ethnicity, and other factors. For individuals located at the same intersection of feminist and Marxist traditions, Power’s “caring and unpaid labor” is Lee’s “social reproduction” and Lee’s “accumulation” is an example of Power’s “power relations.” However, I would argue that this convergence would only be recognized by those located at a particular intersection of two epistemological communities. Others would be less likely to recognize the similarities between these symbols. Indeed, one could argue that the different terms represent different symbols, even if describing the same phenomena. Thus, for others, the convergence would not be recognized as they would be familiar with only one of the symbols. Furthermore, one might also ask whether these two data points are representative. King’s (this book, Chapter 1) big tent is defined by broad principles of post­Keynesianism and has no relation (either inclusive or exclusive) to either Lee’s or Power’s lists. Similarly, I have experienced heterodox reviewers who appear unfamiliar with the concept of evolution, which is a central theme of institutional economics, and, thus, a shared symbol of the broadly defined epistemological community of institutional economics. Lee’s second and third points, that heterodox economists are often members of two different organizations and that there are numerous examples of intersections of theory, do not contradict my view of heterodox economics as a set of different intersecting epistemological communities. Contrary to Lee’s view, I

144   B. E. Hopkins argue that these characteristics of the community of heterodox economists should be interpreted not as evidence of an integrated and coherent epistemological community, but instead as a fragmented collection of intersecting epistemological communities that have a shared interest in promoting pluralism in the economics profession. The point is that while there is disagreement within mainstream economics, they do share a core set of symbols, references, and methodologies. Although heterodox economists experience intersections of shared symbols, or at least recognition that two different symbols may refer to the same phenomena, shared references, and shared methodologies, these intersections are dispersed and are not all encompassing. This can be illustrated in the differences between Figure 7.1 representing mainstream economics and Figure 7.2 representing heterodox economics. Thus, while one could argue that there are many epistemological communities within mainstream economics, it more closely approximates a coherent epistemological community than heterodox economics. Many of the different groups in mainstream economics are for different fields, but they can also be separated by perspectives, such as monetarism, and mainstream Keynesianism. These differences are institutionalized in JEL codes, but these groups recognize a shared identity as economists because they adhere to a set of norms or rules that determine the acceptance or validity of argument. Some of the heterodox epistemological communities have also been institutionalized into JEL codes and into the unified overarching code of “current heterodox approaches.” There are only four JEL classifications here: B51 – socialist, Marxian, Sraffian; B52 – institutional, evolutionary; B53 – Austrian; and B54 – feminist economics. This implies a certain affinity between these strains of thought that separates them from the rest of economic theory, but other strains of thought are embedded amongst the specific topics of what is mostly mainstream

Figure 7.1  Mainstream economics.

Building heterodox community   145

Figure 7.2  Heterodox economics.

economics. Post-­Keynesian economics appears with Keynes under E12, indexed in E1 general aggregative models, which is part of macroeconomics generally. Post-­colonialism appears with colonialism and imperialism under F54, classified in international relations and international political economy which is part of international economics. Ecological economics appears as a kind of afterthought to Q: agricultural and natural resource economics: environmental and ecological economics. However, the institutionalized JEL categories fail to capture the whole picture of fragmentation. Feminist economics, for example, tends to represent scholars who sit on the intersections of fields based on topic, a gender analysis, and another perspective, that may be heterodox, such as Marxian, institutional, or ecological, or may be more mainstream. In addition, feminists are divided between empirical and theoretical approaches, which given the tendency in economics to define empirical as econometric, leaves institutional observational methodologies out in the cold. And, feminists are also often heavily influenced by intellectual currents outside of economics due to participation in the interdisciplinary field of women’s studies. Women’s studies itself has become increasingly fragmented. In 1978, Jaggar and Rothenberg (1978) identified five strains of feminist thought: liberalism, traditional Marxism, radical feminism, socialist feminism, and feminisms of women of color. By 1989, Tong (1989) had added psychoanalytic feminism, existentialist feminism, and post-­modernist feminism. Post-­modern influences have undermined the meaning of any contemporary effort to classify the current divisions, but post-­structuralism, post-­colonialism, eco-­feminism and materialist feminism would be appropriate additions. Most of these different strains of thought have had some applicability to feminist economics, but no feminist economist has familiarity with all of them. Similarly, there are three variations of post-­Keynesians (King, this book, Chapter 1) and

146   B. E. Hopkins multiple variations of institutionalism (Waller, 2009). Thus, knowledge creation takes place not within a unified and coherent epistemological community of economists, but increasingly at the intersections of two or more epistemological communities that may or may not be well defined.

Implications of a fragmented heterodox economics Pluralism has meant different things to different authors in the debate over pluralism in economics. If we apply Lee’s (2011a) simple notion that pluralism is the academic right to dissent, then pluralism implies fragmentation. Pluralism requires tolerance and acceptance of the development of new epistemological communities. Just as Waller (2009) argues that convergence is an inevitable evolutionary occurrence, so too is entropy, the concept that nature tends toward disorder. The point is that in the absence of some form of coercion, people will tend to disagree with one another about methodological points and about the most important symbols. As ideas proliferate some people will be drawn to one set of ideas and others to other sets. As individuals who had previously been excluded from the act of knowledge creation are incorporated into the academy with different experience, further divisions develop. In this way differing epistemological communities form. Unfortunately, this creates an imagined tension between pluralism and academic standards. We all have standards, but different epistemological communities have different standards – not higher or lower standards, but different ideas about what good research is. For the mainstream, failure to follow their rules and norms implies poor quality work. However, much of what mainstream economists value as high quality work, is of poor quality to heterodox economists.1 Individually, heterodox economists can set alternative standards for quality research, but there does not appear to be agreement among heterodox economists on standards. Given this disagreement, pluralism, or the acceptance of alternative epistemological communities, implies having to relax one’s own set of standards. Viewed in the context of epistemological communities, this perceived tension between pluralism and the ability to evaluate knowledge claims is based on the faith that a unified and coherent community of economists that enforces methodological standards and evaluates knowledge claims exists. This is a form of false universalism in which members of an epistemological community simply assume that their own epistemological process can be applied universally. Pluralism requires expanding the boundaries. Standards shrink the boundaries. The problem for a fragmented heterodox economics is that the standards for quality of knowledge implied by any reimagining of an alternative that is a unified community would also have exclusionary consequences. Advocates of pluralism and heterodox defenders of alternative standards have not challenged the idea that a unified and coherent community of economists is possible. The notion that a single set of standards, alternative to those of the mainstream, is possible, rests on the existence of a unified epistemological community of heterodox economics as described by Lee.

Building heterodox community   147 The point is that standards only have meaning as part of a process for determining the validity of an argument within a particular epistemological community. If, as I argue, the heterodox community is made up of many different epistemological communities, then “standards” instead become a means of exclusion and “rigorous standards” merely a harsher expression of that exclusion. Thus, within epistemological communities, “standards” are an expression of the methodological principles and values that hold the community together, but between epistemological communities, “standards” merely define boundaries of communities, but when those boundaries are mistakenly applied as determinants of truth, “standards” become the mechanism for one group to assert dominance over others, limiting the right to engage in knowledge creation. Pluralism, as a value, rejects “standards” not as processes for determining truth, but as processes for crippling our pursuit of truth through the hasty rejection of ideas simply because they come from alternative communities. Consider the feminist criticism of the use of “rigor” as a term for “good research.” Rigor comes from the Latin term for “stiffness,” a concept associated with masculinity. As a result, rigor has developed a positive connotation in the system of hierarchical dualisms that forms the basis for patriarchal ideology. Similarly, the third definition of “rigorous” from the Oxford American Dictionary and Thesaurus (2009) is “strictly following a belief system.” Thus, we should ask why a rigid adherence to a particular ideology implies an effective epistemological strategy. Further, we should question whether the application of the mathematical techniques implied by the notion of a rigorous analysis might represent a rigid adherence to a particular ideology. Thus, J. A. Nelson (1996) asks why do we value rigorous theories and condemn flexible theories? Instead, she argues that too much rigor can be bad and too little flexibility can be bad. In a sense, pluralism, as an epistemological value, is calling for a little more flexibility in economics. Economics has been sacrificing open-­mindedness in the name of “rigorous scholarship.” It is important at this point to revisit the idea of communities. Pure open-­ mindedness is not a practical state for the individual. As individuals we each have limited time to pursue knowledge. Thus, we make choices about which paths to pursue – which books to read, which lines of argument to follow. The epistemological communities also place limits on thought. As described by Waller (2009), this is the advantage of cross-­fertilization of ideas. Open-­ mindedness and flexibility come from the opportunities for individuals to cross the boundaries of epistemological communities. This is only possible if multiple epistemological communities are permitted to exist and to thrive. Although a framework recognizing multiple epistemological communities might seem to be a natural outcome of a pluralistic agenda, the idea of a unified heterodox community often seems to be the only possibility to counteract the political power of the mainstream. This idea developed within the broader context of mainstream hegemony, which creates a bias against heterodox economics and the need for heterodox economics to establish legitimacy. This bias assigns the burden of proof to heterodox economics. While the community of

148   B. E. Hopkins mainstream economists does not need to justify the validity of its evaluative methods, heterodox methods have to be justified again and again. Thus, heterodox economists calling for pluralism are required to answer mainstream critics by assuring them that “we, too, have standards,” or more precisely, “we have better standards.” Indeed, the various epistemological communities of heterodox economists each have different sets of better standards. Unfortunately, within the context of mainstream hegemony, advocates of pluralism are effectively forced into the paradoxical position of accepting the notion of a unified community in order to reassure mainstream economists that pluralism will not lead to a complete failure to distinguish “truth” from “fiction” or “good economic science” from “bad.” I am skeptical that any efforts to convince the mainstream that alternative points of view have legitimacy will succeed. Unfortunately, a more likely outcome is that heterodox economists will inadvertently establish arbitrary barriers to knowledge production that create patterns of dominance and exclusion similar to the mainstream that undermine the ability for alternative perspectives to exist and to thrive. This results from projecting the idea of a unified and coherent epistemological community onto heterodox economics. This presents two problems for aspiring authors of economic research and the critical scrutiny of knowledge claims: ignorance and false universalism. Ignorance occurs when authors face reviewers who have little knowledge of the perspective through which the author is approaching his or her subject. By imagining a single epistemological community with a core set of knowledge that members of the community master in order to be qualified to evaluate claims, one assumes that all “economists” or all “heterodox economists” are qualified to evaluate all knowledge claims. For the mainstream imagining of the economics community, that core set of knowledge is the neoclassical economics presented in principles textbooks as well as the techniques of mathematical formalism and econometric analysis. The acceptance of this as the body of knowledge that needs to be mastered reinforces the hegemony of neoclassical economics; it implies that mastery of neoclassical economics, mathematical formalism, and econometrics, establishes one as competent to critically evaluate evidence, methods, and conclusions posed by economic theory. Clearly mastery of this core set of knowledge does not prepare one to adequately evaluate knowledge produced by building on institutionalist or Marxist perspectives. It simply does not provide any background for doing so. In practical terms, reviewers will be recruited based on mastery of an additional body of knowledge, such as a publishing record on trade to review a paper on the impacts of NAFTA. Recruiting heterodox reviewers, however, is more complicated. They must be recruited based on both perspective, such as Marxist or institutionalist, and on sub-­topics, such as trade or labor. When we understand the nature of heterodox economics as a fragmented community, we see that editors face a much greater challenge finding reviewers who understand the author’s perspective. Mapping the fragmentation of epistemological communities and the intersections between them has not been done,

Building heterodox community   149 and locating an individual paper within that uncharted map of communities may require specialized knowledge that editors might have only by coincidence. Indeed it may be difficult to find reviewers who are located at the same complex intersection of communities as the author. Consider a book I recently reviewed. I was recruited to review Fragments of Development: Nation, Gender, and the Space of Modernity (Bergeron, 2004). This book exists at a crossroads of theories of economic development, which are increasingly based on macroeconomic theory, and theories of the ideology of nationalism and gender, and framed by post-­modern analyses. I was chosen presumably because I have taught development and do work on gender, but the editor had no knowledge that I also have some experience with theories of nationalism and I have only become interested in post-­modern/post-­structural analyses as a result of this experience. Indeed, there are very few people I know who inhabit even most of those communities, much less this particular intersection. The failure to find knowledgeable reviewers can lead to a more cumbersome revision process. At the 30-year celebration of the Association for Institutionalist Thought, William Waller made the observation that an institutionalist economist attempting to publish in any journal other that the Journal of Economic Issues would have a hard time getting past reviewers since at least one will have no familiarity with institutional economics. After the article is submitted, the reviewers will demand a lot of material explaining what institutional economics is. Then, because it makes the article less readable, the journal’s style editors will suggest that the author delete it all. At least two heterodox economics journals seek out reviews by scholars with different expertise in order to ensure that the article is accessible to a wide audience. To the extent that pluralism is about opportunities for crossing intellectual boundaries, this policy seems to promote pluralism. However, conceptually, a wider audience implies some notion of a unified community. If, as I argue, that wider audience means different things to different people, a new process of exclusions is introduced. Coming from a different place can add to the intellectual debate, but a reviewer that is deciding whether a particular work should be published can often dismiss some of the strains with which they are unfamiliar, or insist that additional strains that are neglected would be key to the analysis. To apply the example above, Bergeron’s book can be read as an attempt to introduce the literature critiquing nation states to a feminist audience. Feminist reviewers who are located at the nexus of explaining gender to the mainstream macro powerbrokers at the World Bank have very little use for this analysis, because it pulls them further and further away from making any headway on their project. This book also criticizes macroeconomics as a nationalist ideology. Thus, post-­Keynesians might have a lot to say about the analysis. Reframing our understanding of the heterodox community into a network of interconnected smaller epistemological communities allows one to ask whether addressing the very specific concerns of either of these locations should be a requirement for publication. I argue that it represents too high a burden, tantamount to requiring heterodox research to be all things to all people since the author cannot predict at

150   B. E. Hopkins what crossroads her or his reviewers will be located. Furthermore, a pluralist perspective would demand that a discussion between feminist-­macroeconomists, post-­Keynesians, and post-­modernists take place in print and in public and not behind closed doors as part of the review process. False universalism results when a reviewer perceives their own location in the complex network of interconnected epistemological communities as the unified heterodox epistemological community. Unfortunately, when heterodox economics is fragmented, there is a high probability that a reviewer will be from a different epistemological community or be coming from a different intersection of different communities than the author. This can increase the likelihood not only that the reviewer will not understand the work, but will misunderstand the work. The problem is not simply that the author will need to explain her or his location in one or more epistemological communities and then explain all the symbols and references that are not shared with the reviewer before getting on to the argument; reviewers may misinterpret the argument because they are embedded in a different community. Consider the challenge I face teaching heterodox concepts in a diverse department. In a course on economic systems, I use Eric Nilsson’s (2004: 1) taxonomy of different economic systems: “Economic systems are distinguished according to how the dominant class in the economy gets the surplus.” Knowing that some of my students have already taken prin­ ciples of economics, it is not enough to explain what surplus is in a Marxist framework. I need to explain that it is not what the neoclassical model of supply and demand means by surplus. Since I am familiar with the references and symbols of neoclassical economics, this is not difficult. However, imagine the hypothetical situation of a neoclassical colleague. If I had already convinced my students that surplus refers to production above and beyond what is necessary to satisfy basic needs, a neoclassical colleague would not be aware of that “misunderstanding” when he or she began to teach supply and demand. This is the situation in which many authors would find themselves. Reviewers will share with authors some symbols and references, but some may come from locations in epistemological communities with which the author is not familiar and cannot predict. I argue that these kinds of conflicts between authors and reviewers across boundaries of epistemological communities results directly from imagining the economics community as a coherent whole, rather than as a set of separate, but interconnected and overlapping, epistemological communities similar to an interdisciplinary community such as women’s studies. The problem of ignorance of institutional theory, for example, is similar to my experience as a feminist economist reading sociology or anthropology. However, while I know I might not get all the references, I get what I can from the article and pursue more reading from the citations when appropriate. Only in a unified, coherent, epistemological community with a single body of shared symbols references and basic knowledge would it make sense to expect authors to predict the kinds of misunderstandings I describe above. In the fragmented community of heterodox economists it would be impossible to know all of the potential frameworks in which reviewers might be placing our work. “Be thou clear” as McCloskey (2000: 12)

Building heterodox community   151 advises, emphasizing that it is not enough to write so that your argument can be understood you must write so that it cannot be misunderstood, is simply impossible.

Strategies for review in fragmented epistemological communities Reimagining the nature of the community of economists, and especially heterodox economists, is necessary to develop effective and meaningful strategies for evaluating articles for publication. When the community of economists is understood as many intersecting, but different, epistemological communities, the question shifts from developing an alternative set of rigorous standards to asking how a tolerant community of economists evaluates research from many different communities. However, evaluation of research to determine its quality is not the only goal of the review process for many journals. Since building both the broader heterodox community as well as narrower epistemological communities is important, many journals also emphasize constructive criticism aimed at improving the quality of research. In order to consider how evaluation might take place within the context of a fragmented heterodox community, I asked editors of heterodox journals what they ask reviewers to comment on and obtained the following list. Methodological Issues Scientific validity Quality of analysis Appropriateness of techniques used Cited the “right” literature Originality Originality Quality of the Argument and Writing Style Presentation Clarity and coherence Choice of Audience Appropriateness for the journal in question Consider how these issues might be interpreted differently once placed in the context of a network of overlapping epistemological communities instead of a unified epistemological community. The first four measures of quality represent characteristics about which people might reasonably disagree. Scholars from different perspectives clearly disagree about the appropriate technique and the “right” literature to review. While it is easy to see how genuinely expert reviewers will be able to provide valuable criticism to the author as a response to these

152   B. E. Hopkins issues, problems arise if the reviewer is from a different perspective, yet writes a review as if the author is from the same perspective. The likely result is a review that simply asserts that the author should have been writing a different paper altogether. As described above, the problem develops from fragmentation because it can be difficult to determine the exact location of the author’s perspective and, perhaps, even more difficult to locate the reviewer’s. The issue of originality is also likely to generate errors if the reviewer is not in the same location among epistemological communities, but is more likely to falsely assert originality. Since I am more concerned with the threat to existence faced by many small perspectives, I do not think this presents as much of a problem. Indeed, there may be a great deal of value in representing ideas to new epistemological communities. Raising questions about originality may also allow reviewers to identify the opportunities for convergence described by Waller (2009) above. The third set of issues listed above addresses the quality of the argument. In general, these issues should be matters about which reasonable people agree. The argument should be clear. However, the problems described above, in which the reviewer is reading the argument through a different and unpredictable lens, can develop in a fragmented epistemological community. If these misunderstandings are easy to resolve, correcting them will clearly strengthen the paper. When they cannot be resolved the issue about whether or not to publish the paper becomes a question of audience, and, thus, synonymous with the final issue. Starting from the position of a fragmented heterodox community raises the question of who is being excluded by the reviewer’s viewpoint on the boundary of the set of epistemological communities that are the audience of the journal. It is important also to distinguish between the public processes of evaluation, in which different small communities present different representations of the world for debate across community boundaries, and the private process of meeting standards for publication. The public process provides the richest, most innovative, outcomes when more different views and opinions can be heard. Thus, a more flexible private process is the key to a pluralistic intellectual practice. The private process also determines the ability for individual economists to succeed in their chosen profession. Papers should be judged privately not on whether they apply the correct methodology, but on whether they apply the methodology they use correctly. The simplest solution to this problem is to apply the principle exemplified by different fields in mainstream economics; assign reviewers from the same small epistemological committee. However, as stated above, that is often difficult or impossible to achieve. Intersections, especially those that incorporate avenues to ideas from other disciplines may simply be very sparsely populated or too complex to be well documented in reviewer databases. Small communities may have become too insular or too caught up in petty bickering for an editor to expect a fair review. Furthermore, there are benefits to be gained from a properly framed external reviewer. The alternative is to rethink the way economists approach a review. What are the questions the reviewer asks himself, and where do they locate themselves

Building heterodox community   153 and the author in that review? The first model of review economists learned in apprenticeship was that of the faculty – student relationship, in which the faculty member is the keeper of the standards for the epistemological community and conveys them to the student through critique. This is not a good model for a pluralistic imagining of the heterodox economics community as a network of small intersecting epistemological communities. Consider one of the questions listed above: “Does the paper cite the appropriate body of literature?” As described above, this question can become a problem when a reviewer who has a different perspective is asked what the relevant literature is. However, one can consider an alternative form of expertise. I was asked a different question as part of a review of a paper that cited my work, by the interdisciplinary women’s studies journal, Signs: “Is any criticism it presents of other scholars’ work well informed, fair, and civil?” The first question assumes that the reviewer is the authority for a unified and coherent epistemological community. The second question is just asking if the author is representing her intellectual opponents accurately and fairly. Furthermore, it is easy to identify individuals who might have knowledge of the literature the author has chosen, because they are part of it. It does not privilege one community over another. Pluralism requires that reviewers for economics journals stop asking themselves how the paper they are reading fits into their own location in the network of epistemological communities and start asking themselves how it contributes to the network as a whole. In addition to increasing the probability that innovative work will get past the review process, this would contribute to pluralism by privileging work that brings different communities together at their intersections because those would be seen as making a greater contribution to the network as a whole. This example is not just about editorial policies, but about members of the economics community revising their methods of evaluation in response to an alternative vision of the community of heterodox economists.

Conclusion It is self-­evident that some form of collective project needs to exist to serve as a counter-­weight to the political power of mainstream economics. Thus, there is a clear imperative to cultivate a community of heterodox economists. Such a community could offer a clear alternative to the mainstream based solely on the value of pluralism. While pluralism clearly has implications as a methodological value, I wish to emphasize pluralism as a political value. Thus, pluralism in economics is not just about improving the quality of our knowledge through use of multiple and varied methodologies, but also in allowing for the inclusion of different groups of people who hold different beliefs about the nature of the world. The term, “beliefs” is not intended to imply that all points of view are equally valid. Rather, it acknowledges that the processes that privilege some forms of knowledge over others is a political process not a rational process (Hopkins, 1997). Pluralism, as a political value, begins with inclusion. This requires inclusion of different perspectives and, also, inclusion of economists with different experiences.

154   B. E. Hopkins As Strassmann et al. (2009) argue, the community of heterodox economists also needs to cultivate greater ethnic and gender diversity, because, like mainstream economics, it is dominated by men of European descent. A vibrant intellectual community that can debate the best methodologies for understanding the global economy or the best theories of the financial crisis depends on the right for individuals with different perspectives and backgrounds to exist and succeed in the economics profession. Thus, the foremost goal of a heterodox community should be to promote opportunities for economists with alternative perspectives, and from underrepresented backgrounds, to succeed. As I have demonstrated above, success has been hampered by ideas of epistemological community that falsely claim universal knowledge, values, and methodologies for the entire community of heterodox economists. Even well-­meaning individuals can unknowingly participate in oppressive structures. False expectations of shared knowledge lead to misunderstandings and conflicts between reviewers and authors of journal articles that make it more difficult for heterodox economists to succeed, especially scholars pursuing less popular topics or applying less popular methods. At best, it takes more effort to write heterodox papers and satisfy reviewers. At worst, heterodox authors are less likely to get published and, thus, less likely to get tenured or promoted, less likely to get hired, and more likely to be fired. I have argued that the solution to this problem is to reconceptualize the community of heterodox economists as a network of many different intersecting epistemological communities rather than a single epistemological community with alternative values from the mainstream. This reconceptualization allows for much greater variety in approaches than a single epistemological community built on a single set of principles or methodologies. Unlike the mainstream strategy of exclusion, it also encourages interaction between different perspectives because it does not enforce isolation of minority perspectives. At the same time it allows for the kind of specialization implied by King’s (this book, Chapter 1) rejection of Lee’s unified community. King argues that he would rather spend his limited time cultivating a deeper understanding of post-­Keynesian principles than pursue a broad understanding of all heterodox perspectives. The body of knowledge is too vast for any individual to fully master. The mainstream arbitrarily privileges neoclassical economics by declaring that it is the single body of knowledge that everyone must master. By reconceptualizing heterodox economics, I am rejecting that any single body of knowledge within heterodox economics should be privileged in the same fashion. I may believe that all economists would benefit from a familiarity with Folbre (1994) or with Veblen (1931), but I recognize that different heterodox economists would add different work to a canon of knowledge. Indeed, even among feminist economists, I believe Folbre’s (1994: 51–81) framework for understanding “structures of constraint” has been undervalued and underutilized, despite a widespread awareness of her book. Thus, a pluralistic community of economists would share a broad interest in the study of economies and the pluralistic value of inclusion, but would not necessarily share symbols, references, other values, or methodologies.

Building heterodox community   155 The strategies for reconceptualizing pluralism presented here certainly are not going to quiet mainstream anxiety over relativism. Indeed, they may arouse similar anxieties among heterodox economists. However, I do believe it presents a conception of pluralism that is inclusive enough to better represent the breadth of heterodox economics. If we are going to build and strengthen a heterodox community that could have the power to demand pluralism, we need a vision of pluralism that can be inclusive of all the identities of heterodox economists. By reimagining economics as a pluralist community made up of many smaller epistemological communities, rather than a single coherent unified community, we can de-­center neoclassical economics and weaken the power it has to determine who is permitted to present ideas. By abandoning the idea of a unified economics community we abandon the expectation that economic knowledge satisfy all possible criteria and be accessible to all economists, including those who may be hostile to the framework being applied. In this way we allow more points of view to be published and expand the range of perspectives participating in the public debate of economic knowledge.

Note 1 Consider the Swedish Bank Prize awarded to Robert Lucas “for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy” (The University of Chicago Chronicle, 1995: Online).

References Anderson, B. (1991) Imagined Communities: reflections on the origins and spread of nationalism, London: Verso. Assiter, A. (1996) Enlightened Women: modernist feminism in a postmodern age, New York: Routledge. Bergeron, S. (2004) Fragments of Development: nation, gender, and the space of modernity, Ann Arbor: University of Michigan Press. Colander, D. (2009) “Moving Beyond the Rhetoric of Pluralism: suggestions for an ‘inside-­the-mainstream’ heterodoxy” in R. F. Garnett, E. K. Olsen, and M. Starr (eds.) Economic Pluralism, New York: Routledge. Davis, J. (2006) “The Nature of Heterodox Economics” in Post-­Autistic Economics Review, 40.1:23–30. Online. Available at: www.paecon.net/PAEReview/issue40/ Davis40.pdf (accessed April 2, 2010). Doucet, A. (2008) “From Her Side of the Gossamer Wall(s): reflexifity and relational knowing” in Qualitative Sociology, 31: 73–87. Ferber, M. A. and Nelson, J. A. (1993) “Introduction: the social construction of economics and the social construction of gender” in M. A. Ferber and J. A. Nelson (eds.) Beyond Economic Man: feminist theory and economics, Chicago: University of Chicago Press. Folbre, N. (1994) Who Pays for the Kids?: gender and the structure of constraint, New York: Routledge. Fullbrook, E. (2009) “Ethics and Epistemology in Economics” in I. van Staveren (ed.) Handbook of Economics and Ethics, Cheltenham, U.K.: Edward Elgar.

156   B. E. Hopkins Hartmann, H. (1981) “The Unhappy Marriage of Marxism and Feminism: towards a more progressive union” in L. Sargent (ed.) Women and Revolution, Boston: South End Press. Hirsh, M. (2009) “The Most Misunderstood Man in America: Joseph Stiglitz predicted the global financial meltdown. So why can’t he get some respect here at home?” in Newsweek, July 17, 2009. Online. Available at: www.newsweek.com/2009/07/17/the-­ most-misunderstood-­man-in-­america.html (accessed December 19, 2010). Hopkins, B. E. (1997) “Argument and Community in the Markets Debate” in Feminist Economics, 3: 113–20. Izzo, P. (2009) “Economists React: Nobel award sends message about economics” in Real Time Economics: economic insight and analysis from the Wall Street Journal, October 12. Online. Available at: http://blogs.wsj.com/economics/2009/10/12/ economists-­react-nobel-­award-sends-­message-about-­economics/ (accessed December 22, 2010). Jaggar, A. M. and Rothenberg, P. S. (eds.) (1978) Feminist Frameworks: alternative theoretical accounts of the relations between women and men, New York: McGraw-­Hill. Kandiyoti, D. (1988) “Bargaining With Patriarchy” in Gender and Society, 2: 274–90. King, J. E. (2005) “Three Arguments for Pluralism in Economics” in Post-­Autistic Economics Review, 30: Article 2. Online. Available at: www.paecon.net/PAEReview/ issue23/King23.htm (accessed April 2, 2010). Lee, F. S. (2008) “Heterodox Economics” in S. Durlauf and L. Blume (eds.) The New Palgrave Dictionary of Economics, New York: Palgrave. Lee, F. S. (2009) “Pluralism in Heterodox Economics” in in R. F. Garnett, E. K. Olsen, and M. Starr (eds.) Economic Pluralism, New York: Routledge. Lee, F. S. (2011a) “Heterodox Economics, Tolerance and Pluralism: a reply to Garnett and Mearman” in Review of Radical Political Economics, 43: 573–7. Lee, F. S. (2011b) “The Pluralism Debate in Heterodox Economics” in Review of Radical Political Economics, 43: 540–51. Lee, F. S. and Harley, S. (1998) “Peer Review, the Research Assessment Exercise and the Demise of Non-­Mainstream Economics” in Capital and Class, 66: 23–51. Lee, F. S., Grijalva, T. C., and Nowell, C. (2010) “Ranking Economics Departments in a Contested Discipline: a bibliometric approach to quality equality among theoretically distinct sub-­disciplines” in American Journal of Economics Sociology, 68: 1345–77. Lorde, A. (1983) “The Master’s Tools Will Never Dismantle the Master’s House” in C. Moraga and G. Anzaldúa (eds.) This Bridge Called My Back: writings by radical women of color, New York: Kitchen Table Press. McCloskey, D. N. (1986; 2nd edition, 2000) Economical Writing, 2nd Prospect Heights: Waveland Press. Nelson, J. A. (1999) “Econometrics” in J. Peterson and M. Lewis, (eds.) The Elgar Companion to Feminist Economics, Cheltenham, U.K.: Edward Elgar. Nelson, J. A. (1996) Feminism, Objectivity and Economics, London: Routledge. Nelson, L. H. (1993) “Epistemological Communities” in L. Alcoff and E. Potter (eds.) Feminist Epistemologies, New York: Routledge. Nilsson, E. (2004) Capitalism: power, profits, and human flourishing. Online. Last Update 2004. Available at: http://economics.csusb.edu/facultyStaff/nilsson/personal/ Capitalism%20Text/04-Different%20Economic%20Systems.pdf (accessed April 5, 2010). Orr, D. V. (1997) “Not Only Gender: More on Debating Markets” in Feminist Economics, 3: 121–6.

Building heterodox community   157 Oxford University Press (2003; 2nd edition, 2009) Oxford American Dictionary and Thesaurus (electronic edition), Oxford: Oxford University Press. Power, M. (2004) “Social Provisioning As a Starting Point for Feminist Economics’” in Feminist Economics, 10: 3–19. Roberts, R. (2010) “Is the Dismal Science Really a Science?” in Wall Street Journal, February 27. Strassmann, D., Grown, C., and Starr, M. (2009) “Raising Dissonant Voices: pluralism and economic heterodoxy” in R. F. Garnett, E. K. Olsen, and M. Starr (eds.) Economic Pluralism, New York: Routledge. Tong, R. (1989) Feminist Thought: a comprehensive introduction, Boulder: Westview Press. The University of Chicago Chronicle (1995) “Robert Lucas wins Nobel Prize in Economics” in The University of Chicago Chronicle, 15: 3, October 12. Online. Available at: http://chronicle.uchicago.edu/951012/lucas.shtml (accessed February 9, 2010). van Staveren, I. (2004) “Feminism and Realism – a Contested Relationship” in Post-­ Autistic Economics Review, 28: Article 2. Online. Available at: www.paecon.net/ PAEReview/issue28/VanStaveren28.htm (accessed April 2, 2010). Veblen, T. (1899, 1931) The Theory of the Leisure Class, New York: The Modern Library. Waller, W. (2009) “Is Convergence Among Heterodox Schools Possible, Meaningful, Or Desirable?” in R. F. Garnett, E. K. Olsen, and M. Starr (eds.) Economic Pluralism, New York: Routledge. Wrenn, M. V. (2008) “Response to the Comment: What Is Heterodox Economics? Conversations With Historians of Economic Thought” in Forum for Social Economics, 38: 75–8.

8 Conversation or monologue? On advising heterodox economists, with addendum Matías Vernengo

Ever since the seminal work by McCloskey (1983), several authors describe the process of scientific progress as a dialogue. In this vein, Colander et al. want to “get [heterodox economists] into the mainstream conversation” (2007–2008: 310). In the process of suggesting a more prolific dialogue with the mainstream, they advise heterodox economists to think of themselves as economists first, and only secondarily as heterodox, and to forget methodological issues. However, Colander and his co-­authors, in their quest for approval for heterodox economists by the mainstream, minimize the deep divisions in the economic profession. This is the case, in part, because they use a very peculiar definition of mainstream, but it also results from a surprisingly naive understanding of the sociology of the economics profession. It is true that the economics profession, as the authors argue, is an adaptive evolving system. However, it does not evolve in an axiologically neutral way, and for that reason ideology is still very present even in what the authors call the edge of the profession. Gunnar Myrdal (1969) correctly pointed out that ideology is the unavoidable companion of scientific analysis, and for that reason the differences between the mainstream and heterodoxy often reflect alternative worldviews. As a result, power asymmetries produce inertia and affect the evolution of the economic profession. More importantly, the authors overemphasize the independence of the cutting edge from the more orthodox views of the mainstream of the profession, and confuse pseudo-­critiques of orthodoxy with actual critiques.

The edge of the profession and organized hypocrisy Colander et al. (2004) define the edge of the profession as the best of the mainstream, or more precisely the part that produces cutting-­edge research, signaling the future of the profession. In their view, the edge of the profession is by definition breaking with orthodoxy, because that is the nature of innovative research, even though it is sociologically very much part of the mainstream. In this sense, they “highlight the nonorthodox nature of the elite and cutting-­edge portions of the sociologically mainstream” (Colander et al., 2007–2008: 306). The point that the authors try to emphasize is that, contrary to the rigid notion of a monolithic

Conversation or monologue?   159 Kuhnian paradigm, the mainstream should be seen as an evolving collection of views. Further, Colander et al. emphasize, on the basis of Dequech (2007–2008), that power is central to “what it means to be mainstream” (Colander et al., 2007–2008: 305, n.2). Yet the problem is not just the asymmetric power that orthodox and heterodox economists have, although that is fundamental. Of equally consequential effects for the understanding of what it means to be mainstream is the double discourse that allows some economists to sound reasonable under certain circumstances, rejecting the worst parts of orthodoxy, while being able to never break with the mainstream. In other words, one may argue that the authors at the edge of the profession profess principles that they have no intention of following. They seem nonorthodox in many ways, but they have no intention of taking their ideas to full fruition, if that means breaking with mainstream economics. That is a form of what has been called, in other contexts, “organized hypocrisy.”1 The elements of continuity of the edge with the less edgy parts of the profession, so to speak, and the double discourse of mainstream economists is not properly acknowledged by Colander and his co-­authors. For example, let’s take an author who has been critical of several elements of the conventional wisdom regarding free trade and globalization, which seems to be part of the edge of the profession in many ways. I am referring to Dani Rodrik, who provides a definition of “economists” in a rather well-­known book, provocatively titled Has Globalization Gone Too Far? (1997). Rodrik’s definition of economists is interesting, not so much for what it says, but because of what he feels he needs to say. Rodrik says: “When I mention ‘economists’ here, I am, of course, referring to mainstream economics, as represented by neoclassical economists (of which I count myself as one)” (Rodrik, 1997: 3). The footnote must dispel any doubts of where he stands. He may be critical of certain aspects of the globalization process, but God forbid somebody misconstructs his critique and takes him for a heterodox economist. One is led to believe that Rodrik thinks that the consequences of not being part of the “gang” must be pretty harsh.2 Hence, the nonorthodox elements of the edge are only acceptable if, somehow, they are not too unorthodox. Rodrik, indeed, is a master of the art of showing the limitations of the orthodoxy, but staying within the limits of the tolerable for the mainstream. Take the title of his more recent book One Economics, Many Recipes (2007b), in which the pluralism is restricted to the notion that policy recommendations should be tailored to the specific conditions of each country. Good advice for sure (and one that is not new to heterodox economists), but it is not defensible that the only way of reaching sound policy advice is by using neoclassical economics (the “One” in the title). Another example of the double discourse, which criticizes orthodoxy but remains within the boundaries of the mainstream, can be found in the work of an author whom Colander et al. (2004) classify as an edgy member of the profession—Paul Krugman. Krugman’s research undermined the theoretical rationale for free trade, but he always emphasized the importance of free trade as a simple

160   M. Vernengo policy rule. In recent times, however, Krugman has been seen, more than before, as a critic of orthodoxy. In his recent book, The Conscience of a Liberal (2007), Krugman shows that, to his great surprise, the increase in income inequality in the past 30 years in the United States was not caused by market but by political forces. In his words, “the timing strongly suggests that polarizing political change came first, and that rising economic inequality followed . . . technology isn’t the main story” (Krugman, 2007: 8). In other words, productivity, that according to conventional wisdom determines payments to the factors of production, is not the story, but politics that affects the bargaining power of social groups is. This conclusion leads Krugman to argue that “there’s something wrong with textbook economics” (Krugman, 2007: 56), which seems to suggest, as Colander et al. (2007–2008) argue, that the edge is quite unorthodox. Yet the point is that Krugman does not seem to have any intention of rewriting the textbook (in fact, his very conventional text is a best seller), and consistently and carefully avoids citing the long list of heterodox economists who have pointed out the political causes of the dismantling of the Keynesian consensus and the “revenge” of the rentiers in the 1970s. Krugman argues that inequality is not related, as orthodoxy claims, to skill-­biased technical change, but “due to changes in institutions, such as the strength of labor unions, and norms, such as the once powerful but now weak belief that having the boss make vastly more than workers is bad for morale” (Krugman, 2007: 135–6). Krugman’s conclusion is a recycled and simplified version of the main argument in David Gordon’s Fat and Mean (1996) and James Galbraith’s Created Unequal (1998), yet Frank Levy and Peter Temin are presented as having led the research in this area (Krugman, 2007: 137). In other words, the acceptable critiques of orthodoxy must come from mainstream insiders. In that sense, I believe that Colander et al. (2007–2008: 306) are incorrect when they claim: “Orthodoxy constitutes an ossification of what was formerly the cutting edge.” The relation between the cutting edge and the core of the mainstream, that Colander and his co-­authors denominate orthodoxy, is symbiotic and essential to establish the credibility and the general acceptance of the former. Without its close ties to orthodoxy, the cutting edge would be ostracized. The cutting edge allows the mainstream to sound reasonable when talking about reality, while orthodoxy provides authority to the cutting edge. Further, the symbiotic relation between orthodoxy and the cutting edge has usually served a social purpose in the defense of market-­oriented policies. The cutting edge, often critical of neoclassical simplifications, suggests that complexity, information asymmetries, and other problems create significant market imperfections.3 Market imperfections of all sorts are, in fact, behind the cutting-­ edge research that has led to all the “new” areas of research in the past 30 years (e.g., new growth theory, new Keynesian economics, new trade theory, etc.). However, the imperfections of the real world highlight the ontological notion of a perfect market. This preservation of the totemic myth of a perfect and efficient market is the raison d’être of the duplicitous behavior of the cutting edge.

Conversation or monologue?   161

Methodology and differences do matter On the basis of their perception of the unorthodox views of the cutting edge, Colander et al. (2007–2008: 309) argue that heterodox economists should not worry about methodology and divisions within economics.4 In a sense, it is true that heterodox economists spend a lot of time discussing methodological issues and differences between schools of thought. It is also true that methodology is not important per se, because it is unlikely that heterodox economists would contribute significantly to the debate, as noted by Colander et al. (2007–2008: 309). Methodology matters because it is the only way to differentiate between the parts of the mainstream, like the cutting edge, that sometimes sound unorthodox (but are not) and heterodoxy. Unless one believes, like McCloskey (1983), that good economics is good conversation, as Colander et al. (2007–2008) seem to suggest with their preoccupation of including heterodox economists in the mainstream conversation, methodological differences reveal the underlying assumptions of alternative theories. Further, the fundamental differences between the mainstream, both the orthodoxy and its cutting edge, and heterodoxy, are to be found in the assumptions. Paul Davidson (2005) suggests that the differences between the mainstream and Post Keynesian analysis can be described in terms of axioms.5 Davidson argues that it is possible to evaluate alternative theories according to the fundamental assumptions about the real world. A general theory would be less restrictive in terms of fundamental axioms, implying that more can be explained with less, but also that the axioms should be applicable to the real world. In other words, relevance should also be part of the demarcation criterion. The obvious question that arises is how to evaluate theories based on alternative assumptions. The idea that methodological questions are “a diversion from doing real economics” (Colander et al., 2007–2008: 309) is a derivation of what has been called empirical realism—that is, the idea that reality can only be understood on the basis of direct experience. Empirical realism, which dominates neoclassical economics, emphasizes the importance of empirical research and econometrical evidence in evaluating theories, and has more often than not been derisive about methodological research. An alternative to the conventional approach is constituted by what has been termed transcendental realism (Lawson, 1997). In this view, reality is constituted not only by experience but also by deep structures that are often not directly observable, and cannot be reducible to the events of experience. In that sense, the analysis of the fundamental suppositions of alternative theories is essential to comprehend the implicit assumptions in each paradigm regarding the deep structures of reality. Not worrying about methodology and paradigmatic divisions implies an acceptance of the status quo, and the neutrality of science, preserving the worst of the mainstream. Not surprisingly, heterodox economists spend a lot of time making methodological points that are not necessarily novel to “long-­in-tooth” economists. There is a constant necessity of reminding the profession that a series of assumptions

162   M. Vernengo that are taken for granted—and that several younger economists trained within the mainstream are completely unaware of their limitations—are methodologically flawed. That is why just accepting to participate in a dialogue with the mainstream economists on their own terms, and encouraging heterodox economists to get into the conversation, is at best naive. It is true that “ideas compete in an institutional environment (controlled by the mainstream),” as Colander et al. (2007–2008: 310) remind us. Yet it is not clear that “[those ideas] have to compete in that mainstream institutional environment” (Colander et al., 2007–2008: 310). The passive acceptance of the current institutional environment, as much as the acquiescence with the dominant methodological stance, is detrimental to heterodoxy. In fact, I would argue that the mainstream environment can and should be transformed, as much as they transformed the environment that they encountered in the past; for example, the Institutionalist School essentially dominated the American Economic Association (AEA) and other key institutions such as the National Bureau of Economic Research (NBER) before the ascendancy of neoclassicism. In that sense, a more fruitful strategy would be to occupy spaces in economic associations, academic positions, economic journals (academic and popular), governmental and nongovernmental institutions, and international organizations, which would lend legitimacy to alternatives to neoclassical economics. Further, institutional innovation is central to the survival and development of heterodox economics. The creation of this journal is an example of institutional innovation that has served the heterodox community. In the same vein, the ability to reproduce, by educating newly minted Ph.Ds, is essential for the future prospects of heterodoxy. Dialogue with the best of the mainstream is not bad per se and should not be discouraged, but it is not essential to the development of the heterodox research agenda.

Concluding remarks on how to be listened to by the mainstream Robert Paul Wolff ’s (1969) primary argument against what he denominated pure tolerance was that institutions ignore the ideas of individuals if they are not affiliated with acceptable interest groups. This implies that the major barrier to heterodoxy is the tendency within the profession to favor the already established neoclassical orthodoxy. Dialogue with the cutting edge of the mainstream does not contribute to further the research agenda of heterodoxy. If a heterodox economist really “wants to be listened to by the mainstream” (Colander et al., 2007–2008: 309), then the best advice is to follow H. L. Mencken (1996: 89), who said that “the way to please is to proclaim in a confident manner, not what is true, but what is merely comforting. This is what is called building up. This is constructive criticism.” The real question is why the heterodoxy would want to be heard by the mainstream in the first place. If heterodox economists are in search of an audience, I would suggest shooting for policymakers who are often more pragmatic and clearly more relevant. In the

Conversation or monologue?   163 meantime, heterodox economists should be less concerned about dialogue with the mainstream and more preoccupied about the flaws, including the methodological ones, in the mainstream analysis, and working to show how heterodox approaches can provide more fruitful understanding of real economies.

Addendum The return of vulgar economics6 Colander et al. (2010) [CHR from now on] reply to my critique that their view that heterodox economists should not consider themselves just economists (that is, should not try to differentiate their product from the mainstream), and that methodological issues are irrelevant, by just repeating their argument. However, in their reply they also reveal something about their views of science and the meaning of the dominant marginalist (or neoclassical) paradigm, and about their view of heterodoxy. This addendum argues that the lack of a correct understanding of the mainstream, and its relation to the cutting edge and of heterodox economics, reveals CHR’s arguments to be severely damaged. First of all they suggest rather preposterously that I would argue that teaching neoclassical economics should not be done, and that some heterodox programs actually do not teach neoclassical economics. In their words (CHR, 2010: 398): our reading of Vernengo’s comment leads us to suspect that he would advise the students to study the heterodox writings, and go to a heterodox program—the mainstream work is so flawed that it does not make much sense to study it. Their reading is a figment of their imagination, since nowhere in my article is there such a statement. All heterodox graduate programs teach mainstream economics, and contrary to the authors’ claim, I am in a graduate heterodox program (and studied in one) and should know enough about the nature of these programs. However, the reason for teaching mainstream theory is not because it provides a useful tool to analyze reality, which would be the only scientific criteria for doing so. There are two main reasons for studying mainstream neoclassical economics. First, to be able to criticize, one must be able to correctly understand. Second, mainstream economics serves as the basis for the radical conservative laissez-­faire agenda.7 Hence, policy discussions are to a great extent connected to mainstream views of the functioning of the economy. And herein lies the problem with CHR. They plainly do not know the meaning of marginalism, and, as a result, their understanding of the mainstream and their heterodox critics is deeply flawed. First, they seem to suggest that the problems with the mainstream, according to heterodox authors, are the absence of true uncertainty, and the assumption of ergodicity. This is derived from my use of Davidson (1996). Davidson’s main point, however, is that the theoretical

164   M. Vernengo foundations used by heterodox authors are essentially different from the mainstream. In other words, assumptions matter. For example, either you accept Say’s Law that savings determines investment, or you take the principle of effective demand, and the opposite is true. Whether the complexity of the real world makes the assumption of ergodicity central to neoclassical economics is irrelevant to my argument. Being able to incorporate complexity and being eclectic does not make the cutting edge heterodox in their theoretical framework or ideas. Yet CHR (2010: 399) insist that for them: the “cutting-­edge mainstream critics of the mainstream [sic] as heterodox in ideas, but mainstream in name and sociological setting.” Further, they believe (CHR, 2010: 403) that modern mainstream economics includes such a wide range of approaches and views that the term neoclassical is no longer useful as a description of much of the mainstream. We see Rodrik as quite eclectic in his views and very open about it. In other words, the cutting edge is part of the mainstream just in name, and, in fact, there is no dominant mainstream, but a potpourri of mainstream views. One could argue that what CHR refer to as the eclecticism of the economic profession, and that Roncaglia (2005) more appropriately refers to as the age of fragmentation, is the result of the mainstream’s defeat—admitted by Samuelson (1966)—in the capital debates. The capital debates showed that the inverse relation between capital (or labor for that matter) intensity and its remuneration (the interest rate for capital and the real wage for labor) is not generally valid. The very core idea that all prices, including the price for capital and labor, are determined by supply and demand (relative scarcities) falls apart.8 Note that the capital debates have important implications for macroeconomics as well (Camara and Vernengo, 2010). If there is no inverse relation between investment and the rate of interest, there is no interest rate sufficiently low that would bring investment to the level at which full employment savings are generated. In other words, there is no natural rate of interest, as Keynes suggested (and no natural rate of unemployment, Friedman’s concept, either), and the system is demand driven not just in the short-­term, but also in the long-­term. Hence, the heterodoxy is not about realistic ideas about economic policy, as CHR seem to believe, but about a coherent theoretical framework to understand reality, one in which prices are not determined by relative scarcities, and the level of activity and growth are demand determined. It is in the context of this theoretical failure, and the fact that General Equilibrium was a sterile research program, that could not even provide good solutions for the problems of uniqueness and stability (Ingrao and Israel, 1990), and in the middle of the demise of Keynesian economic policies and the rise of the conservative revolution in the 1970s, that economics became more eclectic. However, the eclecticism should not be confused either with pluralism, meaning the acceptance of alternative views, nor with heterodoxy. The

Conversation or monologue?   165 mainstream is eclectic, but not pluralistic, meaning open to alternative approaches. In fact, it was in the late 1960s and early 1970s that heterodox economists were kicked out of the profession, so to speak, and have since had to create their own organizations (the Union for Radical Political Economics, for example) and their own journals (for example, Journal of Post Keynesian Economics, and Cambridge Journal of Economics), and their segregated graduate programs. Arguably, the mainstream became more sectarian, and certain of the infallibility of market solutions, exactly when their theory foundered. The theoretical crisis caused by the capital debates led to the rise of what may be termed the new, or the return of, vulgar economics. Similar to the period from the mid- to the late-­nineteenth century—when the crisis of the classical approach and the Marxist critiques led to the development of marginalism—now we have a defense of market efficiency, even though the foundations of their position have been completely undermined. The rise of neoliberalism and the demise of Keynesian economics took place as the theoretical foundations of marginalism were shaken by the capital debates; a fundamentalist reaction to defeat that created a peculiar dichotomy in the profession. As I noted before, the relation between what CHR call the cutting edge and the mainstream is symbiotic. The cutting edge requires the mainstream to obtain respectability. Here again they confuse my argument; they say (CHR, 2010: 403): We do, however, fully agree with Vernengo that Rodrik, and most main-­ stream critics of the profession, including many who were formerly considered heterodox, are hesitant to classify themselves as heterodox, and that many strongly state that they are not heterodox. The question this should raise among heterodox economists is: why that is so? In our view, it is not because these inside mainstream critics of the profession are scared of taking strong stands, of attacking strongly held beliefs in the mainstream, or of pointing out what they see as problems in the mainstream views. The reason is heterodox economists’ poor reputation within the mainstream profession. I did not say that Rodrik hesitates to be seen as heterodox (and I cannot see how we agree on something I never said). I said that he is afraid not to be seen as neoclassical, because the price of exclusion is too high. What they are is scared of taking positions on a whole host of issues, from the theoretically relevant to the policy ones. Here is a quote from Paul Krugman (2010), who on many levels is not afraid to speak his mind. He says: By the early 1980s it was already common knowledge among people I hung out with that the only way to get non-­crazy macroeconomics published was to wrap sensible assumptions about output and employment in something else, something that involved rational expectations and intertemporal stuff and made the paper respectable. And yes, that was conscious knowledge,

166   M. Vernengo which shaped the kinds of papers we wrote. So you could do exchange rate models that actually had realistic assumptions about prices and employment, but put the focus on rational expectations in the currency market, so that people really didn’t notice. Or you could model optimal investment choices, with the underlying framework fairly Keynesian, but hidden in the background. And so on. So, basically, the whole idea was that they would publish things that were reasonable in crazy models, in order not to be ostracized. That is truly courageous! And by the way, the reputation of heterodox economists is low exactly because they are willing to say things that the mainstream does not want to hear. Speaking truth to authority, on the other hand, is not friendly enough, CHR suggest. For example, Jane D’Arista, Paul Davidson, and Jamie Galbraith (to name three heterodox economists), who all foresaw the recent global crisis when most mainstream economists did not and were against financial deregulation, have less political and academic space, and very likely less financial reward than, say, Larry Summers (as Treasury Secretary he promoted deregulation, and I assume we can agree that Harvard conveys authority). Incredibly, Summers is seen as a Keynesian (perhaps even cutting edge) by many in the profession. Are we to believe that Larry Summers’ theories or policy expertise are behind the advantage he holds over the three heterodox economists cited? The problem with CHR is that they presume that the lack of reputation of heterodox economists must imply that they are somehow less qualified. They blame the heterodox themselves for their ostracism within the profession. Blaming the victim is a typical strategy of the powerful. As I noted before, the mainstream is there to say that markets work, and the cutting edge just makes them more realistic, when it turns out that markets do not work as their theories suggest they should. They are the Krugman-­like economists willing to wrap reasonable ideas with crazy models to sound sensible, but afraid to be kicked out. CHR (2010: 399) say that: “what Vernengo calls organized hypocrisy, we see as wisdom of knowing when to attack and when not.” What I call organized hypocrisy is the symbiotic relation by which the mainstream tries to be respectable while trying to sound realistic and reasonable. There is no wisdom in wrapping reasonable ideas with crazy models. This is the very definition of hypocrisy, namely: pretending to have beliefs one does not actually hold true. More importantly, their view that heterodox economic ideas develop in a sort of game in which one either attacks or does not attack the mainstream is revealing of the degree of confusion about what economists (heterodox or not) should be doing. They seem to argue for a strategy based on how to do well in the profession. They say, “but initially we believe an effective critic works from within” (CHR, 2010: 399). This is not about how to be an effective critic, but how to effectively understand how economies actually work. It seems that CHR want to be accepted by the profession (the cutting edge, not the mainstream, I would guess) rather than understand how the economy works.

Conversation or monologue?   167 Further, they say (CHR, 2010: 404) that: Vernengo’s paper conveys that hostile tone about the mainstream that the mainstream associates with heterodoxy. If, in the beginning of one’s discussion with people, one emphasizes their personal hypocrisy, their prejudices, and their lack of tolerance, one is unlikely to enter into fruitful conversation with them, even if they agree with one on many of the points one raises. It must be clear that I did not mean, and did not say, that any particular economists are hypocritical, even though several certainly are, and not just mainstream and cutting edge economists. Organized hypocrisy is an institutional phenomenon, and a part of the way the profession behaves. What CHR perceive as anger is my critique of the duplicitous behavior of the profession. I might be wrong, but the evidence suggests to me that this is what is going on. I am considered angry because I do say something that does not sound friendly. In all fairness, it is the mainstream economists that, when confronted with the serious critiques of their principles, feel that their authority has been undermined. The mainstream is angry, not the heterodox critics. For example, Glenn Hubbard gets worked up, in his interview in Inside Job, when asked about the potential for conflict of interest in saying things that favor groups that actually pay his consultancy fees. How dare people confront him! Heterodox people have no authority and are seldom angry. But that does not mean heterodox economists should not point out that mainstream theories are flawed just to avoid inconveniencing them and risk losing potential friends. That is why they are again wrong when they say that “Rodrik, and other inside-­the-mainstream critics, want to separate themselves from that heterodox tone and attitude, not necessarily from heterodox ideas” (CHR, 2010: 404). Rodrik does not understand that prices are not determined by relative scarcities, and that output is demand driven in the long run, to cite a few heterodox tenets. A cursory reading of his papers shows that he does believe in a version of the neoclassical theory of growth, for example. He just tries to make it more relevant by bringing it to a lower level of abstraction in which institutional factors matter. Only somebody that does not understand the meaning of heterodoxy would see him as heterodox. More problematic even than this is CHR’s definition of Hyman Minsky as a cutting edge mainstream economist. This is disingenuous at best. Minsky did believe that Keynes’ theory was not about short-­run imperfections, and did believe accordingly in the principle of effective demand in the long-­run. And that is a hallmark of heterodoxy. Also, he argued that: If I had my way the standard American course in economics would be eliminated and economics would be introduced in the context of social sciences and history. The current American way of teaching economics leads to American economists who are well trained but poorly educated. (Minsky, 2009: 194, italics added)

168   M. Vernengo Minsky thought so much of the mainstream (standard course) that he would eliminate the course! Minsky may have been guarded about being seen as part of a particular heterodox group, not because he was cutting edge mainstream, but because he was too original to be boxed under a particular label. Finally, CHR return to the question of communication with the mainstream, but do not address my question of why that should be a priority of heterodox economists. They do not seem to know what is to be gained, beyond being accepted. They believe that “heterodox economists can better communicate with mainstream economists if they give the mainstream the benefit of the doubt and interpret their work sympathetically, rather than portraying the mainstream as hypocritical and stupid” (CHR, 2010: 399). I believe that one should call a spade a spade. If somebody defends illogical ideas or ones for which there is no evidence, there is little reason to take it seriously. Robert Solow (1984: 146) in his interview with Arjo Klamer, on the state of economics and the role of the rational expectations revolution, suggested, by analogy, that if somebody approached him and said he was Napoleon Bonaparte he would not be compeled to discuss the details of the battle of Waterloo with him. There would be no knowledge to be gained. I emphasized, but will say again, that I having nothing against talking to the mainstream, and in my edited books Barry Eichengreen, Jeff Frankel (I suppose cutting edge economists by CHR standards), and Bill Niskanen, a conservative economist, have been published alongside heterodox economists. That did not help me understand how the world works, but simply to have a better perspective on their views. My guess is that they suggest I am sectarian because they, in turn, “suspect that Vernengo would see our position as selling out” (CHR, 2010: 339). I did not say that in my article; have no way of knowing if that is true; and am not particularly interested in the topic. What I very clearly accuse them of doing is giving terrible advice to their students. That is, telling them that to befriend the mainstream is the way to be influential in the profession (that is, influence the mainstream). They also confoundedly think that they proposed “similar arguments to Vernengo’s—that most heterodox economists should see themselves as policy-­ oriented political economists, and not as economic scientists—and that their primary target audience should be policymakers” (CHR, 2010: 406). How can one give advice if the diagnosis is not correct, and how can one get an accurate diagnostic unless one has a coherent scientific framework to analyze reality? I do not think that theory (science for CHR) should be left to the mainstream, while lowly heterodox economists are left to dealing with the art of policymaking. Again, what I clearly stated is that, if heterodox economists are on the lookout for an audience, policymakers are more relevant than the mainstream. Their alternative theories are essential and integral to their policy advice. CHR (2010: 407) suggest that heterodox economists should be more friendly towards the mainstream because, in their view “the reality that underlies our call for change is that heterodox economics are being squeezed out of the U.S. programs and more and more are being squeezed out of European and Latin

Conversation or monologue?   169 American programs.” Again, contrary to what has been said by CHR, I am at a university with a graduate program that is pluralistic and has both mainstream neoclassical and heterodox elements, and I can directly talk about my practical experience, having taught core courses in the Ph.D. program for the last several years. Heterodox departments suffer pressures, no doubt, but is far from clear that they are going to vanish in the United States. There is a significant demand for heterodox programs, because lots of undergraduate students feel the need for a more sound theory that is able to help them understand how the world really works. Moreover there is a need for that not just in the United States, and, as a result, heterodox graduate programs receive lots of foreign students in search of an American university education, and a good dose of common sense in their economics. Having studied and taught in graduate programs in Latin America I can simply say that CHR are plainly wrong. Heterodox ideas have been on the rise in Latin America since the demise of the Washington Consensus, and the election of several left of center governments. I will not comment on the European situation, since I try to avoid talking about things about which I have no direct reliable information. But even if they were right, their point is basically that since the heterodox are in retreat (again something that is at least doubtful), they should just join the wave of the mainstream, or the best of them, and hope they like our ideas. If we are well behaved, and do not say that they are wrong because that sounds angry, then they might not kick us out. The agenda they propose is self-­defeating. And they will have no influence on the mainstream unless they say things that are not threatening to the mainstream, which by definition implies that no criticism is acceptable. That would only lead to the victory of vulgar economics, a defense of the status quo with no coherent theoretical foundation. In other words, this would imply an economics at the service of the powerful.

Notes 1 Krasner (1999) discusses the notion of organized hypocrisy to analyze international sovereignty. According to him, organized hypocrisy is a deliberate choice by rulers of states, allowing them to manage conflicting normative and materialistic demands. Brunsson (2003) suggests that organized hypocrisy may be a legitimate mechanism to deal with inconsistent and conflicting norms. 2 In fact, in a post in Rodrik’s blog titled “Is Neoclassical Economics a Mafia?” (2007a), Rodrik conveys the following story: Some years ago, when I first presented an empirical paper questioning some of the conventional views on trade to a high profile economics conference, a member of the audience (a very prominent economist and a former co-­author of mine) shocked me with the question “why are you doing this?” Clearly his co-­author was concerned with the effects that being critical of free trade might have on Rodrik’s career. Rodrik’s co-­author is, most likely, just a good friend, but his question reveals a lot about the dark corners of the edge of the profession. 3 It should be noted that we believe that complexity, like information asymmetries and other market imperfections, although real features of the world, are not fundamental for heterodox or Post Keynesian analysis, as Davidson (1996) argues.

170   M. Vernengo 4 Interestingly enough, Lawson argues that one of the distinctive characteristics of orthodoxy is “a reluctance (to say the least) to indulge in questions of methodology” (1994: 508–9). In that sense, Colander and his co-­authors suggest that heterodox economists should be more orthodox. 5 According to Davidson, the three axioms of neoclassical economics are (1) the ergodic axiom, (2) the gross substitution axiom, and (3) the neutrality of money axiom. The rejection of these axioms, and the acceptance of Keynes’s principle of effective demand would, in Davidson’s view, constitute the basis for the Post Keynesian alternative to the mainstream. 6 The author would like to thank to Fred Lee, without implicating him, for conversations on the topic of the Addendum. 7 The sorts of moderate reform programs of social democracy, or socialism, the more heavy-­handed planning approach of Soviet communism and the interventionist policies of the developmental states in the developing countries, are ultimately based on a heterodox understanding of the limitations of market economies. 8 An alternative based on the Post Keynesian tradition of full cost pricing shows that supply and demand affect only market prices, but not the long-­term prices which are based solely on costs of production. For a more detailed discussion see Camara and Vernengo (2012).

References Brunsson, N. (2003) “Organized hypocrisy” in B. Czarniawska and G. Sevón (eds.) The Northern Lights, Oslo: Copenhagen Business School Press. Camara-­Neto, A. F. and Vernengo, M. (2012) “Keynes after Sraffa and Kaldor: effective demand, accumulation, and productivity growth” in T. Cate (ed.) Keynes’s General Theory Seventy-­Five Years Later, Cheltenham: Edward Elgar. Colander, D., Holt, R., and Rosser Jr., J. B. (2004) “The changing face of mainstream economics” in Review of Political Economy, 16: 485–99. Colander, D., Holt, R., and Rosser Jr., J. B. (2007–2008) “Live and dead issues in the methodology of economics” in Journal of Post Keynesian Economics, 30: 303–12. Colander, D., Holt, R., and Rosser Jr., J. B. (2010) “How to win friends and (possibly) influence mainstream economists” in Journal of Post Keynesian Economics, 32: 397–408. Davidson, P. (1996) “Reality and economic theory” in Journal of Post Keynesian Economics, 18: 479–508. Davidson, P. (2005) “Responses to Lavoie, King, and Dow on what Post Keynesianism is and who is a Post Keynesian” in Journal of Post Keynesian Economics, 27: 393–408. Dequech, D. (2007–2008) “Neoclassical, Orthodox, Mainstream, and Heterodox Economics” in Journal of Post Keynesian Economics, 30: 137–60. Galbraith, J. (1998) Created Unequal, New York: Free Press. Gordon, D. (1996) Fat and Mean, New York: Free Press. Ingrao, B. and Israel, G. (1990) The Invisible Hand: economic equilibrium in the history of science, Cambridge: MIT Press. Krasner, S. (1999) Sovereignty: Organized Hypocrisy, Princeton: Princeton University Press. Krugman, P. (2007) The Conscience of a Liberal, New York: Norton. Krugman, P. (2010) “Macroeconomic madness” in the blog “The Conscience of a Liberal”, October 9. Available at: http://krugman.blogs.nytimes.com/2010/10/09/ macroeconomic-­madness/, (accessed December 22, 2011).

Conversation or monologue?   171 Lawson, T. (1994) “The nature of Post Keynesianism and its links to other traditions” in Journal of Post Keynesian Economics, 16: 503–38. Lawson, T. (1997) Economics and Reality, London: Routledge. McCloskey, D. (1983) “The Rhetoric of Economics” in Journal of Economic Literature, 21: 481–517. Mencken, H. L. (1996) Prejudices: a selection, Baltimore: Johns Hopkins University Press. Minsky, H. (2009) “Beginnings” in PSL Quarterly Review, 62: 191–203. Myrdal, G. (1969) Objectivity in Social Sciences, New York: Pantheon. Rodrik, D. (1997) Has Globalization Gone Too Far?, Washington, DC: Institute of International Economics. Rodrik, D. (2007a) “Is Neoclassical Economics a Mafia?” Online. Available at: http:// rodrik.typepad.com/dani_rodriks_weblog/2007/05/is_neoclassical.html (accessed December 22, 2011). Rodrik, D. (2007b) One Economics, Many Recipes: globalization, institutions, and economic Growth, Princeton: Princeton University Press. Roncaglia, A. (2005) The Wealth of Ideas: a history of economic thought, Cambridge: Cambridge University Press. Samuelson, P. (1966) “A summing up” in Quarterly Journal of Economics, 80: 568–83. Solow, R. (1984/1988) “Interview” in A. Klamer (ed.) Conversations with Economists, Totowa: Rowman and Littlefield. Wolff, R. P. (1969) “Beyond Tolerance” in R. P. Wolff, B. Moore Jr., and H. Marcuse (eds.), A Critique of Pure Tolerance, Boston: Beacon Press.

9 Economics fit for the Queen Barriers and opportunities Peter E. Earl and Ti-­Ching Peng

Introduction The economics of financial markets and macroeconomic fluctuations has become a contested area, with economists from various perspectives publicly arguing their positions in multi-­signature letters to newspapers (see Keegan, 2010). In the UK, this also involved letters to Her Majesty the Queen, one of which suggested that the economy could benefit from Her Majesty requesting monthly briefings from government ministers on the economic pitfalls that might lie ahead (see Allen, 2010). These attempts to include the Queen in debates about the state of the economy and of economics resulted from Her Majesty showing a personal interest in this area. During a visit to the London School of Economics in November 2008, she asked why the economics profession had failed to predict the credit crunch that has become known as the Global Financial Crisis (GFC). A financial crisis had, in fact, been publicly predicted by a number of economists of various persuasions, including Martin Feldstein, Raghuran Rajan, Nouriel Roubini and Robert Schiller in the US, Roger Bootle, Wynne Godley, Stephen King and Andrew Oswald in the UK, and Steve Keen in Australia. However, on July 22, 2009, following a forum held at the British Academy on 19 June, the Queen was sent an answer in the form a of three-­page letter signed by two members of the Academy, Professors Tim Besley and Peter Hennessy (2009). On the final page of this letter the problem was summarized as follows: Everyone seemed to be doing their own job properly on its own merit. And according to standard measures of success, they were often doing it well. The failure was to see how collectively this added up to a series of interconnected imbalances over which no single authority had jurisdiction. This, combined with the psychology of herding and the mantra of financial and policy gurus, led to a dangerous recipe. Individual risks may rightly have been viewed as small, but the risk to the system as a whole was vast. So in summary . . . the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.

Economics fit for the Queen   173 This letter can be read as implying that misguided economic analysis underpinned the economic reforms of the 1980s that, amongst other things, freed up the workings of financial markets in many countries, resulting in the conditions that produced the GFC. These reforms were driven by politicians such as Mar­ garet Thatcher who had picked up Friedrich Hayek’s view about why socialism is inherently inferior to a free market economy (see Yergin and Stanislaw, 1998). For Hayek, decisions taken by individuals would produce spontaneous order in the economy as a whole. Socialist planners who attempted to coordinate economic activities centrally would do this less well because of the complexity of the economy: they would not be able to gather and deploy all the information used by decentralized individuals in a market economy. While Hayek may have been right about the shortcomings of socialism, his analysis did not actually demonstrate that a decentralized market economy would necessarily grow in an orderly manner. However, despite recognizing that the local rationality of a mass of dispersed, specialized decision makers does not necessarily add up to macroeconomic coherence, the Besley/Hennessy letter did not suggest that economists might have done better if they had followed an institutionalist/complex systems approach and taken account of how positive feedback loops might lead to cumulating processes rather than equilibrium. Nor did it suggest that there could be a place for psychology in the training of economists, despite mentioning the “psychology of herding” and saying that: [M]ost were convinced that banks knew what they were doing. They believed that the financial wizards had found new and clever ways of managing risks. Indeed, some claimed to have so dispersed them through an array of novel financial instruments that they had virtually removed them. It is difficult to recall a greater example of wishful thinking combined with hubris. Six weeks later, on August 10, 2009, ten senior heterodox economists sent a very different reply to Her Majesty (Dow et al., 2009). Unlike the Besley/Hennessy letter, the heterodox economists’ letter laid some of the blame for the extent of the crisis on the nature of mainstream economics and therefore argued for major changes to the economics curriculum. It accused leading economists of having turned the discipline into a branch of applied mathematics in which technique is pursued for its own sake. It suggested that there is a need to broaden the discipline to allow room for more critical perspectives that reflect knowledge of other fields such as economic history and psychology. Although parts of the Besley/Hennessy letter conveyed a sense that the GFC was an outcome of a historical process affected by psychological factors and system complexity, this chapter will argue that it is most unlikely that the GFC will lead to any major internally driven change within to the core training that economists receive. This is despite the fact that heterodox approaches—such as institutional, evolutionary and psychological economics, and Post-­Keynesian macroeconomics—offer significant ingredients for understanding how to reduce

174   P. E. Earl and T.-C. Peng the risk of future crises in the global economy. Indeed, many proponents of these approaches had anticipated something along the lines of the GFC, albeit without a precise date or calendar of events, via their familiarity with the financial instability hypothesis proposed by the late Hyman Minsky (1975, 1982, 2008). It was pessimism about the prospects for internally driven reform in economics that lay behind the Dow et al. letter (which was instigated by Professor Geoffrey Hodgson, editor of the Journal of Institutional Economics). It was hoped that the letter might serve as a device for garnering external pressure for reform. Of course, its signatories did not expect Her Majesty to initiate anything after considering it, but they hoped that it might at least lead to wider public debate about the state of economics and how what is going on in economics classrooms relates to the state of the economy. This chapter brings together material from Earl (2010) and Earl and Peng (2012) to examine the need for economics to change in the directions advocated in the Dow et al. letter to the Queen and considers both pessimistic and optimistic perspectives on the potential for this change to take place. It begins by considering how mainstream economists can construct a case for saying that there is no crisis in economics despite the GFC. It then provides a critique of this construction and shows that it points to the need for precisely the kinds of changes advocated in the heterodox economists’ letter. Next, it critically considers attempts to fend off the heterodox perspective via claims that mainstream economics actually is changing in precisely the directions suggested, as evidenced by the rise of “behavioral economics.” This is followed by two sections that consider barriers to change within the academic environment: first, the problem of opening up the economics curriculum and, second, the hiring and promotion processes for academic economists. Thereafter, the chapter adopts a more upbeat perspective, reflecting on what might be achieved by heterodox economists if they see the problem in terms of marketing their ideas to the mainstream and picking up lessons on how brand management contributed to the success of behavioral economics in the past two decades. Before moving to concluding comments, the chapter shows how strategies involving stealth might be used to get heterodox material into the curriculum and mainstream journals, as well as considering opportunities for producing a much more unified research program that has a bigger voice than that achieved by the disparate groups of heterodox economists.

Scope for denying that there is anything wrong with economics The Besley/Hennessy letter has a contrite tone that has been characteristic of the economics establishment during the GFC. However, if mainstream economists wish to claim that the GFC does not signal a need to change economics, they can readily change their demeanor and start asserting that if only more attention had been paid to their ideas, we would not be in the current mess. In doing so, they can put a positive spin on the state of economics despite the state of the economy

Economics fit for the Queen   175 and can assert that the GFC is evidence of the great power of the core ideas of modern microeconomics. The “spin” involves characterizing the origins of the GFC with reference to principal–agent problems, the “lemons” problem, and moral hazard in financial markets—in other words via the theoretical analysis of markets with asymmetric information for which George Akerlof, Michael Spence, and Joseph Stiglitz were jointly awarded the 2001 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. This approach was being used to analyze failures of financial institutions two decades ago (see Milgrom and Roberts, 1992: Chapter 6). It assumes that economic agents are greedy and unscrupulous folk who respond rationally to market incentives and take calculated risks, but that they differ in their access to information. From this perspective, the roots of the GFC lie in the fact that intermediaries frequently did not have incentives conducive to ensuring that those who were given credit could service their debts in the long term, while the penalties for defaulting were not onerous enough to make it rational to try to avoid taking on debts that looked like they would be problematic to service. Many sub-­prime mortgage debts were subsequently securitized and sold, and then sold again and again, on the basis of misleading credit ratings prepared by rating agencies that succumbed to conflicts of interest. Once the bad debts started to surface, interbank lending collapsed, along with much lending to firms, especially small firms, because banks could no longer distinguish between good and bad credit risks. Their reluctance to lend could cause defaults by firms that normally would have been able to meet their obligations. This perspective implies that financial crises will tend to recur unless markets and financial products are re-­engineered to change incentives and remove conflicts of interest. To some extent we may expect there will be changes of these kinds, as the wider awareness of the prevalence of these kinds of problems may result in financial institutions and regulatory bodies making greater use of economists who have expertise in these areas.

Deconstructing the spin Such a rationalization of the GFC is no doubt partially correct; there were indeed dysfunctional sets of incentives facing consumers, mortgage brokers, credit card companies, bankers, derivatives market participants and credit rating agencies. For example, if US personal bankruptcy laws enable bankrupt consumers to keep their cars and house contents when their houses are repossessed, it makes perfect sense for people who have little hope of servicing debt to sign up for a mortgage and credit cards in the knowledge that they are likely to default. This may be their one chance to get a decent car and big screen TV. Going bankrupt has few consequences for their future credit ratings. Likewise, the mortgage salesperson who is rewarded for signing up clients rather than for the successful completion of the mortgage contract many years later has little incentive to be concerned about a client’s long term capacity to service the debt. Senior bankers have little incentive not to put their firms at risk of long term

176   P. E. Earl and T.-C. Peng failure when pursuing performance bonuses in the short term; if a bank eventually does get into trouble, there is a good chance it will be too big to be allowed to fail and will be bailed out by the state if not by a former rival that sees it as a rational investment in avoiding problems of contagion that would arise if it were allowed to default on its liabilities. However, such spin by the economics establishment diverts attention from the potential benefits of taking a more pluralistic approach to the subject. These benefits can be seen if we deconstruct this reconstruction of events. The deconstructionist method involves focusing on what could have been said but was not, rather than on what was actually said, as the key to understanding a piece of analysis—just as cynical consumers deconstruct real estate advertisements by looking for what is left out rather than having their enthusiasm sparked by what is being said. The principal–agent/moral hazard story of the GFC omits some dimensions that seem potentially rather important. First, although the GFC has been particularly severe, it is by no means the only financial crisis since the 1929 Wall Street Crash. In fact, over the past four decades there has been a succession of smaller financial crises containing ingredients that have been identified as significant in the GFC: the mid-­1970s secondary banking and real estate crises (Dow and Earl, 1982: Chapter 12; Earl 1990: 285–90), the 1980s savings and loans crisis and yuppie-­era boom/bust associated with financial deregulation (Earl, 1990: 201, 287–8, 295–7; Mayer, 1992; Milgrom and Roberts, 1992: 170–6; Shiller, 1989), and then the Asian economic crisis/dotcom bubble (Shiller, 2000/2005). It would be completely erroneous to suggest that the GFC is different because of its global nature. The 1970s crisis had global aspects—for example, some of the bank failures were associated with foreign exchange speculation and offshore property speculation—while the global side of the Asian economic crisis of 1997 is set out in Thomas Friedman’s (1999) bestseller on globalization. In fact, if we take a long term historical perspective on the history of capitalism we find that these kinds of financial crises have been occurring for centuries (Kindleberger and Aliber, 2005). There is no evidence that economic agents generally have been learning enduring lessons about system-­wide risks and financial instability. We should not be particularly surprised by this, given the absence of learning about financial crises in the economics classroom; the yuppies who populate the dealing rooms burn out and move on/up to other roles, so each crisis involves a different set of decision makers at each layer, as well as often also involving new financial instruments. If learning about financial instability is to occur, the best time is before people become players in financial markets. Not all of them will necessarily be graduates of economics, or even graduates in any area, but social networking is likely to result in danger signs being widely recognized if a significant proportion of those who embark on careers in the financial sector have been taught about financial history and Minsky’s financial instability hypothesis. This is conceptually far easier to teach, and more likely to engage students, than topics such as IS-­LM models, aggregate supply and demand analysis, real business cycle theory, and so on, that fill up the core of teaching in macroeconomics.

Economics fit for the Queen   177 If the will is there, it is perfectly possible to teach the economics of financial instability in introductory macroeconomics courses that tend to be compulsory, not merely in economics programs but also in business degrees more generally (DVDs of television documentary series and films such as The Ascent of Money (Ferguson, 2008), Money as Debt (Grignon, 2008) and Addicted to Money (McWilliams, 2009) provide excellent video material to supplement traditional lectures). But this has not happened; it has not been allowed to get in the way of teaching formal macroeconomic models in which the financial sector hardly figures at all or where there is a separation between “monetary” and “real” aspects of the economy. Second, the mainstream story does not have a place for institutions and institutional change in the generation of financial instability except insofar as they determine whether or not there are information asymmetries that cause moral hazard and principal–agent problems. Such institutions can include laws that regulate financial firms as well as conventions for how business is done. As far as mainstream economics is concerned, regulations—such as those specifying what financial institutions are required or allowed to do as regards who gets loans, the composition of balance sheets, or the kinds of loans that a bank can make if it is not an investment bank—are simply additional constraints that decision makers contend with when engaging in constrained optimization. Likewise, if banks use formulaic or checklist-­based procedures for simplifying the process of deciding who gets loans, these are simply to be seen (via Baumol and Quandt, 1964) as optimal rules of thumb. Changes in such rules occur as optimal adaptations to changing market conditions. If such an attitude to institutions is adopted, there is the risk that economists will fail to consider how financial market behavior may be affected by institutional change. The analysis thus remains couched in general terms rather than being conducted mindful of particular kinds of changes that are taking place. Hence, institutional evolution in, say, home mortgage lending fails to attract economists’ attention. This is despite the fact that the implications for financial stability can become rather drastic if there is, say, a change in policy from home loans being limited to two-­and-a-­half times the prime earner’s annual salary with a 20 per cent deposit, to lending three times joint annual gross household income with a 10 per cent deposit, to being willing to lend 125 per cent of the value of the property with scant regard to the borrowers’ incomes. Failure to possess and consider such institutional knowledge may not only result in failure to anticipate financial meltdown; it may also result in more mundane errors such as arguing that rising property prices mainly reflect population growth and/or shortages of land releases for new building—property comes to be seen as suffering from lack of affordability rather than being expensive because finance is so readily available. Third, the “spun” story of the GFC provides no consideration of the impact of psychological factors on the changing propensity of consumers to get into debt or to attempt (as many are now doing) to pay it off. The widely taught “permanent income” and “lifecycle hypothesis” models of consumption and saving are

178   P. E. Earl and T.-C. Peng based on rational choice theory, with the consumer working out an optimal long term strategy for consumption in the face of probabilistically predictable fluctuations in income associated with the availability of work or returns from self-­ employment (for example, variations in farmer income caused by changes in weather and crop prices), and expected and actual changes in earnings due to promotion, tax policy, and the receipt of windfalls and bequests. If consumers are tending to take on more debt, rational choice theory does not try to understand this in terms of changes in attitudes to being indebted, or changes in wants that can be satisfied by debt-­financed expenditure. The theory is based around the assumption of a given preference ordering, so it has to leave these factors out. Over 50 years ago, George Katona (1960) and his colleagues at the University of Michigan Survey Research Center were already highlighting and exploring empirically the significance of consumers’ psychology in the determination of aggregate demand. In the modern world, consumption is a function of willingness to spend rather than tightly constrained by given budgets. Many households enjoy significant discretionary income and access to personal credit. Modern consumers often replace their durable goods long before these are worn out and not worth repairing. Taken together, these factors allow great discretion in the timing and direction of spending. Katona’s work led to the development of consumer confidence indices by banks in many countries, but it remains absent from standard macroeconomics textbook discussions of the consumption function. Though Katona’s work hardly ever made it into macroeconomics textbooks (a rare exception is Ackley, 1961), many economists currently in their fifties or sixties typically would at least have been taught the psychologically inspired “relative income” model of the consumption function offered by Duesenberry (1949). As Frank (2005) has observed, Duesenberry’s analysis has “mysteriously disappeared” from the curriculum. If it reappeared, it might prompt students of economics to consider the possibility that mortgage stress could be a consequence of consumers having raised their aspirations from, say, a three-­ bedroom, one-­bathroom home to a four-­bedroom home with an en-­suite bathroom and a media room after seeing homes to which some of their social circle have upgraded. From the standpoint of mainstream economics there is no need for a psychological perspective on saving and debt, despite the existence of an extensive literature on these topics within economic psychology (see Lea et al., 1993; Wärneryd, 1999). As well as ignoring social relativities, rational choice theory does not prompt consideration of the possibility that changes in households’ indebtedness are affected by changes in social norms regarding whether being in debt is a good or bad thing, or whether it is wise to presume that the prices of their homes will keep rising and it is safe to take some of their home equity and use it for consumption via an increased mortgage overdraft. It allows for social interaction in terms of “information cascades” between people but not “decision rule cascades” (Earl et al., 2007). If one adheres to the rational choice/constrained optimization view, rising ratios of indebtedness must reflect either a relaxation of constraints on getting

Economics fit for the Queen   179 into debt, or changes in other personal circumstances such as life expectancy and retirement age, or social welfare provisions that affect the trade-­off between consumption today and in the future. Such factors may indeed have empirical significance, but that does not provide a basis for professors to operate in a non-­pluralistic manner and fail to alert their students to alternative views with socio-­psychological foundations and the empirical work in respect of them. A potential starting point for bringing in the alternative approaches is to point out that, with rising life expectancy and the risk of cuts in state support for retirement because of the costs of dealing with an aging population, we should have been seeing a rise in savings ratios in developed countries, rather than people spending, in the run up to the GFC, as if there were no tomorrow. Fourth, the view of the GFC as an outcome of rational, selfish responses to changing constraints and opportunities in an environment characterized by principal–agent problems upholds the mainstream perspective by assuming consumers are financially literate enough for this to be a good approximation for how they choose. Long before the GFC emerged, Shiller (2000, 2005) was expressing concern that irrational exuberance was driving up property prices: most consumers seemed to be failing to look at the boom, mindful of elementary notions of compound interest and exponential growth. Had they done so they would have recognized that a boom based on house prices rising faster than incomes logically is unsustainable. In mainstream economics, even the poorly educated person who is a sub-­ prime mortgage candidate is seen as acting “as if ” well aware of the details of the mortgage contract and of bankruptcy law, and with a good understanding of how compound interest will blow out a credit card balance if the monthly bill is not repaid in full. Mainstream economists have not demonstrated that this is a good approximation, whereas the vast majority of subjects in a recent study by O’Shea (2010) failed comprehension tests on real-­world credit contracts. Following Earl and Potts (2004), an alternative choice scenario might be one in which consumers outsource their risk preferences to the financial institutions. In other words, consumers may sign up for debt contracts on the basis that the firms offering them would have done calculations about their ability to service the loans and would not offer loans to people who have a high chance of consequently going bankrupt.

Behavioral economics as a means of defending orthodoxy According to Colander et al. (2004a, 2004b, 2007–2008), modern mainstream economics is no longer a neoclassical monolith. Rather, it is a complex adaptive system of competing ideas from which economists select those that seem to work and reject those that have been discredited. The rise of the sort of “behavioral economics” surveyed in Wilkinson’s (2008) recent textbook is consistent with this view and is significant in relation to attempts by outsiders to argue that the economics curriculum requires radical reform. Mainstream economists can concede that there are some shortcomings in the “rational agent” perspective but

180   P. E. Earl and T.-C. Peng then argue that they are addressing them by bringing findings from psychology into economics. For evidence of this, they can point to their hiring newly minted Ph.Ds whose work employs the behavioral approach. The explosion of interest in behavioral economics might seem to imply a genuine interest in making changes in economics in situations where empirical anomalies have been exposed. However, a more cynical reading of the situation runs as follows. The modern behavioral approach first started to take off in finance (see the major anthology edited by Shefrin, 2001), where knowing how markets actually function enables a lot of money to be made. In economics, by contrast, there was a long period of resistance to acknowledging major anomalies (as with risk aversion, discussed in Rabin and Thaler, 2001). Behavioral economics became fashionable only after Rabin and a few others managed to get papers into the top US economics journals. Their success in winning these trophies led others to consider the possibility of emulating them to advance their own careers. Within modern mainstream economics, the behavioral approach entails incremental improvement rather than radical innovation. It is a sign that some principles in the core of the mainstream economics research program are being deemed more important than others, but the conventional core is retained (Berg and Gigerenzer, 2010). There is no systematic attempt to bring psychology into economics but instead constrained optimization is modified to allow for preferences and/or perceptions to be distorted as per a set of “heuristics and biases” that have been uncovered in empirical work. Constrained optimization is retained but the price of achieving this is that the independence of economics from psychologists’ findings is sacrificed. It is a partially pluralistic research strategy, for most economics continues to get done on the basis of full rationality assumptions but some is done mindful of the potential significance of heuristics and biases (for a more extensive analysis of the kind of pluralism that is being adopted within mainstream economics, see Davis, 2006). Though this is being called “behavioral economics” it is, as is evident from Sent (2004), very different from an earlier version of behavioral economics that takes in much more from psychology and other social sciences and rejects optimization. Ironically, the new behavioral economics achieved public notice via articles by Lowenstein (2001) and Uchitelle (2001) in the New York Times two days after the death of Herbert A. Simon. Simon was a founding figure in old behavioral economics, the originator of the concepts of bounded rationality and satisficing and winner, for these contributions, of the 1978 Alfred Nobel Memorial Prize in Economic Sciences. The New York Times journalists failed to make any connection between Simon and the new breed of behavioral economists about whom they were writing, and Simon’s approach remains almost completely invisible within the new literature. As a sign of what is happening in the new behavioral economics, consider the weighty 740-page reader edited by Camerer et al. (2004). Simon is mentioned a mere four times: the first three cases refer to his notion of “procedural rationality” with no references, and only the last cites any of his work and makes any

Economics fit for the Queen   181 connection with his concept of satisficing (for which there is no index entry); bounded rationality is only referred to on three pages (all in the same paper). Moreover, the first page of the introductory chapter is perfectly explicit about it being a limited departure from the dominant way of thinking, for cases where the standard model does not fit the facts: At the core of behavioral economics is the conviction that increasing the realism of the psychology underlying economic analysis will improve the field of economics on its own terms—generating theoretical insights, making better predictions of field phenomena, and suggesting better policy. This conviction does not imply a wholesale rejection of the neoclassical approach to economics based on utility maximization, equilibrium, and efficiency. The neoclassical approach is useful because it provides economists with a theoretical framework that can be applied to almost any form of economic (and even noneconomic) behavior, and it makes refutable predictions. Many of these predictions are tested in the chapters in this book, and rejections of those predictions suggest new theories. (Camerer et al., 2004: 1, emphasis in the original) From the standpoint of the methodology of scientific research programs advocated by Lakatos (1970) as a means of understanding how scientific disciplines change, this is a very clear statement of an intention to modify auxiliary hypothesis in the protective belt of the mainstream/neoclassical hard core. Though they may talk cheerfully about rules of thumb in everyday life, these economists are not about to pick up the radically innovative agenda of Simon and abandon constrained optimization; rules of thumb have to be discussed (if they are discussed at all) “as if ” they are optimal, in the manner of Baumol and Quandt (1964), not within a satisficing framework. From the perspective of the new behavioral economics it can be argued that decision makers are more likely to end up making financial errors than standard economic thinking would predict. In sizing up risky options, they are prone to edit probabilities, overemphasizing the importance of low probabilities and underweighting high probabilities. Decision makers in the real world are also prone to engage in hyperbolic discounting—that is, they will tend to discount the immediate future at a higher rate than they discount the more distant future— rather than discounting exponentially. These tendencies will result in some consumers being overly willing to risk going bankrupt by spending heavily with their credit cards in order to consume in the present. The gross front-­end loading will persist and produce time-­inconsistent behavior since, as they move through time, they will discount the immediate future at a higher rate than they imagined they would when looking ahead in earlier periods; instead of paying off their debts as they planned, they add to them. They act, in short, as if addicted to consumption. An implication of this line of thinking is that if more people had read inexpensive books such as the guide to avoiding the impact of heuristics and biases

182   P. E. Earl and T.-C. Peng in financial decision making offered by Belsky and Gilovich (1999), fewer people would have suffered financial embarrassment. The fact that only a tiny fraction of the population did avail themselves of such opportunities can itself be read as evidence of hyperbolic discounting; people generally must have been unwilling to incur the upfront costs of searching for tools to improve their decision making capabilities or, if they came across them, were reluctant to invest a mere $13 (the cover price of Belsky and Gilovich, 1999) to reduce the risk of losing thousands of dollars. The typical story of hyperbolic discounting told in modern behavioral economics seems superficially quite reasonable, but it involves an analytical contradiction. On the one hand it presumes people are not smart enough to see that they will overconsume and display time-­inconsistent preferences if they discount hyperbolically, whereas on the other hand it presumes they act “as if ” they are smart enough to do all the computations required to size up the net present value of consumption today versus reduced future consumption based on their hyperbolic discounting strategy. By contrast, old behavioral economists expect that, depending on the context, people will either suffer from Simon’s “bounded rationality,” or they will not. If people are short of the computational capacity required to see that hyperbolic discounting will involve time-­inconsistent preferences, then perhaps it might be wiser to recognize that they may let their credit card accounts get into a mess not because their calculations based on hyperbolic discounting lead them to make a succession of time-­inconsistent choices but because they fail to look very far into the future and do not do any complex calculations. Instead they act in a cavalier manner as if no trade-­off is involved and as if they can cross the repayment bridge when they come to it. The heterodox perspective from old behavioral economics is not simply a rewording of the new behavioral story; rather, it is a different story that does not involve constrained optimization over a set of trade-­offs. Moreover, it opens up the prospect of even bigger risk of financial default. For heterodox economists who have long been employing and advocating the approach of the old behavioral economists, watching the rise of new behavioral economics is an experience akin to that suffered by a European art house movie director whose film is remade Hollywood-­style and in the process is “dumbed down” and has its ending changed. The heterodox economists do not deny the empirical facts that are central to the heuristics and biases in the literature; on the contrary, they were accepted within the old behavioral economics literature before many of the proponents of the new behavioral economics had even graduated from high school (see readings 9, 10, and 13 in volume I, and reading 9 in volume II of the collection edited by Earl, 1988). Rather, they are frustrated that the new breed are being so selective in what they choose to learn from psychology and by the new breed’s failure to pick up what heterodox economists and economic psychologists have already done using a much richer range of psychological inputs.

Economics fit for the Queen   183

Barriers to curriculum change in economics In principle, it is perfectly possible to reform what happens in the economics classroom even if most economists prefer to carry on writing papers based on traditional perspectives or making the kinds of incremental innovations within the existing research program that are epitomized by the new behavioral economics. In the classroom, at least, there could be a wholeheartedly pluralistic approach to the teaching of economics that presented research programs with different core concepts. This kind of pluralism would be very different from the half-­baked version that is emerging within mainstream economics research where some modeling is done assuming full rationality and some is being done as constrained optimization that is distorted by heuristics and biases. Exposure to heterodox approaches would help students understand more clearly how orthodoxy works, and vice versa. Such an education could be provided without diluting the intellectual content, though its delivery would need to be handled carefully in order to be well received by students whose thinking styles were of the dualistic kind and who were not used to scientific debate (see Earl, 2008). Although critics of mainstream economics have characterized standard textbooks as “toxic” and set up a website (www.toxictextbooks.com/) to expose their shortcomings, it is not the unavailability of suitable alternative texts that is stopping curriculum reform in economics. Textbooks to facilitate pluralistic teaching of economics have been around for many years (for example, Dow, 1996; Earl, 1995; Earl and Wakeley, 2005; Himmelweit et al., 2001; Snowdon et al., 1994; along with others referred to as non-­toxic at the toxic textbooks website and on its Facebook discussion board). There is also no shortage of complementary readers, reference books and “companion” works produced by heterodox economists—partly because publishers such as Edward Elgar have noticed that heterodox economists make much more use of books relative to their journals-­focused mainstream colleagues. Rather, the barrier to innovative, pluralistic teaching of economics is that, for all of their preaching of the benefits of choice, when it comes to teaching, most academic economists choose not to introduce their classes to alternative perspectives. Mainstream economists may do this quite deliberately or because they, too, were taught in this way, and remain oblivious of alternatives. The latter group’s behavior is a sign that they have not actively checked to see whether there are alternative approaches to economics. Members of this group most likely have no heterodox colleagues and what they read fails to refer to alternative approaches to economics. Consciously or not, they indoctrinate members of their classes by presenting the language of the subject as if no rational person would question it (for a case study, see Dawson, 2007). It is going to be very difficult to open up mainstream economists to the idea of allowing pluralism into the economics classroom if those in power in departments of economics are senior professors who are primarily interested in playing with models, in the sense of doing applied mathematics, rather than in the real world. As things stand, undergraduate programs in economics are contorted by a

184   P. E. Earl and T.-C. Peng focus on making sure that prospective honors and graduate students can handle heavy-­duty articles in mainstream journals, even though the great bulk those who take economics typically are terminating students, often from business degree programs. Making space for alternative perspectives would not only open up the possibility of students favoring heterodox approaches, it would also limit the amount of time they could spend covering the technical side of the dominant approach. From time to time, of course, the policies and procedures handbooks that managers of modern universities use as their operational bibles will require economics degree programs to be reviewed. Such reviews provide opportunities for internal dissidents to make proposals that can be put before external stakeholders rather than simply being voted down by the mainstream majority at departmental meetings. Even if departments whose economics programs are being reviewed consist entirely of mainstream economists, there is still scope for external stakeholders to try to insist on changes of the kind that were suggested in the letter sent to Her Majesty by the ten heterodox economists. Unfortunately, it seems from an information economics perspective that the crisis in economics shares some of its foundations with the GFC, for these avenues for reform are limited by problems of agency associated with asymmetric information. At best, a course is an experience good (whose benefits cannot be ascertained until after it has been consumed) but often university courses are credence goods (whose benefits remain unclear even after consumption). They therefore have to be selected on the basis of trust. Internal representatives on review panels can argue that freedom of choice within a degree is a good thing and will enhance student enrolments, and hence that introducing additional compulsory courses to cover economic history and the psychology of choice is a bad thing. They can also argue that while any requirements that core courses are taught in a pluralistic manner might not do so at the expense of reduced intellectual demands, it would certainly come at the cost of reduced technical content. They can then argue that this will result in graduates having less well developed technical capabilities than those coming out of mainstream programs, and hence that the university’s economics graduates will be at a disadvantage in the market for jobs—that places a premium on modeling and number crunching skills. If courses in heterodox economics and economic history already exist as electives, but are taken only by a tiny minority of students, the mainstream economists can argue that students clearly are voting with their feet and that, if anything, these courses should be discontinued and the resources used more productively elsewhere. For such rhetoric by mainstream economists not to be successful, non-­ economists at high levels in universities need to possess expertise about the state of economics and know who has expertise on alternative perspectives. Otherwise the rhetoric is likely to be endorsed by external review panel members chosen on the recommendation of the mainstream-­dominated department whose programs are being reviewed. Lack of knowledge of the diversity of thought within economics is also likely to afflict stakeholders such as alumni representatives (who

Economics fit for the Queen   185 are products of the programs under review) and employer groups (whose representatives may have been satisfied with the graduates they had hired but were oblivious of the benefits they might have achieved by hiring graduates with a more rounded economics education). In the unlikely event that the degree review process concludes with requests for reforms, information asymmetries continue to be an issue that may limit change in what happens in the classroom. A head of department who wishes to allow things to continue much as before can turn a blind eye to the difference between what was asked for and what is actually delivered in the classroom by department members who similarly are reluctant to change. Little may actually change without careful monitoring by external groups or an active student body that, despite what they are being taught, has a sense that they deserve something very different. There is thus a classic double-­bind problem preventing heterodox economics and economic history from becoming core parts of the economics curriculum; the only way in which rational choices can be made about the merits of heterodox approaches to economics versus orthodox ones is for both approaches to be taught in the core of the program and subjected to empirical examination. Matters are no better at the graduate level. Coursework is being added to Ph.D. programs outside North America, to make them more like the US model. This typically entails “rigorous” courses so that even more difficult articles can be read in the core mainstream journals, rather than courses designed to open graduate students’ eyes to alternative approaches to economics. This also means that potential Ph.D. students of heterodox economics are required to master the orthodoxy before they can turn their attention elsewhere. Postgraduate heterodox economists thus have to be very seriously committed and technically gifted to put up with and survive all this, rather than abandon economics programs and do their Ph.Ds in other disciplines, such as marketing, entrepreneurship, international business or political science. Unless this trend is reversed fewer heterodox Ph.Ds will be produced than in the past, and as senior heterodox economists retire there will be no new blood to replace them as critics of the mainstream and advocates for change.

The role of research audits in preventing change in economics It is not just the one-­sided teaching of economics that is likely to limit the presence of heterodox ideas and personnel within economics departments, despite the shock of the GFC. Anyone who enters academic economics with the capacity to operate as a mainstream economist and who is in the game for fame and fortune—rather than as a humble seeker after truth who is interested in making a difference—will not rationally choose a heterodox approach even if they are aware of it. For example, it pays to be a behavioral economist of the new kind rather than someone who takes bounded rationality seriously and sees decision makers as rule-­using agents who cannot compute, discover, and/or identify

186   P. E. Earl and T.-C. Peng optimal solutions in many problem situations and who instead are trying to cope with life’s challenges by using simplified models (as economists do) and discovering satisfactory solutions. The key driving force here is the widespread tendency to rank, and fund, academic departments according to their performance as measured by the rankings of journal articles published by their members of staff (see Lee, 2007). Scholars whose work is unlikely to win a place in the top-­ranking journals will thus be ranked lower than those whose works conform to the templates of papers in these journals and who thus stand a chance of success if submitted to them. A paper stands little chance of acceptance with the top-­tier journals unless it contains a mathematical “model.” A typical mainstream theory paper thus is based on creative insights that can be summarized in a few sentences or a couple of paragraphs, which are then spun out and “proved” in 25 pages or so of mathematics. Papers that consist of “essays” of a traditional kind, containing page after page of economic argument that is not couched in formal notation, are not viewed by the elite journals as serious pieces of economics. In this environment, about all that those who have “job market papers” that are short of mathematical content can do to make themselves look more appealing as researchers, is to write using LaTex. The distinctive look of a LaTex paper, combined with the set-­up costs of learning how to use LaTex, may serve as a signal that they also do work in the preferred highly mathematical idiom. Now, of course, within the top-­tier generalist journals, the majority of articles are often applied contributions rather than pure theory (in the period 1991–1995 only 25 of 281 articles published in the American Economic Review were pure theory: see Dasgupta, 2002). However, if empirical work is based on unfamiliar economic theory it will be disadvantaged; articles may need to be far longer in order to introduce it to referees and persuade them to take it seriously, but the length may then be a barrier to publication since, even if referees are persuaded, a cut-­down version would leave readers bemused. Hence, even if referees of mainstream journals are open to fresh approaches, those whose applied work is conducted from heterodox perspectives will have a much bigger chance of getting it accepted in heterodox journals where related work has already been published, with which the normal readership will be familiar. For those who get on to the treadmill of a position in an economics department, the incentive structure remains the same as at the hiring stage; what matters most is where one publishes, not its real-­world relevance as signified by its use in public or business policymaking or citation in applied papers, or by it serving as theoretical foundations for works that have these kinds of impacts. The ability to demonstrate real-­world relevance certainly is important when attempting to win research grants, but so, too, is one’s standing in the discipline; even if the panel that determines the allocation of grants comes from a wider disciplinary field, a heterodox economist’s credibility may suffer if panel members are presented with reports by assessors who are mainstream economists and which emphasize the applicant’s lack of publications in top-­tier journals.

Economics fit for the Queen   187 There is little incentive to contribute to the development of capacity within the broader discipline to address real-­world issues via writing textbooks and editing books that serve as resources to facilitate the teaching of the kind of economics advocated in the letter sent to Her Majesty by the ten heterodox economists. Despite the GFC, along with evidence that Schumpeterian processes of creative destructions and structural change are going on in the real economy, the trophies of academic economics normally do not go to those who produce heavily cited contributions using evolutionary economics. Instead, rapid advancement is more likely to be awarded to those who continue to write arcane articles about equilibrium conditions or competitive games played with fixed rules and no surprises—articles that are mostly cited in similar articles, often by their own authors. In sum, the academic job market in economics seems to heterodox economists to be rotten to the core. Mainstream economics insists that the axiom of Archimedes holds—in other words, that a shortfall in one area can be compensated for by a superlative performance elsewhere so that “everything has its price.” However, appointments and promotions committees and the elite journals appear increasingly unwilling to make trade-­offs that give equal treatment to bright economists from different persuasions and with different comparative advantages. Instead, they appear to be choosing on the basis of non-­ compensatory decision rules of the kind that heterodox economists write about as being commonly used in everyday life (for a discussion of such rules, see Earl 1995: Chapter 4). There is nothing necessarily wrong with journals having sets of hurdles that papers must meet in order to be acceptable. Rather, the problem of applying hurdles in this context is their height and ranking: real-­world significance is not the first priority test. Paradoxically, the discrimination against work that does not center on mathematical models (or against empirical work not based on mainstream theoretical foundations) seems to have arisen precisely because journal editors initially were prepared to make trade-­offs, as per the mainstream view of choice, and accepted more mathematical papers that explored the frontiers of technique at some cost in terms of their connection to reality. This was the start of a slippery slope that resulted in sight being lost of the goal that was being traded off to allow in more formal analysis. As Augier and March (2008: 103) point out, In the longer run, the effect of a commitment to trade-­offs is even more pernicious. . . . Reasonable people . . . can come to see deeply held commitments, such as beliefs in realism and comprehension, as exchangeable goods, nice to have insofar as you can afford them but not closely linked to an inviolate sense of self. Loss of realism becomes an affordable cost rather than a personal failure.

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The role of marketing in shaping the uptake of new ideas Prospects for change in economics look far less bleak if we look at competition between ideas from a marketing standpoint and consider how heterodox approaches might be better marketed. The typically rather negative view that heterodox economists take of marketing as a discipline—namely, as providing tools that can be used to generate unnecessary wants that make consumers more socially competitive and anxious—has a positive side; if techniques from marketing can be used to manipulate consumers (for evidence of how this is done, see Hanson and Kysar, 1999), then they might also be used to manipulate the choices of economists. Marketing matters in economics, as in business and politics, because customers have limited attention, as do those in whose social circles they seek to move. A library represents a far more demanding challenge to academics shopping for ideas than a supermarket presents to those shopping for groceries. Capturing attention for economic research involves much more than one’s choice of keywords, or title, or making sure that one publishes in journals included in databases such as ECONLIT. Economists whose lists of references show they are keeping the wrong kind of company, and who show ignorance of the codes of conduct of particular scholarly groups, will be denied admission to such groups, just as they would be denied admission to a classy nightclub if they presented with scruffy colleagues and wearing the wrong kind of clothing. Attempts by economists to position themselves and their work in particular ways may affect and be affected by how they and/or the kind of work they do are branded in the minds of their audiences. A brand is an information-­ economizing device that allows people to make very rapid assessments of what they are likely to get if they purchase and/or give attention to a particular product. Such expectations may be about how it will mean they are viewed by others who see them using it, and about the kinds of interactions it will permit them to make with particular groups or individuals. By associating ourselves with particular brands, we get branded, too; we get known as being particular kinds of economists because of the societies in which we participate and the company we keep when we publish. Those who know us by our brand shorthand will be able to predict both our choices of areas of economic problems to analyze, and how we go about analyzing them. Likewise, we use our brand shorthand to summarize what kind of economics we practice to people who do not know us but who might hire us or be interested in publishing our work. In marketing their ideas or labor power, economists choose which stimuli to send out to their intended audiences. But although these stimuli may provide opportunities for them to be seen as they hope they will be seen, how they will actually be seen depends on the set of templates that their audiences use for forming perceptions and the connotations that they attach to particular templates (Hayek, 1952; Kelly, 1955). Though a marketer may be trying to create a particular brand image, it is actually the audience who ultimately does the branding by deciding how to construe the signals they pick up, both from the marketer’s

Economics fit for the Queen   189 campaign and from other sources. If the incoming stimuli do not constitute a pattern that matches the onlookers’ templates for “economics,” then these onlookers will be unable to classify it as economics. If the set of stimuli fits no single template perfectly, but fits several templates to some degree, it may be categorized as a hybrid form. Therefore, if mainstream economists use templates that are so restrictive as to enable them only to see their kind of economics as “economics,” they will see heterodox economics as something other than economics, such as political science or sociology. By contrast, other economists, with less restrictive templates and a wider range of templates to call upon, may be able to recognize not merely “heterodox economics” but also constituent brands, such as “Post-­Keynesian economics.” Economists can invite their intended audience to see their work in a particular way via their choice of title, introduction, and conclusion and/or in their covering letter when they submit it to be considered for publication. How they attempt to position their work may make all the difference; it is one thing to offer a work as, say, “a radically different way of approaching the subject to replace flawed conventional thinking,” versus inviting the intended audience to see it as, in effect, “a means of enhancing the predictive capacity of an existing approach by making only minor adjustments to its normal practices.” While the former may be intended, it may be much wiser to dress it up as the latter to give it a chance of being accepted, with its real implications only later becoming apparent. Heterodox economists may thus need to position their work differently to different target audiences. It may be fine to criticize the mainstream approach when marketing heterodox contributions to other heterodox economists and funding bodies not dominated by mainstream economists, but completely wrongheaded if one is trying to invite mainstream economists to change their ways. To seduce the mainstream, heterodox economists should not use an explicitly combative “battering ram” approach; rather they should employ a Trojan horse strategy, offering something that the mainstream economists will be likely to find acceptable and fail to see as opening the door to the eventual abandonment of their present approach. Scope for doing this arises because heterodox approaches to economics all overlap, to some degree, with mainstream economics (as is shown at length in Earl and Peng, 2012). These areas of overlap, which differ among alternative heterodox approaches, provide starting points for dialogue with mainstream audiences. If heterodox economists begin engaging with mainstream economists on common ground rather than with a focus on their areas of difference, they have the opportunity to operate rather like the “foot in the door” salesperson who, having got a conversation started, uses carefully scripted patter to overcome the prospective customer’s likely objections.

Branding and positioning lessons from behavioral economics The changing status of “behavioral economics” in the past two decades provides a telling case study of what can be achieved by careful positioning and brand

190   P. E. Earl and T.-C. Peng management, and of the opportunities that can be lost if these issues are mishandled. From our earlier discussion of behavioral economics in relation to the GFC, it may appear that what Sent (2004) has labeled “new behavioral economics” has been accepted purely because it does not violate the hard core of the mainstream research program, unlike the earlier approach for which Herbert Simon was awarded the 1978 Alfred Nobel Memorial Prize in Economic Science. However, if Simon and his colleagues had played their hand differently, today’s economists might at least be operating in a pluralistic manner and embracing their approach as a legitimate way of addressing economic puzzles, especially in contexts involving complexity and uncertainty. “Old behavioral economics” has languished, despite having started off in the top journals in the mid-­1950s and despite the seminal book by Cyert and March (1963) on the behavioral theory of the firm (which registers over 14,000 citations on Google Scholar—the vast majority not in economics) appearing in a new edition in 1992. Herbert Simon and his colleagues got the old behavioral economics started with contributions in a style that was at least as formal as contemporary constrained optimization models. Simon also was well networked with leading economists of the time and these connections proved useful en route to his success with the Nobel award; he writes that his election in 1976 as a Distinguished Fellow of the American Economic Association (of which he had never been a member) came after Kenneth Arrow “had educated the younger economists on the selection committee on who I was and on my standing as a Fellow of the Econometric Society” (Simon, 1991: 321–2). By this stage, however, Simon had long since realized that a satisficing-­based approach to economics was not being taken up and had concentrated his research on cognitive psychology and computing science. Towards the end of his life Simon acknowledged that his intentions had been misunderstood: [F]ew of the economists, even those who find my approach most congenial, seem at all aware that the psychological research and computer modeling I have been doing (for 45 years!) is not unrelated to the tasks of building an economics for the real world, but is a simple continuation (“by other means,” as Clausewitz said of war) of what I had been doing since the beginnings of Administrative Behavior: trying to provide a theoretical and empirical foundation for human decision making. As a consequence of this oversight, the view still prevails that bounded rationality is a critical, not constructive, approach that has little positive to say about how decisions are actually made and problems actually solved. (Herbert Simon, in an email to Peter Earl, February 9, 2000) Simon had also unwittingly let a major marketing opportunity slip away when debating with Milton Friedman in 1963 over the latter’s contention that the pressure of competition ensures that only those who do maximize profits survive; he seemed unaware that Friedman had misrepresented Alchian’s (1950) argument—

Economics fit for the Queen   191 which was actually that survival only requires sufficient fitness relative to the opposition and which was therefore entirely consistent with a satisficing analysis (see Kay, 1995). As he commented, when this was brought to his attention: “It is difficult enough to beat Milton in debate without handicapping oneself by muffing a strong point” (Herbert Simon, in an email to Peter Earl, February 18, 2000). By the late 1970s, when Simon once again became visible in economics, the subject had changed and the Nobel citation made it plain for all to see that his work rejected the assumption of the omniscient profit-­maximizing entrepreneur and was therefore at odds with the constrained optimization template of the new generation of economists. Worse still, in his later publications in economics, Simon was not only arguing against optimization but also doing it via words rather than with heavily mathematical papers. In the 1980s, despite—or perhaps even because of—Simon’s Nobel award having publicized the nature of his contribution, it was not easy to achieve status by doing behavioral economics of a kind that did not fit the conventional template. Richard Thaler is now probably the most influential and heavily cited of all the new behavioral economists. However, even though he was being less radical than Simon in his theoretical stance, he found it difficult to win acceptance for his early work in which he exposed the empirical shortcomings of mainstream consumer theory and tried to show how Prospect Theory, recently developed by psychologists Kahneman and Tversky (1979), could provide a better way of making sense of consumer choices. His struggles were outlined in a New York Times article by Roger Lowenstein (2001), who noted that: Thaler’s first paper on anomalies was rejected by the leading economic journals. But in 1980, a new publication, The Journal of Economic Behavior and Organization, was desperate for copy, and Thaler’s “Toward a Positive Theory of Consumer Choice” saw the light of day. “I didn’t have any data,” he admits. “It was stuff that was just true.” Thaler’s (1980) paper first began to achieve influence via psychologists, not mainstream economists (though it was included in Earl, ed., 1988). According to Google Scholar, it is now his second most heavily cited work. Top place goes, however, to the De Bondt and Thaler (1985) paper on stock market over-­ reaction, in the Journal of Finance, while third placed is Thaler’s (1985) paper on mental accounting, which appeared in Marketing Science. In other words, success came particularly by offering his ideas to audiences with a practical real-­world interest: “behavioral finance” was an astute field for him to kick start because, if his arguments were right, huge amounts of money could be made by applying them. His subsequent work for economic journals used experiments in place of anecdotes, and sometimes he wrote jointly with the psychologist Kahneman, whose experimentally grounded ideas he had used and which had been published in Econometrica (Kahneman and Tversky, 1979). While this strategy helped win interest from mainstream economists,

192   P. E. Earl and T.-C. Peng Thaler was also able to reach a much wider audience via his skillful use of everyday examples and anecdotes. The importance of writing in the accepted style of one’s target audience and keeping within the right circles was also well understood by Matthew Rabin, another star of the new behavioral economics. Though his citation rate and public profile are not yet quite in Thaler’s league, his rise was much more meteoric. His strategy was quite deliberate, as was evident around 2000–2001 when Peter Earl and Simon Kemp, who had just become editors of the Journal of Economic Psychology, wrote to both Rabin and Thaler to invite them to join the Journal’s editorial board. Both were advised that their duties would be minimal but that they could serve a major role simply by joining the board and thereby endorsing the journal. Thaler accepted but Rabin declined, saying that to succeed in his mission to get psychology taken seriously by economics in general it was vital he restricted his work to the mainstream. In other words, if he associated himself with a non-­core journal, he risked having his contributions to core journals taken less seriously. Though the journal’s new editors were at the time disappointed, Rabin’s strategy may well have helped the Journal of Economic Psychology in the ensuing decade: as his impact within mainstream economics increased, so did the journal’s impact factor. It remains to be seen whether, having helped win a place for psychology within economics by positioning the new behavioral economics on the fringes of the existing mainstream, contributors such as Thaler and Rabin start building further heterodox ideas into their work and make it look more like what Simon had attempted to promote.

Strategies of stealth There is considerable potential for heterodox economists to use stealth to undermine current practices in economics. Theoretical analysis that is openly combative will not get past mainstream journal editors and referees. Nor will mainstream majorities approve openly subversive new courses. Rather than engaging in open combat, heterodox economists should exploit the ignorance of the mainstream that arises from its narrow reading and limited ability to monitor what happens in classrooms. When heterodox economists present their work or proposals to their mainstream peers, they should act as if the latter are familiar with the territory rather than emphasizing radical departures. When teaching heterodox economics, they should simply call it “economics” but at the same time they should alert their students to be on the lookout for other kinds of economists who seem rather less interested in the real world and more interested in playing with mathematics. Taught thus, the students may not merely develop a strong background on how to do real-­world economics, but also the confidence to challenge their more “autistic” professors, unaware that it is the latter that dominate. As an example, consider how to get old behavioral economics and evolutionary economics ideas into the curriculum. Mainstream faculty members will be

Economics fit for the Queen   193 aware of new behavioral economics but they will actually see it as “behavioral economics” because they are unaware of old behavioral economics. Given this, the heterodox economist should simply suggest introducing a course (or volunteering to take an existing course) in behavioral economics without mentioning the old/new issue at all—and then mostly teach old behavioral economics and related material from evolutionary economics, though taking care to include some coverage of what mainstream colleagues would have been expecting to drive pretty much the whole course, namely, the implications of heuristics and biases. As a second example of a strategy of stealth, consider the core ideas of the price mechanism, the law of demand, and price elasticity of demand. Economists probably agree that profits and losses play a role in promoting changes in the mix of production, and that elasticity of demand can be measured and differs between markets. However, in contrast to mainstream supply and demand stories, a heterodox perspective would not simply assume that markets achieve equilibrium states. Rather, it might: 1 2 3

explore the coordination problems involved in achieving structural change and the role of so-­called imperfections in facilitating orderly market entry or exit (via Richardson, 1960, 1990); recognize the institutional nature of markets as devices for facilitating transactions (via Hodgson, 1988), and; offer a theoretical analysis, grounded in psychology, of why there are “inelastic” responses to price changes in some cases and “elastic” responses in others (via Earl, 1986).

In other words, where mainstream economists presume a particular end result and provide tools for measurement without any underlying theory beyond the mathematics of marginal revenue functions, the heterodox approach would reveal the informational challenges that market transactions entail, showing the kinds of situations in which markets will be more/less likely to function efficiently, as well as offering a theory of responsiveness to changing incentives. All of this can probably be done without any need for new course rubrics, though possibly at the cost of shortchanging mainstream colleagues in the depth of coverage of some of their cherished materials. Such costs are probably quite easy for subversive economists to impose on their colleagues given the amount of redundancy in a typical “principles of economics” sequence that tries to drum the methods of constrained optimization into students by telling the same story with increasingly sophisticated mathematics over successive courses.

The Trojan horse of applied pluralistic economics It is difficult to imagine theoretical work that does not fit the mainstream template getting into the most prestigious journals in the immediate future. Attempts to find a way in by offering a pluralistic theoretical analysis of a particular

194   P. E. Earl and T.-C. Peng problem area and discussing the relative merits of rival approaches would founder due to the problem of length; the mathematics required to spin out a couple of paragraphs of intuition of the usual kind into a “rigorous” paper usually leaves no room for any alternative. The best one can hope for is the kind of “fiddling at the edges” work that the new behavioral economist do, which gradually enables the field to be opened up by taking mainstream research and reworking it with another, more real-­world twist. This way of opening the discipline up will be slow, and heterodox economists will not be able to drive it if they are not prepared or able to play the “formal model” game. For the moment, then, heterodox theory will most likely have to stay outside of the “core” journals. The big chance for heterodox economics lies in applied work, where theories meet facts, rather than simply being “proved” mathematically for a stylized context. Here, pluralism has enormous Trojan horse potential. The pluralist applied economist can present as someone who is a well read researcher with no particular theoretical axe to grind, merely an interest in finding out how a particular part of the economic system actually works. Alternative theoretical possibilities can be advanced along with their implications for which variables are necessary, their expected signs, and relationships between them. After that, it is up to the data to show which view fits the facts in the context in question. In some contexts there will be complementarities between alternative theoretical approaches, so that rather than them predicting opposing signs for a given variable they permit additional variables to be incorporated into models and improvements in explanatory power. So long as the results are robust in a statistical sense, they will be hard for economists to deny, even if their perspectives would not have led them to consider adding such variables. An exemplar of this approach to empirical work is provided in Peng’s (2009) study of housing renovation choices. Not only were rival perspectives on “do-­ityourself ” (DIY) versus “outsourcing” decisions tested, but in analyzing the “to renovate or not” decision, standard models based on “economic” variables and models that add psychological variables were both presented. The value of adding the psychological variables was striking in the case of decisions to renovate or not, and for DIY versus outsourcing, but weak when the approach was extended to the case of cost overruns and overcapitalization. In addition to working with multiple theoretical perspectives, this study was also pluralistic in its openness to alternative statistical techniques, employing both logistic regression and cluster analysis techniques. By being presented in a non-­combative manner, pluralistic research that uses ideas from heterodox approaches and outperforms monist orthodox research strategies may become increasingly acceptable and visible in well-­ranked journals. Applied economists of more orthodox backgrounds will have an incentive to follow suit as a result of seeing papers in their field that have used this method. From reading such papers they will know where to go to source alternative perspectives.

Economics fit for the Queen   195

Towards a unified “heterodox economics” brand? To ensure that such strategies end up producing something coherent and synergistic, heterodox economists need to coordinate their actions. They would be wise to construct an overarching unified research program in whose direction they will try, from different starting points, to steer mainstream economics. For this to be possible, most of them will have to become much more widely read and eclectic than hitherto. They will have to focus on the complementarities between heterodox approaches, and be prepared to learn from unfamiliar heterodox brands rather than simply ignoring them or burying the differences between them. The key for doing this may lie in the Schumpeter Prize-­winning book by Potts (2000). He argues that at the most basic level of analysis what makes all the varieties of heterodox economics different from mainstream economics is how they see the relationships between the elements that constitute the economic system. In their various ways, heterodox economists all view the economy as a complex system that has a definite architecture because its elements are not connected to every other element. By contrast, the mainstream view attempts to make economics like Newtonian physics by treating the economic system as a mathematical “field” in which every element is directly connected, to some degree, with every other element. The “field” approach underpins the general equilibrium vision, the continuity of preference orderings and production functions, and the principle of gross substitutions that lie at the heart of mainstream economics. It accounts for the general lack of interest that mainstream economists show in structural relationships—whether between ideas or people, within organizations and markets, or within the input-­output matrix that maps how commodities are used to produce other commodities—and in how such relationship change through time (see further, Earl and Wakeley, 2010). It will take a major investment by a team of heterodox economists from different backgrounds to synthesize the key ideas of the various heterodox brands into a single coherent perspective. Making the most of complementarities requires not just wide reading but also a subtle appreciation of alternative research programs. Moreover, the benefits of investing in such a synthesis are unlikely to be achieved if heterodox economists from diverse camps insist on taking their habitual ideological stances rather than adopting the more pragmatic position of seeing what they can agree upon about the nature of the economic problem and the human condition and then seeing where this leads for economic policy. For example, Austrians could learn that they should not simply presume that market processes generated order spontaneously but that there is a serious problem of coordination. Likewise, radical political economists might continue to despise “fat cat” executive remuneration packages and yet end up with both a stronger critique of modern “managerialist” policies and a view of capitalisms that includes a healthy respect for managers of large corporations due to realizing what they are up against within the modern world of Schumpeterian creative

196   P. E. Earl and T.-C. Peng destruction. William Lazonick’s (1990, 1991) work shows just how powerful a view of industrial dynamics can be achieved by synthesizing the theoretical and historical perspectives of Chandler, Marshall, Marx and Schumpeter; it is unlikely to appeal fully to committed admirers of any one of these four but it certainly is a means of getting them to see areas where synergies are available and to separate out residual areas of difference. It is easy to see opportunities being lost if heterodox economists who work on the firm do not emulate Lazonick’s eclecticism. Much of what is labeled as “managerialism” in the practices of corporations and government departments can be seen as the sort of policies one might design by using notions of organizational slack and X-­inefficiency (from old behavioral economics), and principal–agent problems, and potential for opportunistic pursuit of sub-­goals (from new institutional economics) in a neo-­Darwinian manner. The use of managerialist policies to crank up workloads and create a “divide and rule” environment of fear in organizations is hardly popular with economists on the left. However, radical political economists who integrate these lines of thinking with their own perspective can argue that managerialism is based on a misunderstanding of the significance of contractual incompleteness, much of which is there to leave flexibility and avoid the costs of trying to anticipate contingencies that may never arise. Policies aimed at tightening up workplace procedures may thus be counterproductive. Moreover, to understand the origins of power, it may be useful to be familiar with economics that emphasizes the complexity of economic activities and the division of knowledge among participants. If heterodox economists of different persuasions can feel more comfortable about the possibility of conversing amongst themselves, they can set in place the kinds of institutional frameworks that will make it harder for mainstream economists and the media to ignore them. They need their equivalent of the AEA, its annual conference, and its flagship journal but have been dispersed among many small societies with their own annual conferences and journals. There will still be a place for the present heterodox journals but if there is a unifying flagship journal that is read and frequently cited by a wide range of heterodox economists it will have the biggest chance of taking on the “core” mainstream journals on their own turf: that of impact factors and journal ranking tables. Ideally, heterodox economists need a flagship journal that not only manages to signal quality by the rigorousness of its refereeing processes but which is also a freely available online publication. With the founding of the World Economics Association in May 2011, and the inauguration of its open access and online World Economic Review, it appears that the necessary institutional framework is at last being created. An attempt to create a widely understood, integrated approach to heterodox economics from its current, somewhat disparate, set of dissident research programs, needs to be handled with care, for the marketing challenges for heterodox economists take three different forms: 1

getting other kinds of heterodox economists interested in using elements of their own particular heterodox approach;

Economics fit for the Queen   197 2 3

getting mainstream economists to listen to and take up heterodox ideas; getting third party groups such as university managers and grant-­awarding bodies to allocate resources in ways that will permit heterodox economics teaching and research.

Moves towards an integrated approach only help in relation to the first and third of these marketing challenges. They will not help make heterodox economics appeal to the mainstream. On the contrary, any sign that the opposition is grouping together in a unified force is likely to make the mainstream all the more defensive and resistant. Quite apart from being likely to invite resistance, “heterodox economics” is a brand name that would cease to make sense if it succeeded in usurping the current mainstream. Heterodox economists need to brand their work in a way that suggests it is compatible with, not different from, the values of mainstream economists. They need an overarching brand name that mainstream economists cannot criticize without making mainstream work look unfit for funding. From this standpoint, Edward Fullbrook’s “Real-­World Economics” seems a wise choice: we know what we mean by it, even if they do not know of our deeper subversive hopes for changing the practice of economics, and they will find it rather difficult to be openly hostile to economics presented under that banner; the implication of being hostile to it as a general label is that they are not actually interested in the real world, something they dare not allow to slip out to those who fund their work.

Concluding comments In beginning with the question of whether the GFC signals the need for major changes in economics teaching and research, this chapter perhaps gave the impression that the ten heterodox economists’ claims about the state of economics are something new. They are not. Claims that mainstream economics has been a failure and that the discipline is in a state of crisis have been repeatedly made over the past 40 years. As is evident in Hutchison (1977), there were many claims in the early 1970s regarding the irrelevance of equilibrium economics, the need for a historical perspective, and to avoid excessive abstraction and claiming too much about the potential for predicting how economic data would unfold. But economics as a discipline has gone in the opposite direction. Now we are in a situation in which the chances of mainstream economics deciding that it needs to reform itself seem about as remote as the prospect that bankers will beg for more prudent supervision and cease paying themselves huge bonuses. Critics of the mainstream are much better organized in institutional terms (with societies, websites and their own journals, and much easier communication via email) than they were four decades ago, but there is little sign that they are having any significant impact on the economics establishment. If anything, mainstream economics is in a stronger position to resist internal pressures for change than it ever was, and it can use the growing information asymmetry

198   P. E. Earl and T.-C. Peng between itself and the wider public regarding what it does to put “spin” on its contributions and deny it is failing. If economics is to change for the better, pressure must come from outside, aided by dissidents from within. Non-­economists on research audit panels and grant-­awarding bodies will need to be persuaded to demand more evidence of economics being done with a view to helping achieve a better understanding of the real-­world economy rather than promoting the development of imaginary worlds. Measuring the quality of departments of economics by their success in raising funds to conduct empirical projects is one way to do this. Using citation scores such as those from Google Scholar, that cast a wider net and pick up books and book chapters more readily, may be rather better than relying on journal-­focused citation measures. It is probably going to be necessary for dissident economists to devote more of their energies to getting their messages across in the media (here is another area where they can learn from the success of new behavioral economics) and engaging in public debate with the mainstream so that external stakeholders start to develop a healthy skepticism about what is being taught within mainstream departments of economics. Heterodox economists as a group may also be wise to spend less time on writing about method and more on practicing what they preach by developing empirically-­grounded theory, doing applied pluralist research, and contributing to public inquiries. The stealthy Trojan horse approach to promoting ideas from heterodox economics to mainstream economists will take time to achieve results. This may alarm eager young heterodox economists but they should remain patient; such an approach not only has a better chance of success than the more confrontational strategies mistakenly adopted by many of their mentors over the past 30 years. It is also more likely to get them the jobs and tenure that are vital to being in a position to achieve anything in the long run. To succeed, heterodox economics will need to be pluralistic, not merely in its economics, but also in marketing, for different messages need to be given to different target audiences. Only when heterodox economists engage with each other and with non-­ economist stakeholders who control funding, should they emphasize differences from the mainstream. This may mean that different heterodox economists will need to target different audiences; those who are known to mainstream economists will not be so able as early-­career heterodox economists to get away with subversive strategies.

References Ackley, G. (1961) Macroeconomic Theory, New York: Collier Macmillan. Alchian, A. A. (1950) “Uncertainty, evolution and economic theory” in Journal of Political Economy, 57: 211–21. Allen, K. (2010) “Queen is urged to play greater economic role” in Guardian, February 10: 23. Augier, M. and March, J. G. (2008) “Realism and comprehension in economics: a footnote to an exchange between Oliver E. Williamson and Herbert A. Simon” in Journal of Economic Behavior and Organization, 66: 95–105.

Economics fit for the Queen   199 Baumol, W. J. and Quandt, R. E. (1964) “Rules of thumb and optimally imperfect decisions” in American Economic Review, 54: 23–46. Belsky, G. and Gilovich, T. (1999) Why Smart People Make Big Money Mistakes and How to Avoid Them, New York: Simon & Schuster. Berg, N. and Gigerenzer, G. (2010) “As-­if behavioral economics: neoclassical economics in disguise?’” in History of Economic Ideas, 18: 133–66. Besley, T. and Hennessey, P. (2009) Letter to Her Majesty the Queen, July 22. Available at: http://media.ft.com/cms/3e3b6ca8–7a08–11de-b86f-00144feabdc0.pdf (accessed February 2, 2012). Camerer, C. F., Lowenstein, G., and Rabin, M. (2004) Advanced in Behavioral Economics, New York: Russell Sage Foundation/Princeton NJ: Princeton University Press. Colander, D., Holt, R. P. F., and Rosser, J. B. (2004a) “Introduction” in D. Colander, R. P. F. Holt, and J. B. Rosser (eds.) The Changing Face of Economics, Ann Arbor MI: University of Michigan Press. Colander, D., Holt, R. P. F., and Rosser, J. B. (2004b) “The changing face of mainstream economics” in Review of Political Economy, 16: 485–99. Colander, D., Holt, R. P. F., and Rosser, J. B. (2007–2008) “Live and dead issues in the methodology of economics” in Journal of Post Keynesian Economics, 30: 303–12. Cyert, R. M. and March, J. G. (1963) A Behavioral Theory of the Firm, Englewood Cliffs, NJ: Prentice-­Hall (2nd edition 1992, Oxford: Blackwell). Dasgupta, P. (2002) “Modern economics and its critics” in U. Maki (ed.) Fact and Fiction in Economics: models, realism and social construction, Cambridge, Cambridge ­University Press. Davis, J. B. (2006) “The turn in economics: From neoclassical dominance to mainstream pluralism” in Journal of Institutional Economics, 2: 1–20. Dawson, R. (2007) “Judging economics teaching and economics textbooks” in Journal of Australian Political Economy, 60: 73–97. De Bondt, W. F. M. and Thaler, R. H. (1985) “Does the stock market overreact?” in Journal of Finance, 40.3: 793–805. Dow, S. C. (1996) The Methodology of Macroeconomic Thought, Cheltenham: Edward Elgar. Dow, S. C. and Earl, P. E. (1982) Money Matters: a Keynesian approach to monetary economics, Oxford: Martin-­Robertson. Dow, S. C., Earl, P. E., Foster, J., Harcourt, G. C., Hodgson, G. M., Metcalfe, J. S., Ormerod, P., Rosewell, B., Sawyer, M. C., and Tylecote, A. (2009) Letter to Her Majesty the Queen, August 10. Available at: www.feed-­charity.org/user/image/ queen2009b.pdf (accessed February 2, 2012). Duesenberry, J. S. (1949) Income, Saving and the Theory of Consumer Behavior, Cambridge: Harvard University Press. Earl, P. E. (1986) “A behavioural analysis of demand elasticities” in Journal of Economic Studies, 13: 20–37. Earl, P. E. (1988) Behavioural Economics (Schools of Thought in Economics: 6), Aldershot: Edward Elgar. Earl, P. E. (1990) Monetary Scenarios: a modern approach to financial systems, Aldershot: Edward Elgar. Earl, P. E. (1995) Microeconomics for Business and Marketing: lectures, cases and worked essays, Aldlershot: Edward Elgar. Earl, P. E. (2008) “In the economics classroom” in E. Fullbrook (ed.) Pluralist Economics, London: Zed Books.

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Economics fit for the Queen   201 Lee, F. S. (2007) “The Research Assessment Exercise, the State, and the dominance of mainstream economics in British universities” in Cambridge Journal of Economics, 31: 309–25. Lowenstein, R. (2001) “Exuberance is rational” in New York Times Magazine, February 11. Mayer, M. (1992) The Greatest Ever Bank Robbery: the collapse of the savings and loan industry, New York: C. Scribner’s & Sons. McWilliams, D. (2009) Addicted to Money (DVD), ABC/RTE (website www.addictedtomoney.com.au/ (accessed February 2, 2012). Milgrom, P. and Roberts, J. (1992) Economics, Organization and Management, Englewood Cliffs: Prentice-­Hall. Minsky, H. P. (1975) John Maynard Keynes, New York: Columbia University Press. Minsky, H. P. (1982) Can “It” Happen Again?: Essays in Instability and Finance, Armonk: M. E. Sharpe, Inc. Minsky, H. P. (2008) Stabilizing an Unstable Economy, New York: McGraw-­Hill. O’Shea, P. (2010) Simplification of Disclosure Regulation for the Consumer Credit Code: Empirical Research and Redesign – Final Report Prepared for Standing Committee of Officials of Consumer Affairs, Uniquest Pty. Ltd, St Lucia, Queensland. Peng, T.-C. (2009) “A Pluralistic Analysis of Housing Renovation Choices in Brisbane”. Unpublished Ph.D. dissertation, University of Queensland. Potts, J. (2000) The New Evolutionary Microeconomics, Cheltenham: Edward Elgar. Rabin, M. and Thaler, R. (2001) “Anomalies: risk aversion” in Journal of Economic Perspectives, 15: 219–32. Richardson, G. B. (1960; 2nd edition, 1990) Information and Investment, Oxford: Clarendon Press/Oxford University Press. Sent, E.-M. (2004) “Behavioral economics: how psychology made its (limited) way back into economics” in History of Political Economy 36: 735–60. Shefrin, H. (ed.) (2001) Behavioral Finance, Cheltenham: Edward Elgar. Shiller, R. J. (1989) Market Volatility, Cambridge: MIT Press. Shiller, R. J. (2000; 2nd edition, 2005) Irrational Exuberance, Princeton: Princeton University Press. Simon, H. A. (1991) Models of My Life, New York: Basic Books. Snowdon, B., Vane, H., and Wynarczyk, P. (1994) A Modern Guide to Macroeconomics: An Introduction to Competing Schools of Thought, Aldershot: Edward Elgar. Thaler, R. H. (1980) “Toward a positive theory of consumer choice” in Journal of Economic Behavior and Organization, 1: 39–60. Thaler, R. H. (1985) “Mental accounting and consumer choice” in Marketing Science, 4: 199–214. Uchitelle, L. (2001) “Some economists call behavior a key” in New York Times, Business section, February 11. Wärneryd, K.-E. (1999) The Psychology of Saving: a study on economic psychology, Edward Elgar: Cheltenham. Wilkinson, N. (2008) An Introduction to Behavioral Economics, New York: Palgrave Macmillan. Yergin, D. and Stanislaw, J. (1998) The Commanding Heights: the battle between government and the marketplace that is remaking the modern world, New York: Simon & Schuster.

10 Orthodoxy, heterodoxy, and Post-­Keynesian economics Notes on taxonomy Gary Mongiovi

The eminent Italian economist Maffeo Pantaleoni once remarked that there are only two schools of economics—the first is comprised of those who understand economic reasoning, the second of those who do not. This proposition may be applied broadly or narrowly. In its narrow application it means: if you do not explain economic phenomena the way I do, you belong to the second group. Under the broad application of Pantaleoni’s principle, the economist recognizes that we need not, and indeed often would not, agree about how to explain what we observe; sometimes we might even disagree on what is being observed. But the discussions in which we argue out our disagreements can be fruitful all round, because subjecting our views to critical scrutiny from those who look at matters in a very different way can expose weaknesses in our reasoning and lead us to a more cogent position. This seems like an uncontroversial point, and probably not even the most conventional of economists would disagree with it as a matter of principle. The problem is that, as a matter of practice, there is very little discussion taking place across intellectual traditions in economics. Human beings have a natural inclination to parse and classify things. Assigning labels to different analytical perspectives—schools of thought—crystallizes their distinctive salient features. The label ‘orthodoxy’ has been in use among political economists since at least the mid-­nineteenth century. The appellation ‘heterodox economics’ is of more recent vintage, having come into common usage by a growing number of economists within the past two decades, largely in reaction to being closed out of mainstream discourse. There have always been dissenters and iconoclasts in our discipline. But until the last quarter of the twentieth century, those voices were a prominent part of the discourse. In the second half of the nineteenth century the British and German Historical Schools were taken seriously by the equilibrium theorists they attacked. Joan Robinson, Richard Kahn, Michal Kalecki, Piero Sraffa, Adolph Lowe, Pierangelo Garegnani, Luigi Pasinetti, and Friedrich Hayek, among numerous others, were able to publish in the leading mainstream journals and were fully engaged in the central theoretical and policy discussions of the mid-­twentieth century. As late as 1971 John Kenneth Galbraith was elected President of the American Economic Association, and on his initiative Joan Robinson was invited to deliver the prestigious Richard T. Ely Lecture at the

Notes on taxonomy   203 organization’s annual meeting; her talk called attention to what she described as the ‘bankruptcy of economic theory, which . . . has nothing to say on the questions that, to everyone except economists, appear to be most in need of an answer’ (Robinson, 1972: 10). Mark Perlman, who from 1969 to 1980 edited the Journal of Economic Literature, one of the profession’s flagship publications, had strong institutionalist leanings and routinely commissioned articles that challenged neoclassical positions (for example, Harcourt, 1969; Eichner and Kregel, 1975) or that accorded thoughtful treatment to dissenting traditions (see Bronfenbrenner, 1970; or Samuelson, 1971). We should not, of course, minimize the reality of ideological and institutional suppression; disputants use whatever powers are at their disposal to advance their agendas. Despite that, the dissenting voices were heard well into the twentieth century, and they had an impact, if only by provoking reasoned responses and more nuanced arguments from their mainstream targets. Moreover, the fact that those voices were a conspicuous part of the conversation within economics conferred scientific legitimacy upon them. The situation has changed radically. A decade or so into the twenty-­first century, dissenting views are barely on the radar screens of most economists, who by and large feel no obligation, intellectual or moral, to respond to criticism from outside the dominant paradigm, much the way geologists or astronomers feel no need to engage in debate with Flat Earthers. How this situation has come about is no doubt a complicated question, and I do not propose to offer a comprehensive answer in this brief note. But it is a useful question to ask, because the effort to unravel it may suggest how non-­ mainstream economists might be able to get back into the conversation. The terms orthodoxy and heterodoxy are suggestive of irreconcilable outlooks in the battle over the soul of economics (this presumes that economics has a soul; let us posit that it does, or at least that it once did). The word ‘orthodoxy’ has a somewhat pejorative connotation; it implies a stodgy conservatism, ideological rigidity, and a resistance to novelty. Orthodoxy is static, anchored in conventional wisdom, and slow to adapt to new circumstances: it is retrograde, an impediment to progress. To call an idea, or the person who espouses it, orthodox, is to utter an epithet. ‘Heterodoxy’ carries some negative baggage of its own. A heterodox thinker is not so much pushing the envelope of established doctrine as operating outside the boundaries of acceptable scientific conventions: they are by definition marginalized. There is a whiff of indiscipline about the word, as of ideas that have not met the recognized criteria for intellectual respectability—never mind that those criteria are precisely what heterodoxy wants to call into question. Yet every orthodoxy begins as a revolutionary departure from some entrenched paradigm. Karl Menger, Léon Walras, and William Stanley Jevons, whose contributions triggered the marginalist revolution in the early 1870s, considered their work to be a radical break from the then-­dominant Ricardo–Mill tradition.1 Alfred Marshall, the most influential advocate of the marginalist approach in its formative period, sought to establish a continuity between the new theory and the economics of Ricardo and Mill. Marshall appears to have

204   G. Mongiovi been motivated, first by a distaste for controversy, but also by a strategic consideration. He believed that the scientific pedigree of the marginalist ideas would be reinforced if they were presented as advances built upon a familiar and respected foundation, rather than as manifestations of a rupture with earlier views. Where Jevons railed against ‘the noxious influence of authority,’ Marshall tried to buttress marginalism by linking it to classical political economy. The strategy may have been helpful, but it was probably unnecessary (I should add that, as an interpretation of Ricardo it was wrongheaded). In the UK, Italy, and North America, the Marshallian strand of marginalism negotiated, with mixed success, a sometimes unstable balance between the abstractions that are necessary for formal theoretical reasoning and the attention to institutional reality that permits the application of theory to practical questions.2 The theory’s versatility as a tool for the analysis of practical problems—notably, the urgent and increasingly obvious issues thrown up by industrialization and urbanization, such as the management of public finances, the design of tax policy, the provision of public goods, and the regulation of large-­scale industry—was no doubt an important contributing factor in its rapid ascendance to a position of paradigmatic dominance. The field of public finance largely grew out of the work of Italian economists who, in the decades from 1890 to 1930, grappled with the fiscal challenges thrown up by the unification of a dozen or so highly diverse regional economies into a new nation state. This work was generally of high quality and very much geared to addressing practical matters of statecraft. John Bates Clark, the first important American neoclassical economist, was an advocate of minimum wage legislation. In the period between the last century’s two world wars, economists like Oskar Lange and Abba Lerner used neoclassical theory to make a case for the feasibility and superiority of socialism, and the Kiel School of economics in Germany pushed the envelope of neoclassical theory in a strongly progressive direction. The Keynesians who shaped post-­war economic policy in Europe and the US—Roy Harrod, Franco Modigliani, James Tobin, and Lawrence Klein— were fundamentally neoclassical in their theoretical outlook. Even Dennis Robertson and A. C. Pigou, who were highly critical of The General Theory, saw no contradiction between Marshallian orthodoxy and their advocacy of sensible, and often quite progressive, macroeconomic policies. Neoclassical economics was a progressive research program in the Lakatosian sense for over a century; when challenged by economic events or theoretical critiques it adapted in ways that enabled it to maintain its hegemony. Catastrophic levels of unemployment during the Great Depression appeared to undermine the conventional account of how labor markets work, upon which was grounded the marginal productivity theory of distribution. With impressive ease neoclassical economics absorbed key elements of Keynes’s General Theory (1936), blunting some of the latter’s revolutionary aspirations while preserving the foundations and practical relevance of the marginalist tools (see, for example, Modigliani, 1944). By the time of the capital controversy, supply and demand functions had so thoroughly permeated how not only economists, but indeed

Notes on taxonomy   205 almost all educated people, thought about market processes, that the conventional theory was almost universally viewed as simple common sense, rather than what it was—a hypothetical construct built up from axioms that are not themselves susceptible to empirical verification and from special-­case assumptions that are necessary to preserve the construct’s formal coherence.3 Hence, when the capital theoretic defects at the core of the theory were exposed, they were dismissed as formally valid but empirically inconsequential (see, notably, Samuelson, 1966; Ferguson, 1969: 266). These episodes demonstrate the resilience of the neoclassical paradigm—its ability to reinvent itself in response to factual and analytical challenges. They remind us also that throughout much of the twentieth century, during its most vibrant decades, neoclassical economics was engaged with its critics, even if the outcomes of the exchanges were not altogether satisfactory from the critics’ standpoint. The debates took place in scientifically respectable outlets, attracted the serious attention of the discipline’s best minds, and exacted some (admittedly non-­fatal) concessions from the mainstream. Meaningful communication between critics of neoclassical economics and its adherents dissipated sharply after the mid-­1970s, however. Why this occurred is unclear, but a significant contributing factor may have been the rise of New Classical macroeconomics, a virulent form of monetarism that was ruthlessly intolerant of Keynesian modes of reasoning. Mainstream economics facilitated, and was influenced by, the shift toward neoliberalism that occurred during the Reagan and Thatcher years. Mainstream Keynesians too found themselves in the wilderness during this period. The economists who pioneered and then shaped neoclassical theory up to the mid-­twentieth century would have been appalled, I suspect, at the elevation of formal technique over practical usefulness which characterized the New Classical theory. They would also have been suspicious of its unreflective confidence in the efficiency and beneficence of markets. The New Classical episode eventually ran its course, but by the time it did, the discipline had changed in ways that had significant ramifications for dissenting theoretical traditions. I can here offer only an impressionistic hypothesis about what had happened. After the decline of mainstream Keynesianism, graduate training in economics changed in ways that left most new members of the discipline ill-­equipped, and ill-­disposed, to engage in discourse with economists whose work is grounded in alternative, and particularly in older, analytical traditions. A relentless emphasis on technique led to a narrowing of focus within any mainstream sub-­field. Given the technical requirements of achieving expertise in a specific area, acquiring familiarity with views outside of one’s sub-­field entails high start-­up costs, and yields few benefits in terms of career advancement. Furthermore, the increased preoccupation with analytical techniques edged the history of economic thought out of the curriculum in most Ph.D. programs; and the marginalization of intellectual history in turn fostered the impression that the recent mainstream literature reflected everything that was of scientific value in the discipline. Between mainstream and non-­mainstream economists there now exist substantial ­language

206   G. Mongiovi barriers to communication that did not exist 40 years ago. The handicap exists on both sides, but non-­mainstream economists have a powerful incentive to learn how to use the basic mainstream tools, quite aside from the fact that they must do so in order get through even the most non-­orthodox doctoral program; they cannot ignore the mainstream and expect to be taken seriously, even by other non-­mainstream economists. Mainstream economists, however, have no need to engage with the heterodox literature to be taken seriously, and indeed all of the incentives are pushing against engagement. The increased isolation of non-­mainstream economics has coincided also with a shift in the character of mainstream economics. The neoclassical paradigm that dominated economics from the 1890s until the 1980s appears to be giving way to a new research program that has yet to coalesce into a well defined analytical framework. This emerging research program is characterized by a focus on complexity, nonlinear dynamics, and a psychologically informed empirical approach to the investigation of choice behavior (see Colander et al., 2004; Davis, 2006, 2008; Holt et al., 2011). It is largely concerned with questions that do not fall neatly within the scope of the study of ‘human behavior as a relationship between ends and scarce means which have alternative uses’ (Robbins, 1935: 16), and much of the new research underscores the unsoundness of the supposition that economic actors are optimizers.4 No consensus has emerged regarding whether behavioral economics undermines conventional neoclassical supply and demand theory and should therefore displace it, or merely complement and enrich it. Marginal analysis and optimization theory are still in the toolkit, but they no longer define the research that is perceived as moving the discipline forward scientifically. John Davis (2006) examines several hypotheses that have been put forth to explain the mainstream drift: (1) that a weakening of neoclassical hegemony has occurred as a result of the exposure of its analytical defects, most significantly the impossibility of demonstrating the uniqueness and stability of general equilibrium except under highly special conditions; (2) that an accretion of useful methods and ideas appropriated from fields outside of economics, such as physics, complexity theory, and behavioral science, has led to the gradual displacement of neoclassical modes of analysis by the imported tools; and (3) that the neoclassical paradigm may have reached a stage of maturity at which it is severely limited in its ability to generate intriguing problems for new research; it has ‘completed its full range of possible tasks’, and ambitious researchers have moved on to new and more fertile approaches. No doubt all of these factors have contributed in varying ways to the ‘complexity turn’ in economics. Mindful, perhaps, of the unflattering connotations of the ‘orthodox’ label, Colander et al. (2004) suggest that we ought to distinguish between orthodox economics and mainstream economics.5 The latter encompasses both orthodoxy and research which they characterize as ‘at the cutting edge of economics’— work that challenges orthodox views. They rightly note that at the cutting edge, mainstream economics does engage with issues which are of concern to heterodox economists, and is open to innovative thinking. Nevertheless, to gain

Notes on taxonomy   207 t­raction, new ideas need to be framed in a way that acknowledges ‘the strengths of the recent orthodox approach and [adopts] a modeling methodology accept­ able to the mainstream’ (Colander et al., 2004: 492). I would not quarrel with these observations, but they do not really explain how some views and modeling methodologies come to be deemed as legitimate while others remain unaccept­ able. Nor does it address my earlier point that mainstream economics was until the 1970s relatively open to views that would now be classified as heterodox. All questions of classification involve elements of arbitrariness that sooner or later become evident when we try to apply the adopted criteria to practical cases. In the discussion at hand, the limitations of the criteria put forth by Colander et al. become clear when we observe that, on those criteria, throughout much of the last century the pantheon of post-­Keynesian greats would have to be counted as part of the mainstream, though perhaps not as part of the orthodoxy; Kaldor, Robinson and Kahn taught at a leading university, and their work, along with that of Garegnani, Pasinetti, Davidson and Minsky, among others, was considered interesting and important enough to get past the gatekeepers of the leading journals. This is no longer the case. The questions that matter are not questions of taxonomy. There is a fine line between pushing the envelope and going renegade. Where does the line lie? What determines who gets to draw it? And what causes it, from time to time, to shift just far enough to allow some unconventional ideas to pass muster but not others?6 In a sense, Colander et al. (2004: 491) dodge these questions by asserting that heterodox economists have defined themselves out of the mainstream. This strikes me as factually incorrect; non-­mainstream economists did not really begin to characterize themselves and their work as ‘heterodox’ until the 1990s, that is, well after it had become clear that they were being shut out of mainstream discourse. The self-­identifying label ‘heterodox economics’ may well be unhelpful to getting back into the discourse with the mainstream—here Colander et al. have a point—but the problem of marginalization would not be solved by ‘rebranding.’ (It is worth noting that Keynes and his followers styled themselves as revolutionaries, not as heterodox economists: and they shrewdly, but from a strategic perspective not altogether wisely, cast their neoclassical opponents as orthodox—or worse, as bastards.) A complicating factor is the fact that, whereas the mainstream appears to be entering a phase in which it is becoming more internally pluralistic (see Davis, 2008), needless tensions across traditions have been a distraction on the non-­ mainstream side. These tensions can manifest themselves in debates over taxo­ nomy. Marc Lavoie (2011) has recently addressed the question of whether Sraffian economics ought to be considered part of the post-­Keynesian school. He has long advocated the distillation of the various strands of non-­mainstream economics into a ‘post-­classical paradigm’ that encompasses the ideas of Keynes, Kalecki, Kaldor, Marx, Sraffa, the French regulationist and circuitist schools, and Institutionalists (see Lavoie, 1992: 5). I fully agree with Lavoie’s conclusion that there are genuine affinities between the post-­Keynesian and Sraffian traditions that justify their being classified as a broadly unified outlook. When the

208   G. Mongiovi post-­Keynesian school emerged as a distinct analytical tradition in the 1970s, there was a general presumption that Sraffian economics fell within its scope and was in fact an important element of the revolutionary analytical tradition that descended from Keynes and those who were closest to him on theoretical matters. This view was reflected in the establishment of summer schools held annually in Trieste, Italy, from 1980 to 1992. Eichner and Kregel (1975) argued in their Journal of Economic Literature survey article that post-­Keynesian economics provides a coherent and robust alternative to neoclassical orthodoxy. A book edited by Edward J. Nell entitled Growth, Profits, and Property (1980) sought to weave Keynesian, Kaleckian, Sraffian, and Marxian themes into a unified post-­Keynesian framework of analysis. But in the end the various outlooks proved difficult to blend into a unified alternative to neoclassical economics. In the late 1980s Hamouda and Harcourt (1988) argued that any attempt to ‘synthesize’ the various distinct streams of Post-­Keynesianism into a unified analytical system is bound to come to naught and is indeed a misguided project. The conclusion is echoed by Walters and Young (1997: 347), who find no grounds for conceiving of post-­Keynesianism as anything other than a loose agglomeration of mutually sympathetic outlooks. They suggest, furthermore, that the elaboration of a general post-­Keynesian synthesis . . . seems to conflict with both the desire for pluralism and methodological diversity [and that] if coherence is sought through synthesis . . . this would inevitably result in an unnecessarily destructive battle for the dominant position within the pantheon. Ordinarily social scientists attach labels to different intellectual traditions for the sake of expositional convenience—to refer to a set of broadly accepted premises and methodological commitments that characterize a distinctive scientific outlook. We understand that the boundaries can be somewhat porous, and that within any particular ‘school’ there can exist a spectrum of views, some of which may be mutually incompatible: think of Marxian economics.7 Yet within the context of a particular discourse, reference to this or that school does not usually cause any difficulties; the label is understood to be a shorthand device to facilitate discussion. So, in ordinary circumstances the question of whether a given idea falls under, say, the post-­Keynesian imprimatur, would simply be deemed uninteresting—a purely taxonomic question with no analytical or scientific content. For post-­Keynesians and Sraffians, though, the circumstances are hardly ordinary; both approaches have been severely marginalized by the mainstream of the discipline. This situation might be expected to encourage solidarity across critical traditions, but instead sectarianism has driven a wedge between the two camps. Labels that ought to function as routine and non-­controversial aids to discourse have become impediments to dialogue. Rather than striving for a synthesis between the post-­Keynesian and Sraffian traditions (or indeed between any two non-­mainstream frameworks), it might be

Notes on taxonomy   209 more appropriate simply to aim for reconciliation—for recognition that the frameworks are compatible and complementary, and that there is enough common ground to justify an abandonment of the tensions that have impeded fruitful dialogue. That common ground includes the following elements: • • •

the view that economic processes are fundamentally demand-­driven; a rejection of the marginalist theory of distribution; insistence that money and finance must be central to a meaningful account of how capitalism functions.

There is some disagreement over the usefulness of equilibrium analysis. But this, as Lavoie (2011) shows, is partly based on a misunderstanding of the Sraffian position. As Joan Robinson (1962: 81) herself noted, ‘the concept of equilibrium . . . is an indispensable tool of analysis [provided it is kept] in its place.’8 Thirty years of debate ought to be enough to clear up misunderstandings. How the misunderstandings arose, and why they have persisted, are questions that will eventually have to be sorted by intellectual historians. To the extent that the debate fosters constructive discourse, it is useful, even if it fails to culminate in a consensus. To the extent that the debate leads to a solidification of the taxonomic criteria by which we distinguish ourselves from one another, it is divisive and counterproductive. Geoffrey Harcourt’s ‘horses for courses’ formulation—different models and different methodologies for different problems—may be the best basis upon which to build a robust alternative to the mainstream.9 Constructive debate and the pursuit of overlapping scientific aims are entirely possible without ‘synthesizing’ post-­ Keynesian and Sraffian elements into one formal analytical model. (This is not to say that synthesizing exercises cannot be illuminating. The Sraffian super-­ multiplier literature nicely blends post-­Keynesian and Sraffian insights.10 Post-­ Keynesian fundamentalists have shown little interest in this work, evidently because it is not directly concerned with money or uncertainty, and because they mistrust its mathematical formalism.) There is no simple answer to the question of how post-­Keynesians, broadly defined, can get back into the mainstream discourse without abandoning key analytical and methodological features of their outlook. The mainstream, it is true, has become more open to themes that have long been embedded in the various dissenting traditions—interdisciplinarity; the importance of institutions (here the mainstream has merely rediscovered a Marshallian commonplace); evolutionary structural change; the limitations of the optimization assumption. Nevertheless, mainstream and non-­mainstream economists still seem to be engaged in different conversations. They use different tools, and in effect speak different languages. For the time being it is preferable for post-­Keynesians to remain outside the tent and go about their work, rather than sacrifice the scientific cornerstones of their approach merely for the privilege of being allowed into the mainstream conversation.

210   G. Mongiovi

Notes   1 Of the three, Menger, as the founder of the Austrian School, has the strongest link to a modern-­day dissenting approach. But Menger embraced the a priori deductive method that grounded the orthodox economics of the mid-­nineteenth century, and he emphatically rejected the inductive approach of the German Historical economists who were then the leading opponents of the Ricardo–Mill school. To amplify the irony, Menger was both uncompromising in his commitment to methodological individualism, and deeply interested in how institutions emerge and evolve; the non-­ mainstream status of contemporary Austrian economics stems in large part from its affinities to Institutionalist economics (with which it also shares a mistrust of mathematical formalism).   2 Marshall, we should recall, counted the German Historical economist Wilhelm Roscher among his principal influences.   3 I am here referring to the standard axioms of choice—completeness, transitivity, the convexity of preference sets, and so forth—which underlie the theory of demand, and to the various assumptions, such as perfect competition and the absence of increasing returns, necessary to derive supply functions. See Keen (2011) for an overview of the questionable foundations of the neoclassical toolkit.   4 These results are sometimes said to contradict the conventional supposition that economic actors are rational: this is misleading. For in economics the concept of rationality is not an objective scientific category; it has a purely normative function: behavior that validates economists’ textbook models is deemed ‘rational,’ while behavior that does not conform to the predictions of those models is labeled irrational. This enables economists to defend theories that do not match observed reality; for those models would of course be sound if only people were truly and consistently ‘rational.’ A less value-­loaded definition of rationality would suppose only that behavior is goal-­driven, and that people behave in ways that they believe, rightly or wrongly, will enable them to attain their objectives. This modest definition can accommodate pervasive features of social existence, including wrong-­headed, reckless, and self-­destructive behavior.   5 The mainstream category, according to Colander et al. (2004: 492), is necessary to take account of the fact that economics is not static: the character of orthodoxy is constantly evolving as a result of developments occurring at the edges of the discipline. They define the mainstream as the body of views, methods, and approaches deemed legitimate by economists who teach at elite universities and who edit and publish in the most prestigious journals.   6 John Davis (2006, 2008) has recently begun to develop a promising framework for answering these difficult questions.   7 Sraffians are not always welcome at the Marxian club either. The aforementioned Nell volume, despite it ecumenical agenda, contains an essay that criticizes Sraffian economics as a form of commodity fetishism (see Roosevelt, 1980).   8 ‘[I]ts place,’ she continued, ‘is strictly in the preliminary stages of an analytical argument, not in the framing of hypotheses to be tested against the facts, for we know perfectly well that we shall not find facts in a state of equilibrium.’ This judgment probably goes a bit further than most Sraffians would like, but I think not so far that a substantial amount of common ground cannot be found.   9 Harcourt, by the way, is among the few economists who have consistently managed to straddle both camps, precisely by selecting the analytical tools that are best suited to the problem at hand. 10 The Sraffian supermultiplier combines the Keynesian spending multiplier with an accelerator mechanism, enabling aggregate demand to determine levels of employment, aggregate income, and aggregate productive capacity not only in the short run but also in the context of a growing economy (see Serrano, 1995). The device provides a theoretical grounding for demand-­driven endogenous growth.

Notes on taxonomy   211

References Bronfenbrenner, M. (1970) ‘Radical economics in America: a 1970 survey’ in Journal of Economic Literature, 8: 747−66. Colander, D., Holt, R. P. F., and Rosser, J. B. (2004) ‘The changing face of mainstream economics’ in Review of Political Economy, 16: 485−99. Davis, J. (2006) ‘The turn in economics: neoclassical dominance to mainstream pluralism’ in Journal of Institutional Economics, 2, 1−20. Davis, J. (2008) ‘The turn in recent economics and return of orthodoxy’ in Cambridge Journal of Economics, 33: 349−66. Harcourt, G. C. and Hamouda, O. F. (1988) ‘Post-­Keynesianism: from criticism to coherence?’ in Bulletin of Economics Research, 40: 1−33. Holt, R. P. F., Rosser, J. B., and Colander, D. (2011) ‘The complexity era in economics’ in Review of Political Economy, 23: 357−69. Eichner, A. and Kregel, J. (1975) ‘An essay on Post-­Keynesian theory: a new paradigm in economics’ in Journal of Economic Literature, 13: 1293−314. Ferguson, C. E. (1969) The Neoclassical Theory of Production and Distribution, Cambridge: Cambridge University Press. Harcourt, G. C. (1969) ‘Some Cambridge controversies in the theory of capital’ in Journal of Economic Literature, 7: 369−405. Keen, S. (2011) Debunking Economics – Revised and Expanded Edition: The Naked Emperor of the Social Sciences, London: Zed Books. Keynes, J. M. (1936) The General Theory of Employment, Interest and Money, London: Macmillan. Lavoie, M. (1992) Foundations of Post-­Keynesian Economic Analysis, Aldershot: Edward Elgar. Lavoie, M. (2011) ‘Should Sraffian economics be dropped out of the Post-­Keynesian school?’ in Économies et Sociétés, 44: 1027−59. Modigliani, F. (1944) ‘Liquidity preference and the theory of interest and money’ in Econometrica, 12: 45–88. Nell, E. J. (ed.) (1980) Growth, Profits, and Property: essays in the revival of political economy, Cambridge: Cambridge University Press. Robbins, L. (1935) An Essay on the Nature and Significance of Economics Science, second edition, London: Macmillan. Robinson, J. (1962) Economic Philosophy, London: C. A. Watts. Robinson, J. (1972) ‘The second crisis of economic theory’ in American Economic Review (Papers and Proceedings), 62: 1−10. Roosevelt, F. (1980) ‘Cambridge economics as commodity fetishism’ in: E. J. Nell (ed.) Growth, Profits, and Property: essays in the revival of political economy, Cambridge: Cambridge University Press. Samuelson, P. A. (1966) ‘A summing up’ in Quarterly Journal of Economics, 80: 568–83. Samuelson, P. A. (1971) ‘Understanding the Marxian notion of exploitation: a summary of the so-­called transformation problem between Marxian values and competitive prices’ in Journal of Economic Literature, 9: 399−431. Serrano, F. (1995) ‘Long period effective demand and the Sraffian supermultiplier’ in Contributions to Political Economy, 14: 67–90. Walters, B. and Young, D. (1997) ‘On the coherence of Post-­Keynesian economics’ in Scottish Journal of Political Economy, 44: 329−49.

11 The global financial crisis and the role of engagement with the mainstream in the future of Post Keynesian economics1 Louis-­Philippe Rochon and Peter Docherty Introduction The Global Financial Crisis has added fresh significance to recent reflections on the future of Post Keynesian economics. Over the last ten years or so, a number of authors including Dunn (2000), King (2002), Davidson (2003–2004), Pasinetti (2005), Fontana and Gerrard (2006), and Davis (2008) have considered why Post Keynesian economics was, and continues to be, sidelined within the academic economics profession, despite winning some important intellectual battles. They also consider whether the continuation of this treatment implies an approaching limit to the life of the Post Keynesian perspective and its research agendas, and whether any action on the part of Post Keynesian scholars has the potential to alter this outcome. This literature identifies a number of strategies that Post Keynesians could pursue to extend the life of the Keynesian tradition and to increase its effectiveness in influencing mainstream economics. Among these strategies is Fontana and Gerrard’s (2006: 69–70) suggestion for a “constructive engagement” with the mainstream, designed to exploit parallel developments in mainstream and Post Keynesian research. This proposal has been controversial because it raises a number of questions regarding the context in which such engagement could occur given the reluctance mainstream economists have shown towards dialogue with colleagues from alternative perspectives. In contrast, other proposals advocate continued criticism of the mainstream, ignoring the mainstream while developing an alternative paradigm, and engaging in dialogue directly with policy makers. The Global Financial Crisis raises some important questions about these alternative strategies because the last economic disruption of a similar type and magnitude led to the publication of The General Theory and to the initial Keynesian “revolution.” A repeat of the conditions that caused this first revolution raises the question of whether the ground is fertile for another, perhaps more pervasive paradigm shift. In addition, Post Keynesians were among the small number of economists who predicted the Financial Crisis. Interestingly, a number of orthodox economists have themselves asked whether some kind of paradigm shift should not be considered in the direction of what they call more

The future of Post Keynesian economics   213 traditional Keynesian economics (see Krugman, 2009; Stiglitz, 2009). The purpose of this chapter is thus to consider and evaluate the alternative strategies proposed above in the light of the crisis. Has the occurrence of the crisis made any of the proposed strategies more sensible than others? Are mainstream economists more open to dialogue because of the crisis in a way that strongly favors the strategy of Fontana and Gerrard (2006)? Given the depth of the crisis, is the policy dialogue proposed by Stockhammer and Ramskogler (2009) and Vernengo (2010) a better opportunity for Post Keynesians to gain influence? The chapter is divided into six further sections. In the next section, we briefly consider the current literature’s analysis of the failure of Post Keynesian economics to have had a more significant impact on the mainstream. In the third section, we examine the related question of why Post Keynesian economics continues to be sidelined. The fourth section looks at the various strategies that have been proposed to take Post Keynesian economics into the future, and the section after pays particular attention to the impact of the Global Financial Crisis on the viability of these proposed strategies. In the sixth section we offer further reflections on Fontana and Gerrard’s strategy of “constructive engagement” in the light of the preceding analysis, and the final section summarizes the argument.

The failure of Post Keynesian economics to supplant the mainstream Fontana and Gerrard (2006: 59) begin their analysis with the observation that the publication of Keynes’s The General Theory had a revolutionary impact on the economics profession. This language of “revolution” was famously used by Johnson (1971) to describe the impact of Keynes’s contribution, and Eichner and Kregel (1975: 1293) used the associated concept of a Kuhnian “paradigm shift” in one of the first summaries of the content and structure of Post Keynesian economics in the 1970s. This revolution was, however, put down. Fontana and Gerrard (2006: 59) also outline how the mainstream absorbed the essential features of Keynes’s work into its existing structure to make Keynesian unemployment a special case of neoclassical macroeconomic analysis, and how the Kuhnian paradigm shift for which Eichner and Kregel were hoping, never eventuated. The reasons for this failure of Keynes’s original work, and for the Post Keynesian analysis to which it gave birth, to supplant the neoclassical mainstream, have been carefully considered in the literature. Johnson (1971) essentially accepted the idea that a Keynesian “revolution” had taken place in the years following the publication of The General Theory but argued that it was eventually confronted with a monetarist counter-­revolution. Fontana and Gerrard (2006: 52–3) correctly argue that rather than creating a true revolution or Kuhnian paradigm shift, the main, lasting influence of Keynes’s work was to identify the possibility of short run problems within the overall structure of the neoclassical edifice and Keynes’s central propositions were absorbed into this edifice via Hick’s (1937) development of the IS/LM model and Modigliani’s (1944) extensions of that model.

214   L.-P. Rochon and P. Docherty Milgate (1977) provides a useful dichotomy for considering why a true Keynesian revolution at this stage of the profession’s development was abortive. He describes what he calls the negative versus the positive dimensions of Keynes’s work in The General Theory. He argues that Keynes had included material on problems with the conception of capital in early drafts of The General Theory that demonstrated why an economic system might not gravitate to full employment. This kind of argument constituted the negative work of criticizing the neoclassical paradigm and finding logical flaws with its analysis. The positive work of proposing an alternative explanation was built around Keynes’s treatment of the consumption function, the multiplier, and the theory of liquidity preference. Johnson (1971: 3–4) suggested a number of factors that accounted for the initial success of the Keynesian revolution: the historical circumstances of the 1930s; the intellectual characteristics of the orthodoxy being overthrown and the new theory replacing it; and sociological factors that made the new theory an appealing object of research for academic economists. He thus argued that revolutions and paradigm shifts tend to occur when a number of conditions are met: the existing orthodoxy must fail to explain important empirical regularities, stylized facts, or other observable events; criticism of the orthodoxy must indicate why it fails to explain the empirical data; and an alternative paradigm must be offered that avoids orthodoxy’s problematic features and replaces these with structures that more effectively explain the empirical data (compare Blaug, 1980: 30–1). While the first and third of these conditions were largely present in the circumstances surrounding the publication of The General Theory, the second was not. Milgate (1977: 85) demonstrates from Keynes’s correspondence with Roy Harrod that Harrod discouraged Keynes from adopting too critical a stance with respect to traditional economic theory, arguing that Keynes’s work would receive a better hearing were he to focus on the positive aspects of his contribution rather than on the negative. The final version of The General Theory indicates that Keynes largely accepted this advice (Milgate 1977: 88).2 Neoclassical economics was, therefore, able to deal with its poor explanation of the Great Depression by absorbing Keynes’s positive contribution and this allowed it to avoid being replaced by that contribution. It was not until the capital debates of the 1950s and 1960s that a more focused negative attack on the internal logic of neoclassical theory was to be mounted. But despite winning these debates (Blaug, 1980: 204; Cohen and Harcourt, 2003: 206), Post Keynesian theory has had little impact on the structure of neoclassical economics. Walters and Young (1997: 347) argue that this result was due to the fact that Post Keynesian economics failed to present a coherent alternative to neoclassical mainstream economics. This assessment was, however, largely a response to the existence of multiple perspectives within the Post Keynesian tradition and ignores the existence of a set of unifying principles arising from Keynes’s contribution and its development in the years following the publication of The General Theory. Davidson (2003–2004: 271), Pasinetti (2005: 841–4, 2007: 249ff.) and Lavoie (2006: 90) have recently rearticulated this body of ideas but Eichner and Kregel (1975) had provided such a statement much earlier.3

The future of Post Keynesian economics   215 What may be argued is that at the time of the capital debates only one of the three conditions required for a paradigm shift was incipient. Logical problems were identified with the intellectual structure of the neoclassical framework but there was no pressing, empirical event with which that framework was inconsistent, and no alternative new paradigm became available at that time. Indeed the availability of an alternative formulation of the neoclassical framework in the form of general equilibrium theory that avoided the criticisms of the capital debates gave neoclassical economists a reason not to look for a more comprehensively alternative paradigm and renewed their confidence in the “parables” of aggregate production functions. Davidson (2003–2004: 257, 261) also makes the point that this confidence was buttressed by the perceived scientific rigor of general equilibrium mathematics. In addition, questions about the empirical significance of capital reswitching provided further reason for neoclassical economists to play down the significance of the capital debates (Blaug, 1980: 206). Had the three conditions outlined above all been met at the same point in time, Johnson’s theory about the causes of enduring revolutions could have been tested. While all three conditions were met over a period that spanned some 40 years, and this constitutes a genuine intellectual revolution in the eyes of some economists, they did not occur simultaneously, and the neoclassical paradigm has endured.

Why Post Keynesian economics continues to be sidelined The foregoing analysis helps to explain why Keynesian and Post Keynesian economics did not supplant neoclassical economics at critical points in the development of the discipline. The ongoing sidelining of Post Keynesian economics is, however, a separate question. It might have been reasonable to have expected that a paradigm which led to important modifications to neoclassical economics after the Great Depression would have been allowed to co-­exist with neoclassical economics, and that continued interaction with that paradigm would have been considered fruitful. Post Keynesian economics has, however, tended to be systematically marginalized by the mainstream. Papers using Post Keynesian assumptions and frameworks tend to be rejected by top journals, few Post Keynesians are hired by departments dominated by mainstream economists, and some universities have even succeeded in eliminating Post Keynesian and other heterodox influences altogether. Caldwell (1989: 45–6) has argued for the intellectual value of entertaining different approaches to theorizing and methodology. What he calls “critical pluralism” in the area of methodology acknowledges the absence of universal agreement on principles to assess different scientific methodologies and allows these methodologies to co-­exist and critically interact. O’Donnell (2009: 90) similarly stresses the intellectual value of recognizing and allowing the existence of different schools of thought in economics, arguing that multiple perspectives lead to better insight and analysis because the results of any particular perspective are subjected to the scrutiny and criticism of alternative perspectives. O’Donnell, in

216   L.-P. Rochon and P. Docherty fact, links this idea with the core intellectual function of universities and research institutions. At an intellectual level then, the sidelining of Post Keynesian economics appears to work against the best intellectual traditions. Even if the historical development of the economics profession has not brought together the necessary elements for an effective challenge to neoclassical economics at one point in time, the existence of these elements across the period from 1929 to 1969, and the benefit to be derived from looking at economic phenomena from more than one perspective, work against the sidelining of Post Keynesian economics. But there are two other levels at which the sidelining of Post Keynesian economics can be considered: the sociological and the political. At a sociological level, Blaug (1980: 30) points out that values, opinions, and authority structures within the “invisible college” of practitioners in a particular field have important effects on the kinds of thinking that become accepted within that intellectual community. These forces often make listening to outsiders difficult or unacceptable (compare Davis, 2008: 351–2). Since Post Keynesian economists use different theoretical and methodological structures to neoclassical economists, the work of the former is often ruled to be outside the boundaries of the discipline as defined by the latter. In addition, the critical attitude and agenda of Post Keynesians toward neoclassical economics poses a potential threat to the intellectual and professional capital that neoclassical economists have invested in their own tradition, and thus makes engagement or even toleration of Post Keynesian economics unappealing despite the intellectual integrity of allowing differences of opinion within intellectual communities. At a political level, there are clear power imbalances between neoclassical and Post Keynesian economists that allow the sociological reasons for sidelining the latter to be operationalized. Since neoclassical economists control the editorial boards of journals and the chairmanships of university economics departments they have been able to exclude those outside their sociological group and to keep their tradition secure despite the intellectual value that would be derived from having economists from different perspectives working alongside them. The sidelining of Post Keynesian economists may thus be attributed to sociological and political forces that operate within the profession rather than to intellectual forces.

Strategies for the future of Post Keynesian economics: engage or perish Lee and Harley (1998) argued some time ago that the sidelining of Post Keynesian economics via the kinds of processes outlined above would ultimately lead to its demise. Stockhammer and Ramskogler (2009: 227) thus describe Post Keynesian economics as being “at a crossroads” and the challenge is to identify a set of actions with the potential to guarantee a better future. The literature identifies a number of strategies in this respect. Dunn (2000: 361) argues that Post Keynesians should focus on methodological issues by maintaining an “open systems” approach that allows interaction with other heterodox theories and

The future of Post Keynesian economics   217 social sciences. He argues that neoclassical economics is essentially dying due to its closed system approach which prevents this interaction. Colander (2000: 133) and Davis (2008: 350–1) share a similar perspective. Davidson (2003–2004: 271) argues for a strategy of “embattled survival” which involves continued development of a positive and unique alternative Post Keynesian research agenda based on the essential contribution of Keynes. Pasinetti (2005: 840) also advocates the development of a positive alternative to mainstream economics as does Lavoie (2006: 90), who adds the importance of framing propositions from that alternative in econometrically testable hypotheses (compare Fontana and Gerrard, 2006: 73). Fontana and Gerrard (2006: 69–70, 72) recommend a strategy of “constructive engagement” with the neoclassical mainstream. This would focus particularly on building bridges with mainstream economists responsible for developments that “parallel” important dimensions of Post Keynesian economics such as imperfect competition, decision making under uncertainty, path-­ dependency, and monetary policy rules. Stockhammer and Ramskogler (2009: 227) prefer a dialogue which directly targets policy makers. King (2012) summarizes this aspect of the literature by categorizing these proposed strategies into three possible responses to the mainstream: “fight them, cooperate with them, or ignore them.” According to King (2012: 310), Post Keynesians “should be under no illusion about the prospects for friendly cooperation with the mainstream.” Stockhammer and Ramskogler (2009: 227) agree, arguing that “communication with the mainstream is not a feasible strategy as the mainstream is unlikely to listen to Post Keynesian arguments” (compare Vernengo, 2010). There seems to be, therefore, considerable skepticism about the potential effectiveness of Fontana and Gerrard’s suggested strategy. From our perspective, the continued development of a positive alternative to mainstream economics is the crucial strategic element for the future of Post Keynesian economics. Davidson (2003–2004: 248) and Pasinetti (2005: 841ff.; 2007: 249ff.) each argue that despite any previous lack of coherence in Post Keynesian economics (compare Caldwell, 1989: 52; Dunn, 2000: 350; Fontana and Gerrard, 2006: 64–5), development of a coherent alterative Post Keynesian paradigm is possible, and they each outline a set of core ideas that characterize an alternative to neoclassical theory based on the economics of Keynes. Lavoie (2006) also shows that a number of Post Keynesian approaches are essentially compatible with each other. Across the schools of Neo-­Ricardian, American Post Keynesian, Kaleckian, Marxist and Institutionalist economics, one can identify core arguments central to each approach. In this sense, heterodox economics is not defined so much as “horses for courses,” but rather as a set of core macro and micro beliefs around which there is disagreement over some theoretical and policy details.4 The development of a positive alternative to neoclassical theory is essentially an intellectual question and represents the ultimate objective of Post Keynesian economics. As argued above, it also occupied the vast proportion of Keynes’s attention in The General Theory. The question of constructive dialogue versus disengagement with the mainstream is more complex and involves the intellectual, sociological, and political considerations identified above. We consider each of these in turn.

218   L.-P. Rochon and P. Docherty Intellectual dimensions of a dialogue with the mainstream Intellectually, the value of engaging in a dialogue with the mainstream is consistent with the critical pluralist and “open systems” methodology identified by Caldwell (1989) and O’Donnell (2009). This raises the possibility that insights from neoclassical economics may inform the Post Keynesian research agenda as well as vice versa. Such insights are not likely to arise from fundamental aspects of the neoclassical framework, but just as a diverse Post Keynesian or heterodox environment has the potential to provide critical insight for any particular heterodox framework, so potential interaction between neoclassical and Post Keynesian theory provides the same possibility and this could operate in either direction. On intellectual grounds, therefore, the exchange of ideas with the mainstream is a sound one. Indeed, one of the present authors has regularly attempted this in the past by organizing sessions at conferences with mainstream economists, by organizing conferences that included mainstream voices, and by editing books and symposia in journals with invitations extended to mainstream colleagues. Sociological dimensions of a dialogue with the mainstream With respect to the sociological issues raised above, there are both benefits and dangers associated with engaging the mainstream. An important benefit would be that Post Keynesians would be seen less as simply negative and critical, and more as interested in building better explanations of economic phenomena that draw upon any framework that usefully contributes to this endeavor. As suggested above, this need not imply that core neoclassical ideas need be accepted by Post Keynesians and that criticism of these ideas no longer be offered where appropriate. Caldwell (1989: 45), Davidson (2003–2004: 247), and Lavoie (2006: 89) all correctly point out that criticism has an important role to play in intelligent analysis. But more experiences where dialogue between Post Keynesians and neoclassical economists takes a constructive tone are likely to reduce the negative perception of Post Keynesian economics and soften the impact of the sociological factor that operates to exclude Post Keynesians. There are, however, at least two sociological challenges associated with this approach. The first is overcoming the existing lack of willingness of mainstream economists to engage with Post Keynesians. The efforts (discussed above) of one of the present authors to engage mainstream economists have rarely met with a great deal of success. This author has, with the help of a colleague and friend, invited a number of prominent mainstream economists to participate in conference sessions designed to foster dialogue between Post Keynesians and the mainstream on a number of occasions. While a small number of these economists have been graciously willing to participate, and the resulting sessions were illuminating and well attended, the dialogue largely ended once the conferences were over. More recently, at the outset of the financial crisis, the same author tried to organize a few sessions at the Eastern Economic Association around the

The future of Post Keynesian economics   219 publication of Paul Davidson’s (2009a) book, The Keynes Solution. This seemed a perfect occasion to initiate dialogue with the mainstream on the relevance of Keynes and possible policy responses to the crisis but from a list of roughly 30 mainstream economists contacted, only one accepted the invitation. Thus, if a constructive dialogue is indeed to be pursued, careful thought will have to be given as to how this reluctance to engage could be overcome. A second danger with dialogue is raised by Fontana and Gerrard (2006: 73). This relates to the possibility that the boundaries of Post Keynesian economics will be the ones blurred and that the distinctive precepts identified by Davidson (2003–2004), Pasinetti (2005, 2007), and Lavoie (2006) will be the ones to disappear rather than those of the mainstream. While Fontana and Gerrard picture this as resulting from the effectiveness of Post Keynesian economics in changing the ideas of the mainstream so that the two paradigms genuinely morph into a third framework, the possibility that Post Keynesian economics could suffer is just as likely. At a sociological level, compromises could be made such that younger economists would be under pressure to adopt neoclassical assumptions in order for their work to be more acceptable, and to improve their chances of publication, employment, and promotion. The threat of Post Keynesian economics being diluted largely depends, however, on the nature of the constructive dialogue, and the present authors see the development of a strong Post Keynesian paradigm as an important defensive mechanism in this respect. Post Keynesians who have a clear alternative in mind when they engage are less likely to make compromises that go too far and threaten the intellectual integrity of Post Keynesianism. On balance, we see the sociological advantages of dialogue as outweighing the dangers, but the dangers must be kept firmly in mind. Political dimensions of a dialogue with the mainstream The greatest challenge to effective dialogue is political. Post Keynesians have little, and seemingly ever diminishing, power within the academic community. Indeed, one only needs to consider the fact that there are very few (if any) tenured Post Keynesians in top research universities, and few who publish in top-­ranked journals, to recognize the extent of this power imbalance. A more recent trend is now taking root whereby some countries have started to rank journals according to their “importance,” which may discourage younger economists from publishing in heterodox outlets (fortunately, journals such as the Journal of Post Keynesian Economics and the Cambridge Journal of Economics are reasonably well placed within these rankings). Given the argument above that the political situation is a reflection of underlying sociological forces within the discipline, any mitigation of the sociological forces may have some impact on the political situation. Nonetheless, the weak political situation in which Post Keynesians find themselves, despite good intellectual grounds on which they should be able to contribute more strongly to the economics profession, makes sense of Davidson’s (2003–2004: 271) recommendation of “embattled survival” as the best strategy for the future. For us, this is a

220   L.-P. Rochon and P. Docherty reason not to rely on “constructive engagement” as the only strategic plank in a plan for moving Post Keynesian economics forward, and here we must consider both the impact of the financial crisis and Stockhammer and Ramskogler’s (2009: 227) recommendation of a dialogue which targets policy makers.

The Global Financial Crisis, mainstream engagement and economic policy One of the important effects of the Global Financial Crisis has been that the way the economics profession is perceived by the world at large has been challenged. The Economist magazine argued in 2009 that the economics profession had been embarrassed by the events of 2007–2009 and that, in the eyes of the public, an “arrogant” profession had been “humbled.” The profession deserved this treatment, according to The Economist, partly for its boasting about policy achievements that had led to a period of sustained GDP growth across the 1980s and 1990s with lower volatility than had been experienced in previous decades (compare Taylor, 1998), and partly for its claim that economics could explain almost any social phenomenon. But most economists failed to predict the Global Financial Crisis, and the very markets that were argued by economists to be highly efficient were perceived by many to have been the cause of a severe economic disruption. Interestingly, The Economist’s suggested remedy for the profession’s problems was an increased cross-­fertilization of ideas both within economics itself and between economics and other disciplines that would improve the realism of its analysis. These are sentiments strongly shared by Post Keynesian economists (see Davidson, 2009b, for example) but a number of mainstream economists, including three Nobel laureates,5 have also begun to take such criticism seriously. Krugman (2009) argues that mainstream economists have consistently confused mathematical beauty for truth, and accepts that they all too often ignore limitations to the usual assumptions of individual rationality and well-­functioning markets. Stiglitz (2009) acknowledges that the economics profession was similarly shaken in the aftermath of the Great Depression and that this gave rise to the Keynesian Revolution. But, he argues, the profession too quickly came to the view that imperfections in the operation of capitalism identified by the Keynesian perspective were merely occasional departures from the norm of rational economic agents and well-­functioning markets. Instead, Stiglitz argues, the profession should have asked whether these imperfections might not be more fundamental features of real economic systems. Among these imperfections he lists asymmetric information, agents with heterogeneous motivations and inherent cyclicality with periodic crises. He points to the economics of asymmetric information, behavioral economics, and the work of Hyman Minsky as examples of analyses that might have better informed standard economic models. These post crisis perspectives resonate with the pre-­crisis work of Akerlof (2002, 2007), which challenges economists to include the insights of behavioral economics in their macroeconomic models and to consider the role of norms in

The future of Post Keynesian economics   221 shaping economic behavior. He argues that while the assumption of individual rationality led to a confidence in market efficiency and the other “neutrality” results of neoclassical theory, the inclusion of norms in the objective functions of individuals is capable of generating classic Keynesian results which he regards as more realistic (compare Shiller, 2003 and Pesendorfer, 2006, who share similar perspectives). The crisis has thus provided three important opportunities for Post Keynesians to assert their ideas. The first is that it has enhanced the possibility of dialogue with mainstream economists identified in the previous section. This possibility probably focuses on what Lavoie (2012), King (2012), and Lee (2012) refer to as “a small dissenting group of economists.” Given the observations of Stiglitz identified above, this dialogue is also likely to focus on Fontana and Gerrard’s (2006: 70) “parallel developments” such as imperfect information, imperfect competition, and behavioral perspectives of economic phenomena. Lavoie (2012: 326) summarizes this view clearly: “Hence, the best way for heterodox dissenters to influence mainstream economics is to influence orthodox dissenters.” But here, caution is still required. It is one thing for dissenting orthodox economists to be willing to have a dialogue with Post Keynesians, it is quite another to draw from that the possibility that the dissenters will be listened to by the more orthodox faction of the mainstream. Lucas (2009), for example, continues to assert the validity of mainstream theory even in the face of the Global Crisis, and dissenters such as Paul Krugman have come in for considerable criticism from their mainstream colleagues. There is, therefore, evidence that the sociological resistance to non-­orthodox ideas, outlined above, persists even after the crisis. Vernengo (2010) thus has an important point when he argues that “the non-­orthodox elements of the edge are only acceptable if, somehow, they are not too unorthodox . . . staying within the limits of the tolerable for the mainstream.” In other words, if dissenters begin espousing ideas like conflict inflation, or trumpeting the virtues of income distributional issues, they will lose their credibility with the rest of the mainstream. Dissenters must always walk a fine line between support and criticism of the mainstream. As Stockhammer and Ramskogler (2009) argue: “Post Keynesians have been largely ignored even in the few fields where both sides have converged.” Also, consider the mainstream dissenters. A quick look at their work reveals very little reference to Post Keynesian research. The crisis has thus brought an increased opportunity to engage with the mainstream but this engagement once again will have significant problems to negotiate if history is any guide at all. A second opportunity for Post Keynesians to assert their ideas in the light of the crisis arises in the area of policy formulation. Here Stockhammer and Ramskogler’s (2009: 227) suggestion of a dialogue which directly targets policy makers is important. Following the onset of the financial crisis, the IMF has been studying the possibility of adopting capital controls, monetary policy has kept interest rates near zero in the US and very low in a number of other countries, and there have been significant fiscal expansions in a number of countries such

222   L.-P. Rochon and P. Docherty as the United States, Australia, and various parts of the euro area.6 All of these measures are consistent with Post Keynesian theory and suggest the possibility that Post Keynesians could attempt to bypass the academic economics profession and directly compete in the marketplace of ideas for the attention of policy makers. Here again the foundational plank of developing an alternative Post Keynesian paradigm, sufficiently detailed to provide specific policy prescriptions, will be important. The value of this approach is that politicians and policy makers are likely to have very different incentives to sideline Post Keynesians compared to orthodox economists. Thus, if Post Keynesian economics is indeed more realistic and useful than orthodox economics, a hearing with pragmatic policy makers may well represent a more fruitful engagement than one with mainstream academic colleagues. Exploitation and development of links with trade union movements, left wing or progressive political parties, and the establishment of research institutes that focus on economic policy would also need to be part of this strategy. There is some urgency with this path in relation to the financial crisis in the sense that memories of the crisis are likely to fade and policy makers may then adopt a business-­as-usual approach to policy formulation. But the crisis poses ongoing issues for financial policy and regulation as well as for macro stabilization policy, and new policy emergencies are no doubt likely to arise in the future. A third opportunity for Post Keynesians that has received little attention in the Post Keynesian literature is that of influencing the structure and content of management education. Dunn (2000: 360) points out that the staff and students of business schools are often more open to alternative ideas—especially where these are noticeably more realistic than those of their competitors—than are the inhabitants of standard economics departments. The abstract theoretical structures of utility maximization and the restrictive assumptions of perfect competition often meet with a hostile reception amongst audiences of MBA students. At this point the more realistic approaches of cost plus and target return pricing, or conflict-­based models of inflation are likely to be more appealing to students. This desire for realism also appears to have increased as a result of the Global Financial Crisis (Ariely, 2009: 80). The open systems structure of much of Post Keynesian theory (compare Dunn, 2000: 348; Pasinetti, 2005: 840) is also likely to fit with the desire of business school staff and students to develop holistic and integrated approaches to education where the relationship between the perspectives of different business disciplines is important. Ariely (2009) argues that the insights of behavioral economics provide a powerful perspective for students in MBA programs which may be offered alongside and compared to traditional microeconomic frameworks, and O’Donnell (2010) argues that equipping students with multiple ways of viewing any particular problem also enhances both critical thinking and other desirable graduate skills. These factors suggest that business schools are more focused on the intellectual factors identified above and that the sociological and political factors weigh less heavily against Post Keynesians in this context. Post Keynesians could thus

The future of Post Keynesian economics   223 more sympathetically consider business schools as potential places of employment and influence despite the traditional perception that such schools are on the “wrong side” of the political value system. The occurrence of the Global Financial Crisis has thus had an important impact on the strategic options open to Post Keynesians in developing their paradigm. The prospects for engagement with the mainstream, chiefly via dialogue with dissenters, have been significantly improved by the crisis although there is already evidence of continued sociological and political resistance to dissenting ideas. The crisis has also improved the possibility of short circuiting the sociological and political resistance of neoclassical economists by opening a channel of engagement directly with policy makers and highlighting the role of business schools rather than traditional economics departments in economics education. Central to all of these options, however, is the development of a coherent Post Keynesian paradigm as advocated by Davidson (2003–2004), Pasinetti (2005, 2007), and Lavoie (2006).

Further reflections on engagement with the mainstream The above analysis thus suggests a fourfold strategy for Post Keynesian economics: continued development of a coherent Post Keynesian paradigm; constructive engagement with the mainstream; more careful attention to empirically based policy proposals and direct engagement with policy makers; and seeking out a greater involvement in business schools and management education. Davidson (2003–2004), Pasinetti (2005, 2007), and Lavoie (2006) outline a useful framework for the first dimension of this strategy. This will provide a foundation for the development of policy proposals which are more likely to be heard by policy makers the more they are structured with attention to appropriate institutional detail and quantitative specifications. A focus on involvement in business programs is new territory but would be facilitated by a willingness on the part of Post Keynesians to undertake research with a business focus which might include studies of pricing regimes, the impact of competitive structures on particular industries and sectors, and the impact of government taxation and related policies on business conditions in particular sectors. From a scientific point of view none of these potential research questions are inconsistent with a broad Post Keynesian research agenda. Let us consider more closely the process by which a dialogue with the mainstream could be moved forward. Regarding the terms on which this discussion needs to take place, three main suggestions have been proposed. First, Post Keynesians need to change their language since clearly they do not speak the same one as the mainstream, which is highly technical and mathematical. Post Keynesian theory has traditionally been much less technical and more “literary” (Fontana and Gerrard, 2006). If Post Keynesians wish to have a dialogue with the mainstream they must speak the language of the mainstream, which means that they need to do more empirical and mathematical work, and more modeling. For Fontana and Gerrard (2006) and Colander et al. (2004: 492) adopting “a

224   L.-P. Rochon and P. Docherty modeling methodology acceptable to the mainstream” would ensure a better hearing. In recent years there have been great advances in Post Keynesian modeling, and efforts to build an empirical tradition are well under way. The stock-­flow modeling championed by Godley and Lavoie (2007) is a good example. Moreover, heterodox economists at the University of Paris XIII are fully dedicated to building a department and research laboratory where modeling takes center stage. A second suggestion is that Post Keynesians stop doing as much work in methodology—or abandon it altogether—as this contributes little to a fruitful discussion with the mainstream (Colander et al., 2004; Fontana and Gerrard, 2006; Lavoie, 2012). Third, it is suggested that Post Keynesians do more work in areas that overlap with the research agenda of the mainstream (Fontana and Gerrard, 2006). This would mean Post Keynesians devoting more time and energy to work on areas such as monetary policy, growth, and trade theory. In the end, issues of no importance to the mainstream would therefore be abandoned. We have a number of problems with the above recommendations. First, the increased emphasis on modeling would appear to be a good start and should, according to the argument, improve our chances of a dialogue with the mainstream. But, as Lavoie (2012) correctly points out, there is no guarantee that adopting more sophisticated models will ensure that we are suddenly taken seriously by the mainstream. Indeed, the past should be a good indication of this. Post Keynesians have been modeling for a few decades now. Yet this has not contributed to any fruitful dialogue with the mainstream. Indeed, despite speaking the language, not much has come out of modeling. This is not to say that we should put an end to it, on the contrary, only that it does not confirm Fontana and Gerrard’s argument that it will necessarily contribute to a dialogue. Second, regarding methodology, it is true that Post Keynesians do spend considerable time discussing the differences between various approaches. But methodology is important. For instance, it serves to identify similarities and common threads between heterodox traditions and minimizes differences. This should be seen as a positive contribution to heterodox economics, not a negative one. Despite Lavoie’s (2012: 324) objection to methodological preoccupations, he argues that I do not wish to demean methodological studies. They play an important role in building a sense of belonging and in establishing the presuppositions of a research programme. They help to understand how one’s work fits within the larger subset of heterodox economics. Moreover, if we encourage Post Keynesians to forsake research on methodology, then why not also the history of thought and economic philosophy? Lastly, the idea that we should focus our attention in areas that overlap with the mainstream has significant dangers. While Post Keynesians should certainly

The future of Post Keynesian economics   225 undertake research on areas of interest to the mainstream, they should do so because of the inherent value of such research and not simply because it overlaps with the interests of the mainstream. Monetary policy, trade theory, and development issues are naturally of interest to Post Keynesians, such that additional encouragement is really not needed. Common areas of interest are naturally occurring simply because we face the same economic problems and we live in the same world. Nonetheless, we have our own set of questions and our own economic convictions. For heterodox economists, income distribution is a core argument explaining inflation, unemployment and growth, but plays a non-­causal role in mainstream theory. Moreover, one of the recent developments in Post Keynesian monetary policy is the discussion over interest rate rules and the subsequent de-­emphasis on monetary policy dominance. Kelton and Wray (2006), Docherty (2005: 347), and Rochon and Setterfield (2008: 8) among others, have all encouraged Post Keynesians to turn to fiscal policy given the important limitations to monetary policy in regulating cycles. Few neoclassical theorists would agree with these perspectives. So while there may be benefits from undertaking research which overlaps with that of mainstream dissenters, this must flow from the natural interests of the Post Keynesian agenda rather than simply from the objective of dialogue. These considerations further underscore potential limitations to the effectiveness of a dialogue with the mainstream, despite the intellectual integrity of such an approach. They also add emphasis to the importance of the other planks of the strategy outlined earlier in the chapter.

Conclusion This chapter has examined the reasons for the failure of Post Keynesian economics to supplant mainstream neoclassical theory and for the sidelining of Post Keynesian economics by the mainstream. Three sets of factors have been identified in this respect: intellectual, sociological, and political; and it has been argued that the latter two are largely responsible for the marginalization of Post Keynesian economics. The chapter has also reviewed the various strategies suggested in the literature for advancing Post Keynesian economics in the future, including: a focus on methodological issues by maintaining an “open systems” approach; a strategy of “embattled survival;” the development of a positive alternative to mainstream economics; a strategy of “constructive engagement” with the mainstream; and a dialogue which directly targets policy makers. The chapter has argued that continued development of a positive alternative to mainstream economics is crucial because such an alternative will provide a foundation for other planks in any strategy, and development of an alternative economics constitutes the ultimate purpose of heterodox theorizing. It also argues that while constructive engagement with the mainstream has intellectual merit and should be pursued where possible for this reason, it is likely to meet with continued resistance for the same sociological and political reasons that have made Post Keynesian economics unsuccessful in the past, and there are,

226   L.-P. Rochon and P. Docherty therefore, questions about the effectiveness of this approach. The occurrence of the Global Financial Crisis has increased the potential for such engagement, especially with orthodox dissenters with research agendas that parallel features of Post Keynesian economics, but there is already evidence of resistance in the rest of the mainstream to any re-­evaluation based on the crisis. The sociological and political factors identified above thus constitute a significant barrier to the Post Keynesian agenda. It has been argued, however, that the financial crisis has also enhanced strategic possibilities with lower levels of sociological and political resistance. Engaging directly with policy makers and seeking a greater role in management education may provide vehicles for the assertion of Post Keynesian economics that will complement the harder and potentially less effective avenue of constructively engaging with mainstream economics departments.

Notes 1 Louis-­Philippe Rochon is an Associate Professor and Director of the International Economic Policy Institute, Laurentian University (Sudbury, Canada). Peter Docherty is Associate Professor in the Economics Group of the Business School at the University of Technology, Sydney (Australia). This chapter was initially written while Louis-­ Philippe Rochon was a Visiting Fellow in the School of Finance and Economics at the University of Technology, Sydney, in April 2010. The authors would like to thank Rod O’Donnell and Gary Dymski for invaluable discussion, as well as Trond Andresen, Joseph Halevi, Raja Junakar, Steve Keen, John King, Peter Kriesler, Gordon Menzies, Frank Stilwell, and participants at both the UTS economics seminar and the Ninth Society for Heterodox Economists Conference, December 6–7, 2010, for comments. Of course, all errors and opinions remain solely those of the authors. 2 King (2002: 81) concurs with this assessment although it is challenged by Davidson (2003–2004: 251) who cites the appendix to Chapter 14 of The General Theory as evidence that Keynes challenged neoclassical capital theory. 3 Pasinetti (2005: 839) does identify a lack of political cohesion amongst the Cambridge Keynesians, and also a certain lack of theoretical cohesion as contributing factors in the failure of Keynesian economics to supplant neoclassical theory that resonates with the analysis of Walters and Young (1997). He does, however, note the potential for the provision of a cohesive alternative to mainstream economics and outlines the shape such an alternative might take (Pasinetti, 2005: 841–4; 2007: 249ff.). Davidson (2003–2004: 257) also argues that the Post Keynesian alternative available at the time of the capital debates had too many problems to represent a genuinely coherent alternative to the mainstream. Each of these estimations, however, refer to periods prior to the work of Eichner and Kregel (1975). 4 Exactly the same observation could be made regarding mainstream theory; it contains a core set of essential principles around which occur theoretical arguments and disagreements over the details of policy prescriptions in particular sets of circumstances. 5 The Nobel Prize for economics is technically the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. 6 There has been some backlash against expansionary macroeconomic policy, especially fiscal policy, as the immediacy of the crisis has begun to fade. The IMF, for example, established the Cross Country Fiscal Monitor in mid-­2009 out of a concern that expanded fiscal deficits and increased levels of government debt would increase interest rates and threaten public sector solvency (IMF, 2009). This semi-­annual publication provides information on overall fiscal positions and debt levels for a range of developed

The future of Post Keynesian economics   227 and emerging economies as well as changes in these positions, the likely impact of such changes, and whether these changes are appropriate or adequate. Market concerns with the ability of governments in Ireland, Portugal, Italy, and Greece have also led to increased interest rates on the sovereign debt of these nations and a crisis of confidence in the stability of the euro as currently comprised. At the heart of discussions around the provision of emergency support to Greece in particular have been austerity measures designed to reduce the medium term fiscal deficit and the ratio of government debt to GDP. Longer term planning between eurozone governments (driven especially by Germany) on the design of measures to prevent future crises of confidence in the euro has centered on a “fiscal compact” that limits structural deficits in member states to 0.5 per cent of GDP (IMF, 2012a: 6). Austerity measures introduced by Britain’s Coalition government of Conservatives and Liberal Democrats in 2010, and debate in 2011 over the so-­called US “debt ceiling,” also reflect a backlash against the expansionist policies embraced during the global crisis. Despite this backlash, however, conservative organisations such as the IMF and The Economist magazine continue to argue that medium term austerity measures need to be tempered by appropriate short run measures to stimulate growth (see The Economist, 2011: 9; and IMF, 2012b: 6).

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12 Notes on ideology and methodology, with addendum1 Duncan K. Foley

The hegemony of “mainstream” economics Current US economics offers a good example of what Gramsci calls hegemony. The battles of the early twentieth century between neoclassical economics and Institutionalism and of the middle twentieth century between neoclassical economics and Keynesianism have produced a modern “mainstream” which has established its dominance in the economics departments of US universities, and in our economic journals and professional organizations. Those who disagree with major premises of the mainstream research paradigm face an uphill battle in gaining and keeping teaching posts, publishing their work, and funding their research. This mainstream is a complicated phenomenon. It inherits from the marginalist, neoclassical tradition the method of analyzing economic phenomena from an individualist point of view, seeking to explain social phenomena as the outcome of individual decisions. It has adopted a modified version of a positivist philosophy of knowledge, emphasizing, at least in principle, the need for theory and observation to develop in tandem, accepting the positivist criteria of falsifiability along with its empiricist bias. It has developed a clear research program, which takes general equilibrium theory as the paradigm of theoretical work, and seeks to explain all economic phenomena within the general equilibrium framework. This program challenges the theoretical investigator to explain economic phenomena as the general equilibrium of a model with well-­specified rules of market or bargaining interaction, in which specific assumptions about tastes, resource availability, technology, and information determine observable outcomes. A peculiarity of the mainstream school is its unwillingness to consider hypotheses or explanatory insights except when they are couched in this form. On the other hand, the mainstream offers at least a pro forma hearing to almost any hypothesis, no matter how implausible, expressed in general equilibrium terms. The mainstream research program challenges the empirical investigator to make these general equilibrium models operational so that implications of the models can be tested in terms of their agreement with actual experience. A dissident thinking from a socialist, or even Ricardian, perspective might note some negative characteristics of the mainstream. The mainstream consensus

Notes on ideology and methodology   231 is reluctant to entertain or even grasp theories that concern emergent social phenomena, especially class. The Classical concept of a social surplus product and of the control of the social surplus seem unintelligible to the mainstream, and Marx’s notion of exploitation appears only in an unrecognizably distorted form in this discourse. The modern mainstream claims to have overcome the neoclassical school’s stubborn attachment to laissez faire ideas, and to consider methods of social allocation neutrally taking into account the informational failures of markets and the pervasiveness of externalities, but, like a reformed philanderer, the mainstream is still tempted by the comforts of the old laissez faire dogmas. Perhaps the most serious intellectual failing of the mainstream is its tendency to judge problems by the elegance of the solutions available within its research program rather than by their inherent importance. The mainstream dialectically produces its own negation, dissidents who will not for one reason or another join in enthusiastically in the building of the general equilibrium city on a hill. It is my aim in these remarks to address such dissidents, or the dissident side of some diligent city builders. The dissident whom I am addressing is uncomfortable with the modern mainstream for some or all of the following reasons: because it fails to address problems of power and conflict in terms of class; because it overemphasizes the problem of resource allocation to the detriment of our understanding of accumulation and the sources of economic growth in relation to resource allocation; because it makes no serious critique of capitalist economic institutions; because it has produced little insight into the problems of inequality and poverty; because of the intellectual narrowness of the mainstream research program itself.

A strategy for dissidents I suggest that the positive task of dissidence is to create, or at least lay the foundations for, an alternative economic discourse that would overcome these defects. I would go further and argue that we need to construct an economics that can contribute to the construction of an alternative socialist system of organization of production. Economic discourse can accomplish this through maintaining a balanced and persuasive critique of capitalist institutions and their performance and by generating credible alternative proposals for the organization of production and the management of social resources. In pursuing this goal we need to learn several things from the mainstream consensus. First, we ought to, without prejudice or pride, take whatever is useful and correct in the methods, data, theories, and conclusions of mainstream work. Second, I believe that the edifice of mainstream economics is an important model for the construction of an alternative. An alternative economics must function, as does the mainstream, at every level of abstraction, and at every articulation of the reproduction of scientific knowledge. It must aim at maintaining, as the mainstream consensus now does, vigorous and focused work on philosophy, method, basic theory, mathematical modeling, econometrics, econometric method, applied problems, policy evaluation, history, and the history of economic thought. Thus, in particular, we

232   D. K. Foley cannot afford the luxury of spurning any area of scientific work as too abstract or too complex, or too concrete. In imitation of the mainstream we ought to strive to maintain our discourse at every level of expression, from textbooks and popularization to monographs and specialized research reports in journals. The point is that all these activities, even those that may seem hopelessly removed from political and historical reality, contribute to the maintenance of the hegemony I described above, and it will be impossible to challenge that hegemony except by challenging every one of these points.

The critique of method I will now try briefly to suggest an approach to understanding the relationship between methodology and ideology. Methods per se are simply ways of trying to answer questions. Methods in themselves cannot determine questions or answers. Thus I do not believe there can be a critique of a method in the abstract. The critique of method must consist of one or several of the following claims: 1

2

3

The method is not being used correctly, so that it is leading to a wrong result. The proper critique in this case is to show the correct use of the method and the correct result. An example of this critique is the Cambridge critique of the neoclassical attempt to argue that profits are a reflection of absolute scarcities of capital through the production function. The method of equilibrium modeling was being used incorrectly by neoclassical economists who insisted that the equality between the marginal product of capital and the profit rate meant that the profit rate was determined by the marginal product of capital rather than the other way around. The wrong method is being used to answer a question, giving misleading or ambiguous results, when a more powerful method is available which gives sharper and more accurate results. The proper critique in this case is to rework the problem with the superior method and establish the correct conclusion. An example of this situation was the attempt by Patinkin and Samuelson to treat money symmetrically with other commodities in a general equilibrium model. Another example is the attempt to explain economic growth without a coherent theory of the capitalist firm as a locus of endogenous technical change. The wrong question is being asked, or the question is being put in a misleading way. The proper critique in this case is to frame the question sharply and then apply the appropriate method to resolve it. An example is the assumption by mainstream economists that what has to be explained in the theory of unemployment is why real wages do not vary to maintain full employment, whereas the more interesting and relevant question is why capitalist economies produce substantial fluctuations in the demand for labor. Another example is the tendency of mainstream economists to explain income inequality in terms of the personal characteristics of individuals

Notes on ideology and methodology   233 rather than in terms of the structural features of capitalist society that reproduce inequality and poverty. The mainstream economist asks “why are these particular people poor?” whereas the relevant question is “what systematically reproduces poverty?” Ideology resides in the questions a theoretical discourse puts forward as central to its development, the implicit assumptions it accepts in answering these questions, and the issues it systematically ignores. Ideology influences method, to be sure, because methods are developed to answer questions of a particular theoretical discourse. But there is an inevitable mismatch between methods developed and their intended uses. On the one hand, a method developed to support a reactionary or apologetic position may, properly deployed, demonstrate the inadequacy of current arrangements or the need for decisive change. On the other hand, dissidents working on their own problems may widen their market because their methods may be useful to the mainstream.

Constructing an alternative economics The project of constructing an alternative economics involves developing a set of linked questions at all levels of abstraction that call into question the performance of capitalist economic institutions and search out feasible alternatives. Existing methods can sometimes make substantial progress in addressing these questions. A determined and sophisticated attack on them will surely lead to the development of new methods. The construction of an alternative economics on these lines is a formidable task. In pursuing it, I suggest that we pay particular attention to the following points: 1

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We need to be resolutely and honestly self-­critical. There is a tendency among dissidents to let up intellectually when we consider our own work or the work of people we can identify with. This is a mistake, because it reproduces the backwardness of alternative work. The criticism of mainstream economists often causes pain to dissidents. Sometimes this criticism is unfair and ideologically motivated, in which case it need only be considered coolly and taken for its real value. But often mainstream economists are simply giving us what they give each other, namely a tough-­minded and logical evaluation of work on its own premises. Until we can find ways to hear and give each other that level of criticism our work will not achieve its own potential. We need to be methodologically expedient and catholic in our tastes. By this I mean that we cannot afford to avoid methods on account of our distaste for the way the method has been used in the past. If the assumption of rational expectations allows us to make a key point about the stability or social rationality of macroeconomic equilibrium, by all means let us adopt it in that context, even if its roots are in apologetic and idealistic models. The dissident has the luxury of a certain distance from the methodological

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scrimmage that is life and death to the mainstream economist. We can become connoisseurs of method and have the fun of mixing insights from very different schools of thought. We need to be methodologically aggressive. For every hour dissidents can give to a problem, the mainstream can deploy thousands of hours of better paid, better supported, and at least equally well-­trained intellectual labor. The only chance we have to reverse the unevenness of development in economics is to leap over the mainstream. The history of science testifies to the possibility of this kind of leap; it is associated with the aggressive adoption of new methods of observation, data analysis, and theoretical development. There is no point, of course, in using a cannon to kill a fly, or to deploy a deep and powerful method to make a point that can be grasped through an appeal to ordinary common sense. But dissidents must be on the lookout for methodological breakthroughs. An example is the problem of the analysis of the long-­run sectoral competitiveness of the US economy. Until a few years ago Stigler’s and Brozen’s work on this problem represented the orthodox opinion, but it was based on limited data sets and primitive econometrics. This opened the door to a more systematic attack on the problem by Mark Glick, Hans Ehrbar, and others starting from the Classical point of view of equalization of profit rates using more sophisticated econometrics and uniform, comprehensive data sets. Bowles, Gintis, Gordon, Schor, and others were able similarly to open up a systematic theory of power relations within the firm that widened the set of questions theory addressed while mainstream economists remained content with macroeconomic studies of the Solow residual. We need to be explicit and exact in formulating our questions and in establishing a consistent framework of relationships among these questions. Our critique of mainstream economics ought to be consistent with this framework. In this respect certain aspects of Marx’s work are invaluable. In his development of the circuit of capital as an image of the capitalist economy Marx provides a way of thinking of economic relations as a whole which can provide the same kind of guide to alternative theory as general equilibrium does for the mainstream. The circuit of capital has several methodological advantages over finite-­horizon Walrasian models, among them its explicit dynamic character, the incorporation of money and monetary relationships in the foundation of the theory, and its explicit connection to the theory of class and exploitation. Following this principle is hard, because it means giving up the freedom to criticize everything about mainstream economics from whatever point of view one chooses, but it is necessary to achieve the positive project. And finally, We need to survive. I think there should be no apology about this. Dissidents have the same life drives as mainstream economists. We need incomes, jobs, security, audiences, professional recognition, the psychic satisfaction of constant learning, and the thrill of entering the unknown and discovering things no one has suspected before. We need to find more

Notes on ideology and methodology   235 effective strategies for achieving these ends and satisfactions, even in the difficult war of position (to use another of Gramsci’s phrases) we have had the ill or good fortune to confront.

Surviving mainstream hegemony Everyone has to fight her or his own battle, and the lessons of experience are only rarely applicable to the next war. Despite these caveats, I would like to offer some advice on the problem of personal survival as a dissident. 1

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The idea of disguising one’s true beliefs until one achieves a certain degree of security is attractive but hardly ever works out. It is difficult even for the truest believers among the mainstream economists to succeed in doing something worthwhile in scholarship, and much harder for someone who is masquerading. Find a problem and approach that you believe in and work it through. Very few scholars shift their method or problem area successfully after they reach the Ph.D. Accept the unfair burdens that come with a dissident stance. You will be judged by different standards; you will be undervalued; you will be asked to do work of an order of magnitude better than the work you are criticizing before you even get a hearing; and even then you will be ignored unless you insist on attention. So what? Aim for strength, and be ambitious. Do not expect very much from the existing anti-­hegemonic structures of patronage and support. Publishing exclusively in dissident journals is an attempt to get a free ride on a bus that is already barely moving. Take the struggle as much as possible to mainstream ground. Accept the practical need to be a marketable commodity. Academics are freelance adventurers by historical origin and contemporary academic life still reflects this. Choose interesting, important questions to work on, even as you insist on raising uncomfortable issues.

Exploit the faddishness of academics where it is possible. Exploit methodological fetishism where it helps. Do not be shy about getting a job because you have a good degree and a skill that commands rents in the market. Academic ideology in economics is policed effectively but loosely.

Weaknesses and trends in mainstream economics I believe that we are in a period of considerable fluidity, if not crisis, in mainstream economics, and that a careful look at its development is particularly worthwhile for dissidents now. 1

Milton Friedman’s negation of Paul Samuelson’s neoclassical synthesis, the combination of dogmatic laissez faire in microeconomics and dogmatic

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monetarism in macroeconomics, has failed to consolidate itself as the center of mainstream thinking. This is surprising because Friedman’s system offered a more coherent and consistent apology for conservative political economy than the neoclassical synthesis did for liberalism. Connected to this is a decline in the influence of Walrasianism as the basis for price theory. The emphasis on prices as carriers of information about costs in contemporary price theory, rather than as clearers of markets, actually brings contemporary theory closer to the cost theories of price that are the heart of Ricardian and Marxian economics. This development also opens up connections to the theory of socialist economic organization, since wealth holders are viewed in modern theory primarily as performing a social function in allocating social resources, and therefore as a kind of system of social management of resources. The high road of Marxian theory is to analyze the ways capitalism solves the problem of organizing social production as a guide to the tasks of socialism. Within mainstream economics there is a re-­emergence of explicitly Classical and even Marxist economic themes and problems. The work of Paul Romer on endogenous technical change raises classic questions of the sources of productivity growth and the wealth of nations. In addition, this point of view suggests that there is a zero-­order externality (one that affects not just the level, but the rate of growth of output) inherent in capitalist production. We are seeing the development of what might be called Chicago materialism, in which general equilibrium ideas are marched out to confront such questions as the importance of a middle class in broadening the market in capitalist development, and the correspondence between technological development and the sophistication of contracts and capital markets. Anyone who has read much in the Marxist tradition will not find these questions, or even the general shape of the proposed answers, very surprising. The failure of neoclassical economics to achieve a coherent theory of the capitalist firm has now been recognized by the mainstream as a key anomaly. The emergence of the new institutional economics at Berkeley, among other places, is one attempt to address this problem. Again in this area there is an opportunity to exploit the insights of Marxian and Classical economics, which puts accumulation in the center of the stage, and conceives of the capitalist firm as the locus of technical development as well as surplus appropriation. Econometrics is becoming more sophisticated and more rational. Twenty years ago feeble and methodologically flawed procedures were routinely accepted as offering support for the mainstream orthodoxy of the day. Econometrics is better; as a result it claims to prove less and disprove more, and has produced a lot of evidence for the irrelevance of simple-­minded Walrasianism as a source of explanatory propositions. One of the criticisms frequently made of dissident economists is that they do not couch their ideas in very complete models, but talk about vague concepts such as the gravitation of prices or profit rates, or structural rather than behavioral determinations of

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income and wealth distribution. But modern econometrics is becoming much more congenial to exactly this kind of measurement without theory. The problem of the determination of the profit rate in capitalist economies, which lies at the heart of Marxist economics and the neoclassical attack on Marx of Bohm-­Bawerk, has raised its head again in the new guise of the indeterminacy of equilibrium prices in infinite horizon economies. In each of these areas, and probably others that I know less about, I see the possibility of an alternative economic point of view based on Classical and Marxian traditions and self-­consciously critical of capitalist economic institutions making influential and even decisive contributions.

Addendum Notes on “notes on ideology and methodology”2 In general Re-­reading these “Notes on Ideology and Methodology” in early 2012 I find myself still in agreement with myself on the main issues. The advice I gave then on research strategies for graduate students is much the same advice that I give to my students today, and has stood up pretty well to the vicissitudes of experiences of job markets and careers. The insistence on alternative economics addressing all the various levels of reproduction of ideology and knowledge, from abstract theory to op-­ed pieces, seems as important today as it did in 1989. If anything I feel even more strongly about the importance of a clearly stated problem as the starting point of research, and of avoiding the trap of allowing method to go in search of a problem. On the whole, and perhaps rather sadly for economics as a “science,” even the examples I chose so many years ago for the most part retain their relevance. In these Notes on those “Notes” I will address those points where I have something more to say. Publication The problem of publishing research from alternative points of view in economics has become more complex and in some dimensions seems to have deteriorated. The tolerance of top-­tier mainstream journals for papers written from critical, radical, or alternative points of view seems to have diminished. On the other hand, several existing journals with a commitment to alternative views or to “pluralism” have developed stronger editorial policies and several new journals centered on alternative points of view in economics have sprung up. A dissident economist receiving a new Ph.D. in 2012 probably has significantly more and better journals as an outlet for research than was the case in 1989. Thus today I would supplement my recommendation for dissident economists to try to publish in mainstream journals with a recommendation to put energy and ideas into the dissident journals.

238   D. K. Foley The resulting polarization of journal readerships, however, has created a new battlefield, which was only nascent in 1989, the growing phenomena of “research assessments”, “value-­added” measures of research and their intellectual enforcers, “citation counts” and “impact factors.” There may be some point (though it is hard to say for what honest intellectual purpose) in comparing the “influence” of two papers on similar problems using similar methodologies by counting their citations. Presumably the papers are being read under those assumed conditions by the same readers, mostly students and experts in the field, and more frequently cited papers may have on this ground a claim to be more interesting or accurate. But it seems wildly and dangerously off the mark for appointment and tenure review committees to take raw numerical indexes of citation rates as a quantitative proxy for intellectual effort, promise, or achievement. The emerging system incorporates the worst features of the quant-­driven bubbles of the asset market, in which imperfect quantitative indexes that are vulnerable to unstable dynamic effects come to drive real investment decisions. Like other quantitative indexes, such as student satisfaction ratings, there is some information in citation rates and impact factors, but this information can be extracted only by an evaluator who understands something of the field and the work being evaluated, and who reads these indexes in the context of what the candidate scholar is trying to do. It is true that dissident economists, in so far as they publish and read the journals devoted to their work, and cite each other, can rack up citation scores. There is a curious quirk in some dissident economists’ scholarly personalities that makes them reluctant to cite other living scholars’ work. This leads to citation lists that favor Marx, Smith, Ricardo, and other worthies, who are ineligible to compete for current appointment or promotion opportunities, along with a healthy or even obsessive sample of self-­citations. The point is that citing other dissident economic scholars, even those you may disagree with, does some public service in raising the visibility of scholarship in the field and approach in which you are working. (This is emphatically not a call for citation inflation, or the corrupt practice of citation trading.) Many countries already have institutionalized systems of research assessment, often including lists of pre-­ranked publication outlets, in economics typically journals, and the United States with its own much looser system of meta-­ academic administration through accreditation and “quality” rankings, is predictably following the same path. On its face this type of research assessment seems likely to do major and lasting damage to research quality, and possibly even to drive original research out of the universities altogether. Why substitute a ranking, whatever its basis, of the journal in which a paper has been published for a judgment on the intellectual contribution of the paper itself? Presumably the answer is that the funding agencies and review committees that adopt research assessment procedures are too busy or unqualified to form coherent independent judgments of the quality of research, and want to hitch a ride on the judgments of journal referees through the exceedingly rough correlation between the quality of papers published in a journal and the reputation of the journal. But

Notes on ideology and methodology   239 if that is the case why are those committees allocating research funds and jobs in the first place? In any case, civil disobedience or quixotic attacks on research assessment policies are unlikely to make much of a dent, so it becomes crucial for dissident economists particularly to fight for the inclusion of their journals in citation indexes and on lists of approved outlets for research. This is another thankless but indispensable task imposed on dissident economics by its subaltern status in the war of scholarly position. It is made more difficult by the inexplicable fact that access to citation indexes is controlled not by public bodies or even anyone accountable to scholarly opinion, but by private publishers. (The parallel to the dubious role of the “rating” agencies in financial asset markets is striking.) The state of mainstream economics In 1989 I ventured to identify several vulnerabilities of mainstream economics. As one would expect from a familiarity with the history of economic thought, in the intervening two decades there have been significant changes in the configuration of mainstream economics.3 Curiously enough, and quite surprising to me personally, mainstream microeconomics seems to have prospered intellectually in this period much more vigorously than mainstream macroeconomics. Mainstream microeconomics has benefited from a flow of new ideas, some of them with radical or classical political economy roots, such as evolutionary theory, agency and information economics, the incorporation of institutional structures into explanatory models, along with methods imported from complex systems theory such as agent-­based modeling and network analysis, and innovative statistical methods such as non-­parametric modeling and related Bayesian approaches. There is a rich set of research opportunities for dissident economists inherent in these developments, which have significant ramifications for the classic political economic problems of accumulation and distribution. These ramifications remain to be fully explored and exploited by dissident researchers. In this context I would supplement the remarks in the “Notes” with a caution against allowing fundamentalist attitudes to interfere with the incorporation of new theoretical ideas into existing dissident traditions such as Marxist economics and post-­Keynesian economics. In many cases new theoretical developments in agency economics, evolutionary modeling, or network theory provide exactly the insights necessary to move forward central issues in received non-­ mainstream theories. The dissident interested in this rapidly moving and fertile set of research issues might pay particular attention to issues of translation of theoretical terms, because it sometimes turns out that different theories are saying the same or very similar things once terminological and linguistic differences have been clarified. Mainstream macroeconomics has suffered what Marx called the severe criticism of history, and by all ordinary standards we might expect mainstream macro to be on the ropes pleading for mercy from triumphant dissidents. Of

240   D. K. Foley course, this agreeable fantasy is far from political economic reality. The spectrum of macroeconomic scholarly opinion in the mainstream is astonishingly narrow. Almost everyone agrees on the desirability of maintaining traditional patterns of economic growth in the developed countries and the export of these models to developing countries. Almost everyone agrees with some form of the Solow growth model implication that private enterprise economies stably return to long-­run growth paths determined by population growth and technology, and largely unconstrained by resource and environmental limits. Almost everyone agrees that not much can or should be done by policy to alter market-­determined distribution of incomes in the conventional model of economic growth centered on capital accumulation. There is a small, almost theological, controversy over whether activist fiscal or monetary policies to counter booms and slumps can improve on some form of laissez faire rule-­based policy. What there does not seem to be is any sense of urgency or responsibility to refashion what looks like an exhausted and unprogressive research paradigm. Don Quixote, where are you when we really need you?

Notes 1 These notes were written for a presentation to economics graduate students at the University of California, Berkeley, in the Spring of 1989. They are reprinted here as revised in 1991, together with an addendum reflecting on these issues in the light of intervening events. 2 Thanks to Marc Lavoie and Fred Lee for the opportunity to publish this talk and these notes. 3 I have commented more extensively on some of these issues in Foley (2010).

Reference Foley, D. K. (2010) “Mathematical formalism and political-­economic content”. Online. Available at: http://ineteconomics.org/paper/mathematical-­formalism-andpolitical-­ economic-content (accessed February 6, 2012).

13 Whither heterodoxy? Or where is heterodox economics going? Liêm Hoang-­Ngoc

Introduction The history of economic thought is commonly reduced to a succession of research programmes where a new programme takes the place of the previous, now degenerate, one (Blaug, 1980). Today, the research programme that is reputed to be scientific is a constructivist and neo-­Walrasian one. It defines as its core the model of perfect competition, the image of a frictionless world, and accepts the auxiliary assumptions of informational (such as asymmetrical information) or behavioural (such as limited rationality) cognitive imperfections. The aim of these assumptions is to render the theory realistic (that is, empirically testable). Beyond the bounds of this programme of positive analysis, whose protagonists, fanatics of Hume’s guillotine,1 refuse the notion that it is linked to normative considerations, there can be no science, and as a result, only limited possibilities for questioning the established economic order, from the moment that the criterion of optimality (be it of first or second order) marks out the limits of the efficient solutions allowed for by these theories. As long as they will not have produced a rival programme, those who reject this posture, the heterodox economists, will be reduced as a result to writing and commenting on the history of economic thought or to building connections with sociology, neglecting the rigour of economic analysis in order to practice a methodological inductivism, incapable of making any predictions and content to “tell stories” that cannot be falsified. Thus goes the new vulgar economics. The aim of this article is to go against the current of the dominant opinion described above, but also to point out the limits of contemporary heterodox economics which, obsessed as it is with criticising neoclassical economic theory for its lack of realism, has both neglected the field of a rival constructivist programme and forgotten about the task of dismantling Hume’s guillotine. The toolbox of economic thought, however, does provide us with the necessary tools for putting together the analytical approaches of the economic world built by the founding fathers of anti-­liberal thought. Thus, Marx and Keynes have inspired the post-­Keynesian models whose relevance to the analysis of the disorders of the “new capitalism” we rediscover today.

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Heterodox economics manipulated? The dead end of the struggle against autism The struggle against autism has constituted the lowest common denominator, having brought together numerous contemporary opponents of the academic pensée unique – the claim that there is no alternative (TINA). Their fire has mainly been directed against Friedman’s (1953) articles. This lowest common denominator has not been sufficient for founding a truly rival programme. But their attacks against Friedman have proven necessary and legitimate if one considers the provocation organised by the latter on the basis of the postulate of the unrealism of assumptions.2 Provocation indeed, for the mainstream invited the community of economists to adopt a constructivist approach3 and at the same time to spare it the test of empirical verification, the only judge capable of validating or rejecting a theory in the physical sciences. The realist tradition had been inaugurated, more than half a century earlier, during the famous Methodenstreit, in which Menger, forerunner of the Austrian neoclassical school, confronted Schmoller, the ancestor of institutionalism. Realism was later embodied in the United States by Commons’s institutionalism, and then by the post-­institutionalist current of Industrial Relations. The field of labour economics illustrates particularly well the struggle between orthodox and heterodox economists. The theory of Industrial Relations, founded by Dunlop (1958) and Kerr, is sometimes presented as having given rise to post-­ institutionalist theories such as the theory of the fragmentation of the labour market (Doeringer and Piore, 1971). Taking as its object the entire range of labour regulations, the theory explicitly claims a certain neo-­realism whose vocation is not to replace neoclassical economics but to enrich it with historical and sociological dimensions in order to make it more pertinent. Parsons’s symmetrical sociology, which belongs to an interdisciplinary approach, provides it with its rudimentary instruments. The system of industrial relations is a sub-­ system of the social system. It interacts with other sub-­systems, like the economic and the political system, which constitute its environment. Under its pressure, the system’s actors develop a number of rules that regulate employment relations. The dominant theory, lurking in the wings, managed to take advantage of this golden opportunity in order to endogenise these realities as stylised facts. In so doing, it pre-­empted the criticism of the empirical invalidity of its assumptions. The efficiency wage theory or the insiders-­outsiders models are theories that claim to provide microeconomic foundations to the rigidities of the labour market, which were pointed out by sociologists but had hitherto remained unexplained. This approach was widely accepted during the 1980s at the same time that the Friedmanian assumption of a natural rate of unemployment, stable and unique in the long run, could no longer be upheld against the rise of unemployment and the fall of inflation. An implicit division of labour – which was more explicit on the other side of the Atlantic – came about between orthodox and

Whither heterodoxy?   243 heterodox economists. The heterodox economists insisted on the breakup of the internal markets and on the new age of the fragmentation of the labour market. The orthodox economists, with Joseph Stiglitz at their helm, defined the microeconomic foundations of the labour market, situating both employers and rational workers in a universe of asymmetrical information (Shapiro and Stiglitz, 1984). The heterodox economists castigated the simplistic approach and again the unrealism of the neoclassical models, which were presented under the new names of New Keynesianism and neo-­institutionalism, as well as their inability to endogenise Keynesian unemployment or to account for capitalist enterprise. The latter referred them to their own inability to put forward an alternative explanatory model. This particular sort of heterodox school, centred on a critique, could only be the distorting mirror of the dominant theory, inviting it to enrich itself by the same token. The dominant theory did precisely that by introducing auxiliary assumptions. Organising heterodox economics around the sole critique of neoclassical autism could only result in helping it find a way out of the tight corner of empty empirical validity. The economists of the economics of conventions school have even ended up entirely abandoning the field of alternative economic analysis in order to fall back on an analysis based on a purely comprehensive approach. Their approach is now concerned with what is fair and legitimate, which cements, with time, the conventions between actors.4 The nomenclature of logics (market, industrial, domestic, civil) is supposed to provide the key to understanding the current social order. At the normative level the theory of conventions could only result in a theory that provides an understanding of the established order, rather than a theory that challenges this order. The thesis of the crisis of Fordism: a sophisticated version of supply theories Regulation theory, which seemed to be beyond the scope of the critique sketched out above, is not exempt from an overall negative balance sheet in this respect. The theory has developed a set of analyses that enable us to identify the constant institutional features of a monetary economy of production. These features determine the emergence of various kinds of capitalist and socialist economies. But, when one takes a closer look, the theorisation put forward by the followers of the regulation school, who belong to recent economic history, is simply a complex version of supply-­side theories, whose main aim was to bury Keynesian policies. Leborgne and Lipietz (1991) actually explicitly use the term to characterise the crisis of Fordism. The thesis according to which the crisis of Fordism, which emerged during the stagflationary 1970s, is a crisis of the wage relation (Boyer, 1986), echoing the assumption of structural unemployment, commonly admitted in the mainstream. The wage, employment and organisation norms inherited from the Fordist period are said to be no longer appropriate, because of the transformations of the regime on the demand side. The crisis of Fordism then becomes the result of the fact that the wage relation is not adapted to the new

244   L. Hoang-Ngoc norms of competition and to the differentiation of demand in shallower markets. This crisis calls for a transformation of the wage relation; namely the neoclassical structural reforms of the labour market whose institutions would impose flexibility, aggressive as well as defensive. The Fordist legacy is said to still slow down, 30 years later, the adaptation of the labour force to an environment that is now structured by the knowledge economy. Like orthodox economists, the regulationists have progressively turned away from the field of macroeconomic policies in order to attribute an excessively important role to the institutions of the labour market in explaining under-­employment. Aglietta’s (1999) analysis, which is, according to the author of this chapter, more relevant than that of Boyer and Orléan (1990), considers that the major structural change of the end of the twentieth century does not specifically come from the techno-­organisational capacity of the system to adapt to its environment, but from a modification of the social relations entailing a new social (and therefore technical) division of labour. The origins of the crisis of Fordism are therefore to be found in the financial sphere and not in a crisis of the wage relation. More precisely, in the context of the fall of the rate of profit at the end of the “Fordist” era, the revenge of the shareholder and the failure of the compromise between managers and wage earners, are said to have materialised, to start with, in a transformation within the financial sphere, entailing, only afterwards, the redefinition of norms within the labour market sphere. This idea, strongly present in Aglietta’s work, is belatedly endorsed by Boyer (2000). It is obviously possible to argue both that the crisis of Fordism has indeed existed and that it has opened the way for the domination of finance, the latter taking advantage of the potential of the knowledge economy. However, there has not been a crisis of the wage relation, meaning here that labour contracts, the mode of wage-­formation and the regime of social protection did not fail to adjust to the new norms of differentiated demand. If indeed there have been tensions, they first emerged in the distributional conflict between capital and labour, thus giving the impression of a crisis of the wage relation, whose analysis is at the heart of post-­Keynesian stagflation theories. Whereas the tensions concerning the distribution of income have been dealt with in the framework of wage policy, occasionally in dialogue with the trade unions, this distributional conflict, all the more acute as productivity growth slowed down, was settled after financial capital took control of the money relation anew. Financial capital imposed new profitability and management norms entailing, in order to regulate the system, an endogenous adaptation of the wage relation, which is still under way today, especially through the debates on the “reform” of labour legislation and social protection. Whereas their positive analysis of shareholder capitalism points to numerous sources of instability in the system, many regulationist authors persevered, before the outbreak of the financial crisis, in articulating their normative thinking on the conditions of regulation of shareholder capitalism. They saw in the fact that the wage relation was not adapted to the necessities of the “new capitalism” one of the causes of its malfunctioning. Previously embodied in the Japanese

Whither heterodoxy?   245 managerial model, “aggressive flexibility” is now a requirement of shareholder capitalism – the new incarnation of capitalism. Its modern version, flexisecurity, which is said to be necessary for organising mobility towards the sectors of the new knowledge economy, combines the generalisation of limited duration contracts, lifelong training, universal benefits and socially responsible savings by wage earners, the latter’s vocation being to counter the “short-­termism” of financial markets. In the end, from the point of view of positive analysis, could contemporary heterodox economics, largely inspired by the regulationist school in France, be said to have become the sophisticated packaging of supply-­side theories? At the normative level, it succumbed, in any case in its soft version, to the same social conservatism, to the extent that it discards from the field of economically viable choices those social transformations or economic transitions likely to lead to socialism.

Economics: science, ideology or belief? A detailed examination of the contemporary literature indicates that there is no dominant research programme, improved after having been submitted to external critique, but at least five methodological postures, linked to five distinct metaphysical presuppositions, legitimating more or less consciously (this is precisely the function of ideology) very specific socio-­political orientations. The first two postures have as their function to legitimise the established order. The Walrasian and neo-­Walrasian traditions do separate however the field of positive analysis from that of social and normative economics. In Theories of Well-­Being, normative choices are allowed provided they reconcile collective well-­being with efficient allocation. However, choices are limited because of the necessity to respect the criterion of Pareto optimality according to which the situation of an individual cannot deteriorate because of public policy. This is why a compensation principle was introduced later on in order to compensate the victims of public policy. Neo-­Hayekian theories (public choice, property rights), usurping the term positive theory, mark out the strict economic constraints that lead them to become the apologists of capitalism and to condemn every choice that is even mildly collectivist, let alone democratic (Buchanan, 1968). On the political market, candidates are motivated by purely electoral considerations and are not at all worried by the well-­being of their fellow citizens (Tullock, 1970). Representational democracy inevitably leads to an inflation of public spending. The capitalist ownership of the means of production and the sanction of the market are the spontaneously efficient forms of coordination. Normative choices are officially presumed to be impossible with the exception of those choices that respect the spontaneous order of the market. The positive theory does not claim any less the use of Hume’s guillotine. The verdict is even more severe than that pronounced by the neo-­Walrasian judges. As in the case of the theory of well-­ being, the label “positive economics” has an ideological purpose; it guarantees

246   L. Hoang-Ngoc the scientific character of any discourse that legitimates the established order of property rights, presumed to be optimal. But the theories of well-­being are still accused of allowing for normative choices that lead to state intervention, presumed to be excessive and inefficient. Whereas the theories of well-­being stem from soft conservatism, the supposedly positive theory results in reality in hard conservatism. The other three postures are methodologically and socially reformist, or even revolutionary. At the methodological level, Marx and Keynes condemn, for their part, Hume’s guillotine. The positive analysis to which they proceed explicitly results in socio-­economic solutions that depart from the financial order, and even from the capitalist one. In Marx, there are strong economic tendencies that force us to call for the regulation of capitalism and lead the philosopher (today one would say the researcher), conscious of the stakes of history, to advocate the transition to socialism as a solution to the crisis of capitalism. We are in the presence of hard Marxism which, deep down, is only the distorting mirror of the previous neo-­ Hayekian approach. The scientific analysis (as against the positive analysis) of the economy leads to the prediction of the superiority of a socialist order (as opposed to the capitalist order). In Keynes, Say’s law of markets, in a context of radical uncertainty, does not apply and the classical theory of employment, interest and money is wrong. This posture, which post-­Keynesian theory has adopted (Lavoie, 2006), leads the enlightened economist to recommend a certain level of public planning, both monetary and budgetary, of the market economy. Such a posture does not in any way depart from the constructivist approach, accepted in the community of economists. It is, however, still the case that the body of assumptions that constitutes the metaphysical discourse of this current distinguishes itself from that of the mainstream. The opposition is such that it cultivates the germs of a rival programme.5 The Kalecki–Kaldor law is opposed to Say’s law of markets. The supply curve incorporates the assumption of constant returns and replaces Lucas’s curve. The thesis of an endogenous supply of money is opposed to the quantity theory of money. Since adhering to the constructivist approach entails the empirical verification of assumptions, these post-­Keynesian assumptions are pertinent. Besides, all of the previous four theses proceed from a certain economic determinism (they uphold the idea of a certain autonomy of the economic sphere). This autonomy is somehow the foundation of the unity of the discipline, even if the latter accepts to take into account external critique, by incorporating certain “stylised facts”. A fifth posture, that of the American radicals, adopts on the contrary a point of view that can be qualified as purely sociologising, to use the term brandished by the fundamentalists of hard science against a theory that is suspected of borrowing the language of the human sciences (Marglin, 1974; Gintis, 1976; Tinel, 2004). For the radicals, there is no strict economic determinism. We are in the presence of soft Marxism. Economic choices are essentially choices that stem

Whither heterodoxy?   247 from the process of social confrontation, even if the radicals do not exclude the possibility that the constraints of reproduction can come into play. Thus, the division of labour appears as the instrument of the domination of capital on labour, first with the appearance of skilled workers, then with labour market segmentation, to ward off the threat of a working class consciousness. The history of economic thought could, in the end, only be said to be the history of ideologies, in Althusser’s sense of the term. Theories are beliefs, falsely considering, each in their own manner, that they possess the scientific truth concerning the durability or the limits of the established economic order, which is taken as the object of the analysis. This explains the fundamentalism of the economists who advise those who run the world. Once Hume’s guillotine is thus abolished, the criterion that demarcates orthodox and heterodox economists from each other is then inherent to the more or less conservative character of their discourse concerning the established economic order.

Is there a positive heterodoxy? Should we, however, renounce the attempt to develop an approach that is as pertinent as possible, let alone the attempt to develop a positive heterodoxy, in order to analyse the economic world in which we live? In the case of an affirmative answer, this would entail abandoning economic analysis to official economics and deserting the field of the development of a rival hypothetic-­deductive theory that one could test, as far as possible, against empirical reality. Heterodox economists must therefore try to accomplish this task, as best they can, for economic thought cannot be an exact science. Economics is a social science. There can be no laboratory experiments and the impossibility of creating and cloning human beings that are socially disembodied limits the relevance of experimental economics. Economics is then the field of a confrontation between actors, whose behaviour is determined by their position in the process of production. Some of its reproduction constraints can be deduced on the basis of an operational constructivist approach. The classical theory has been reintroduced in the framework of the neo-­ classical synthesis. However, another synthesis is possible, that of the last three approaches mentioned above, situated at the crossroads between Marx and Keynes. Class struggle and the money sphere represent the point where these three heterodox approaches meet. Social confrontation between classes is present in all three approaches. It has a structural role in Marx and the radicals, some of whom do not in the least ignore the economic constraints of reproduction. In Keynes, it is present in the opposition between enterprise and rent, while it can be discerned in the assumption of a conflict concerning the profit margin in post-­ Keynesian theories. Besides, the theoretical foundations of a Marxian–Keynesian analysis are explicitly present in the work of Robinson and Kaldor. This analysis is at the origin of the post-­Keynesian models of income distribution, where the distributional conflict between classes is the cause of a structural cost inflation, and where the money supply is endogenous. This assumption is radically

248   L. Hoang-Ngoc opposed to the liberal thesis of the neutrality of money. Money is the modern social link to the extent that it is the instrument of social validation of private labours in Marx. It conditions the implementation of business projects in Keynes. Between Marx and Keynes: the other synthesis6 The conception of the social power of money, to the extent that it allows for the launching of business projects (be they private or public) justifies, in the normative debate, the importance of the theme of monetary and financial sovereignty in economic policy. Financial deregulation and the independence of central banks have resulted, in Europe, in the privatisation of monetary policy and the control over savings. However, the power of printing money, in the hands of central banks, undoubtedly constitutes an essential economic power, to the same extent that the control of financial savings does, with the savings circulating more or less freely between and within economies. The control of monetary and financial instruments predetermines the possibility of controlling investment. In the hands of the shareholder of contemporary shareholder capitalism, monetary and financial instruments are orientated towards the objective of the valorisation of capital and the maximisation of financial profitability. At the disposal of the managers of managerial capitalism, they finance in the long run their investment bulimia and enable the elaboration of compromises with trade unions within the framework of the wage relation. If controlled by the state, these instruments can siphon liquidity towards the financing of industrial policy within the framework of more or less indicative planning. From a theoretical point of view, the thesis of the primacy of money is a key meeting point between the Marxist and Keynesian problematics. It justifies the renewal of post-­Keynesian approaches that can be observed over the last few years in the economic literature (Parguez, 1987; Cordonnier, 2006; Lavoie, 2006). Keynes’s major contribution – in his 1936 General Theory – has undoubtedly been to question the liberal thesis of the neutrality of money. The crudest version of this thesis is that put forward by the New Classicals (Lucas, 1973). The supply-­side places limits on the economy. The capital stock does not change in the short-­term. The economy can therefore only increase production by employing more labour. Since the capital stock does not change, this can only be done at the cost of diminishing marginal productivity. The firms that want to increase production must, as a result, pay lower wages in order to maximise their profits. Unfortunately, they cannot increase production for no worker will accept a job at a wage rate that is lower than the one prevailing in the labour market. The economy, constrained by the supply-­side, is therefore in full employment. Unemployment is strictly voluntary, for workers prefer leisure time to jobs that are far too badly paid to compensate for the “disutility” of labour. Since supply is rigid, any demand-­boosting policy, which in fine amounts to an injection of money, mechanically triggers a rise in the general level of prices. Money is therefore neutral. Managing it irresponsibly is the root cause of inflationary

Whither heterodoxy?   249 bouts that can be prevented by entrusting the management of money to informed central bankers. Keynes, on the other hand, when he builds his monetary theory, starts from the impact that uncertainty, which prevails in financial markets, has on the economy, as economic agents arbitrate between holding money and buying financial assets. These agents do not behave rationally; rather they behave like sheep following the flock. Keynes remarks that the preference for liquidity increases with uncertainty. In case of a strong preference for liquidity, a liberal policy of stimulating saving has no chance of triggering a fall in interest rates on the markets of loanable funds and is unlikely to stimulate investment, in contrast to what the classical theory of saving holds. It therefore triggers an important realisation crisis since one part of the saved income is not spent. The consequences of uncertainty are therefore reflected in the formation of the interest rate, which determines investment and whose sluggishness is the principal cause of the rise in unemployment. The impact of uncertainty is greatest during financial crises, when the generalised wariness of financial actors towards each other strengthens their preference for liquidity to the detriment of the acquisition of financial assets. Interest rates tighten in the bond markets and prices fall in the stock market. The solvency crisis that banks are faced with leads those banks that possess liquidity reserves to demand a higher risk premium. Economic agents are hit by this liquidity crisis through the tightening of credit, even to finance current expenditures. The central bank must intervene to inject liquidity as lender of last resort. Sometimes there arises a situation of total preference for liquidity which cancels out the impact of the decrease of the key rate of the central bank (the minimum rate on which interbank rates are calculated). The state itself must intervene to stimulate economic activity through fiscal policy, even if this entails the partial socialisation of investment. However, there are two questions left unanswered by the General Theory. To start with, as highlighted by Kaldor (1982: 21), Keynes’s theory of the preference for liquidity “was a modification of the quantity theory of money, not its abandonment”. The theory does not lead Keynes to a complete break with the idea according to which demand is determined by the money supplied by the central bank, which is supposedly exogenous and can therefore be managed by the visible hand of the governor of the central bank. Keynes only refers in passing to the assumption of endogenous money developed later on by post-­ Keynesians such as Kaldor (1982), against the theses of the monetarists who argue that inconsiderate money creation is inflationary. On the contrary, the assumption of endogenous money means that the money supply cannot be controlled exogenously by the monetary authorities, as is claimed by the monetarists. The post-­Keynesians point to the fact that the relation between money and production must be reversed. The quantity of money stems, in a monetary production economy, from effective demand that results from investment spending by firms and from the propensity to consume. This investment spending itself depends on the rate of interest, the only exogenous variable that the central bank has the capacity to control. In other words, the supply of money is endogenous to demand (which is autonomous). The latter can be influenced by economic

250   L. Hoang-Ngoc policy. As a result, inflation does not have monetary origins. It is rather considered to be structural. It mostly results from tensions on production costs such as conflicts concerning the distribution of income or an energy shock leading firms to raise their prices in order to protect their profit margins. Second, Keynes stops at the entrance of the factory, which Marx had started to break down with the theory of exploitation. Keynes does not probe the foundations of the capitalist enterprise because his social project is to preserve the capitalist regime of property law, except when he suggests that public investment should fill the deficit in capital accumulation in those sectors that are victim to the pessimistic anticipations of private businesspeople. Keynes does not question the classical theory of the distribution of income on the basis of marginal productivity and thus admits that wages must fall with the rise in employment because of the diminishing productivity of the newly hired workers. The endogenous character of the money supply and the impact of the distribution between wages and profits on growth are precisely two of the pillars of post-­Keynesian models. The latter are not devoid of interest when it comes to proposing an alternative version to the dominant interpretations of the economic events that have taken place during the last 30 years that were inaugurated by stagflation– this new wall that politics, according to the pensée unique, does not have the power to tear down. Shareholder capitalism has since aspired to succeed managerial capitalism and the welfare state of the “Glorious Thirties”. The new Kaleckian models contradict the conclusions of gloomy science and are particularly well suited to explaining the perverse macroeconomic effects of the high profit norms demanded by shareholders in this “capitalism”.

Conclusion Since the fall of the Marxist theoretical wall, seen as too totalitarian, heterodox economists have not attempted to propose a general theory of the future development of human societies. Many of them have taken refuge in the struggle against the unrealism of the assumptions of neoclassical theory, vilified as the new theoretical totalitarianism. They have devoted themselves to a “complexity” cult, in order to point out that the economic world is evolutionary, a bearer of irreversible phenomena and made of forms of conflict and cooperation that are irreducible to class struggle or perfect market competition. The result of this approach could only be to abandon the production of an alternative positive theory, or more precisely a rival research programme, in Lakatos’s sense, and to rally to a comprehensive research strategy, in Weber’s sense, the embodiment of such a strategy being the economics of conventions. Even the French regulation school, which is a candidate for the succession of Marx and Keynes, succumbed to this temptation, to the point that it only noticed a posteriori the change in the system (the very object of its theory) that had taken place in front of its very eyes during the last 30 years. Hegemonic as it is, the dominant theory could only delight itself in this arduous internal critique which provided it with the stylised facts that it put through the mill of individual rationality, perfect or limited, in a universe that

Whither heterodoxy?   251 grew less and less competitive, always reaching the same conservative conclusion: the institutions thus created by rational individuals are always the most efficient ones. However, the foundations of an alternative programme have been sketched out in many post-­Keynesian works. The “generation of the theorists disillusioned with Marxism and Keynesianism”, since Robinson’s death in 1983 and that of Kaldor in 1986, did nothing to consolidate them. A few diehards resisted, until a new generation recently took up the task again. The materialist interpretation of the recent history of economic thought, strongly present in this article, suggests that, even when armed with Hume’s guillotine, the influence of the dominant ideology does not spare economists. The false consciousness of reality that they entertain has led them to privilege certain assumptions and to denigrate some others. The political defeat of Keynesianism in Thatcher’s Britain and in Reagan’s America, the austerity turnabout in France in 1983, the fall of the Berlin wall and of “really existing socialism”, could only divert the attention of a growing number of students and researchers away from Marx and Keynes and towards ever more dwindling research trajectories. Let us wager that the macroeconomic and social difficulties of financial capitalism will very soon find a theoretical expression in the world of academic scribblers.

Notes 1 Hume’s guillotine designates the method that Hume thought was necessary for science to emancipate itself from value judgements (religious ones at the time). This method must forbid itself to deduce “what should be” (normative choices) from “what is” (the phenomena that are described by positive analysis). 2 What is important is not for a theory to be realist, according to Friedman, but to provide the basis for making good predictions. 3 The constructivist or hypothetico-­deductive approach consists in defining assumptions that conform to the founding metaphysical discourse of the chosen theory in order to deal with an observable phenomenon and to deduce from these assumptions certain predictions. The assumption is not rejected so long as the empirical tests do not decisively invalidate it. 4 Compare the special issue of Revue économique: “L’Économie des Conventions”, March 1989. 5 Five of their characteristics can be highlighted here (compare Lavoie, 2006): 1 Kalecki’s law prevails: investment causally determines profits (“capitalists earn what they spend”). Profits underpin savings through the capitalists’ propensity to save. 2 The different factors are complementary. The factoral and scale returns are constant until productive capacities have become saturated. Contrary to the wage-­setting and price-­setting model, the real unit cost remains constant whatever the level of employment. This renders the fluctuations in unemployment independent of real wages. 3 These models reason in terms of the under-­utilisation of productive capacities. The multiplier and the degree of utilisation of productive capacities are the essential determinants of investment, which increases every time that the rate of utilisation rises above a level taken to be normal. Firms aim at a normal rate of utilisation of productive capacities in order to be able to adapt to the fluctuations of the economic conjuncture. 4 Inflation does not have monetary origins, but is structural by nature. In monopolistic competition, firms, which are confronted by trade unions, fix their prices on the basis

252   L. Hoang-Ngoc of a mark-­up on their costs. The mark-­up then depends on the degree of monopoly and on the distributional conflict with trade unions. 5 The money supply is endogenous (cf. Infra). 6 The term neoclassical synthesis designates, in the jargon of the economists, the synthesis carried out by John Hicks in his 1937 article (“Mr. Keynes and the Classics”) which translated Keynes’s theory in neoclassical language. This synthesis will later on give birth to the dominant current of contemporary macroeconomics.

References Aglietta, M. (1999) “Les transformations du capitalisme contemporain” in B. Chavance, E. Magnin, R. Moamed-­Nejad and J. Sapir (eds) Capitalisme et socialisme en perspective, Paris: La Découverte. Blaug, M. (1980) The Methodology of Economics, Cambridge: Cambridge University Press. Boyer, R. (1986) La flexibilité du travail en Europe, Paris: La Découverte. Boyer, R. (2000) “Is a finance-­led growth regime a viable alternative to Fordism?” in Economy and Society, 29: 111–45. Boyer, R. and Orléan, A. (1990) “La convention salariale fordienne: les obstacles d’une innovation locale dans la transformation du mode de regulation” in Cahiers du CEPREMAP, no. 9029. Buchanan, J. (1968) The Demand and Supply of Public Goods, Chicago: Rand McNally. Cordonnier, L. (2006) “Le profit sans l’accumulation: la recette du capitalisme gouverné par la finance” in Innovation, Cahiers d’économie de l’innovation, 23: 51–72. Doeringer, P. and Piore, M. (1971) Internal Labor Markets and Manpower Analysis, Lexington: Heath. Dunlop, J. T. (1958) Industrial Relations Systems, New York: Holt. Friedman, M. (1953) Essays in Positive Economics, Chicago: University of Chicago Press. Gintis, H. (1976) ‘The nature of labor exchange and the theory of capitalist production’, Review of Radical Political Economics, 8: 36–54. Kaldor, N. (1982) The Scourge of Monetarism, Oxford: Oxford University Press. Lavoie, M. (2006) Introduction to Post-­Keynesian Economics, Basingstoke: Palgrave/ Macmillan. Leborgne, D. and Lipietz, A. (1991) ‘Restructuration économique et territoire’, Espace et sociétés, 66/67: 39–68. Lucas, R. (1973) ‘Expectations and the neutrality of money’, Journal of Economic Theory, 4: 103–24. Marglin, S. (1974) ‘What do bosses do? The origin and functions of hierarchy in capitalist production’, Review of Radical Political Economics, 6: 60–112. Parguez, A. (1987) ‘Introduction à l’économie de rentiers’, Économie et Sociétés, 21: 103–9. Shapiro, C. and Stiglitz, J. (1984) ‘Equilibrium unemployment as a worker discipline device’, American Economic Review, 74: 433–44. Tinel, B. (2004) A Quoi servent les patrons? Marglin et les radicaux américains, Paris: ENS Éditions. Tullock, G. (1970) Private Wants, Public Means: an economic analysis of the desirable scope of government, New York: Basic Books.

Index

Page numbers in italics denote tables, those in bold denote figures. Ackerman, F. 113 Ackley, G. 178 Adler, R. 82n5 advice for heterodox economists see critics of heterodox economics; strategies for heterodox/Post-Keynesian economics Aglietta, M. 244 Akerlof, George 7, 22, 36, 47, 175, 220–1 Alchian, A.A. 190–1 Aliber, R.Z. 176 Allen, K. 172 Allied Social Sciences Association (ASSA) 141 Almeida, Ana Maria 101n11 alter-mondialist movement 45, 56n4 Amadeo, E.J. 29 American Economics Association (AEA) 141, 162 Amin, M. 66 Anderson, Benedict 136, 137 anti-globalization (alter-mondialist) movement 45, 56n4 Araujo, R.A. 76 Arestis, Philip 50, 51, 89, 91, 100n8, n9 Ariely, D. 222 Arrow, Kenneth 190 Asimakopulos, Tom 30 Assiter, A. 133, 134 Association for Heterodox Economics 11, 104 Association Française d’Économie Politique (AFEP) 33 associations see institutional frameworks for heterodox economics Augier, M. 187 Austrian school 91, 142, 210n1

Backhouse, Roger 20, 21, 73 Ball, L. 56n6 Bateman, Bradley 1, 6, 7 Baumgartner, H. 125n21 Baumol, W.J. 3, 177, 181 Bechtold, B. 137 behavioral economics 7, 8, 28, 179–82, 189–92, 220–1, 222 Belsky, G. 182 Berg, N. 114, 180 Bergeron, S. 149 Bergstrom, T.C. 78 Besley, Tim 172–3 Bezemer, D. 62 Bhaduri, Amit 49, 51 Black, Fischer 29 Blanchard, Oliver 4, 57n10 Blaug, M. 214, 215, 216, 241 Blecker, R. 49 Böhm-Bawerk 237 Bootle, Roger 172 Bortis, H. 109 Bougrine, H. 26 Bourdieu, Pierre 96, 101n11 Boyer, R. 243, 244 branding 188–92 Brody, T. 77 Bronfenbrenner, M. 203 Brozen 234 Brunsson, N. 169n1 Buchanan, J. 245 Buiter, Willem 3, 14n4, 24, 29, 37–8n3 Bunge 114, 123n9 business schools 5, 37, 222–3 Caldwell, B.J. 215, 217, 218 Camara-Neto, A.F. 164, 170n8

254   Index Cambridge Journal of Economics (CJE) 71, 72 Camerer, Colin 7, 22, 180–1 capital controversies 49, 51, 164, 165, 204–5, 214–15, 226n3 Card, David 57n11 Cardim de Carvalho, F. 57n13 Carter, S. 123n8 Chapman, Simon 5 Charlton, A. 8 Chick, Victoria 90, 100n6 citation behavior: analysis methodology 66–8, 82n4, n6–9, 83n10; and commonalities within heterodox economics 123n6; and constructive engagement 67, 67, 114, 123n10; and discursive pluralism 64–5; and heterodox/Post-Keynesian economics as alternative to mainstream economics 238; and heterodox/Post-Keynesian use of formal/econometric methods 2, 74–7, 75, 83n13, n14; and heterogeneity within heterodox economics 12, 33–4; and self-marginalization 2, 33–4, 38n5, 67, 67, 68–71, 68, 70, 81, 83n11 citation metrics: and digital access 78; and marginalization of heterodox/PostKeynesian economics 65–6, 81, 82n3, 141; and open access 77; see also research review process Clark, John Bates 204 Coase, Ronald 7, 22 Cohen, A.J. 214 Cohn, S.M. 26 Colander, David 7, 8, 10, 18, 20, 22, 23, 24, 26, 27, 28, 29, 29–30, 37, 37n2, 42, 47, 52–3, 56–7n9, n14, n16, 56–7n9, n14, n16, 62, 63, 87–8, 105, 106, 107, 112, 113, 116, 117, 119, 120, 121, 124n20, 138–9, 140, 158, 159, 160, 161, 162, 163, 170n4, 179, 206–7, 210n5, 217, 223, 224 commonalities within heterodox economics 10; and citation behavior 123n6; and constructive engagement 120–1; and discursive pluralism 120; and epistemological communities 141–2; and heterodox/Post-Keynesian economics as alternative to mainstream economics 5, 217; and history of economics 120–1; and institutional frameworks 104, 196; and intellectual tolerance 118, 119–20; and marketing 195–7; and methodology 28–9, 32–3, 52; theory 107–12, 123n6,

n7, 123n6, n7; see also heterodox/PostKeynesian economics as alternative to mainstream economics Commons 93 complexity economics 22 The Conscience of a Liberal (Krugman) 160 constructive engagement 2–4, 27–30, 42, 215, 217; and anti-mainstream strategy 14n3; and citation behavior 67, 114, 123n10; and commonalities within heterodox economics 120–1; and convergence goal 3, 137–8, 219; and discursive pluralism 218; and global financial crisis 3–4, 221; and heterodox/ Post-Keynesian economics as alternative to mainstream economics 106–7, 239; as irrelevant 31–2, 33, 53, 55–6, 116, 162–3; and mainstream dissenters 28, 30, 53, 57n14, n16, 57n14, n16, 114, 116; mainstream refusal to engage in 29, 30, 83n14, 120, 124–5n21, 206, 212, 217, 218–19; and marginalization of heterodox/Post-Keynesian economics 29–30, 120, 219–20; and marketing 189; and methodology 27–9, 52–3, 161–2, 223–4; and pedagogy 26; political dimensions of 219–20; and quality of heterodox economics 118; sociological dimensions of 218–19 constructivism 242, 246, 251n3 Cordonnier, L. 248 Created Unequal (Galbraith) 160 crisis of Fordism 243–5 critical pluralism see discursive pluralism critical realism 10, 12, 116 critics of heterodox economics 104–6, 158; basic assumptions 116–17; defensiveness of 106; and heterodox/ Post-Keynesian economics as alternative to mainstream economics 119, 124n19; lack of content assessment 105, 121; and mainstream dissenters 158–60, 163–4, 165, 167; and mainstream refusal to engage in constructive engagement 120; and marginalization of heterodox/ Post-Keynesian economics 105, 121–2, 166, 168–9, 207; and methodology 114–16, 123–4n12–14, 161–2; and quality 118–19, 124n17; response to Vernengo 163–9; social/personal nature of criticisms 105–6; see also Colander, David; strategies for heterodox/PostKeynesian economics

Index   255 Crotty, James 92, 97 current changes within mainstream economics: Colander’s claims of 42, 56–7n9, 179; and global financial crisis 62–3, 82n1; and heterodox/PostKeynesian economics as alternative to mainstream economics 235–7, 239–40; increased heterogeneity 31, 137–8, 179, 207; and marginalization of heterodox/ Post-Keynesian economics 48, 206; theoretical dimensions of 206, 210n4 curriculum see pedagogy cutting edge: and constructive engagement 27, 121, 125n22; and current changes within mainstream economics 57n9; and intellectual tolerance 206–7; versus mainstream dissenters 22; and mainstream versus orthodox economics 210n5; and organized hypocrisy 158, 159; and self-referential nature of mainstream economics 118; see also mainstream dissenters Cyert, R.M. 190 D’Arista, Jane 166 Dasgupta, P. 186 Davidson, Paul 1–2, 10–11, 14n2, 14n2, n3, 14n3, 18, 27–8, 29, 36, 57n17, 62, 64, 89, 91, 93, 97, 100n4, n6; n7, 101n10, 161, 163–4, 166, 169n3, 170n5, 207, 212, 214, 215, 217, 218, 219, 220, 223, 226n2 Davis, John B. 8, 14n6, 18, 20–1, 27, 113, 117, 124n20, 142, 180, 206, 207, 210n6, 212, 216, 217 Dawson, R. 183 De Bondt, W.F.M 191 Dequech, David 12, 13, 20, 93, 95, 96, 97, 100n2, 101n11, 105, 107, 123n6, 159 Di Maio, M. 124n20 Di Vaio, G. 125n21 Diamond List 82n3 disciplinary alternatives 5, 8, 34, 37, 99 discursive pluralism: as alternative paradigm 12–13, 65, 81–2; and constructive engagement 218; defined 64; as desirable within heterodox economics 32–3, 55, 57n18, 93–4, 100, 209, 215–17; and heterodox/Post-Keynesian use of formal/econometric methods 74; lack of in heterodox economics 64–5; lack of in mainstream economics 69, 215–16; and marginalization of heterodox/ Post-Keynesian economics 193–4; presence of in heterodox economics

13–14, 33, 120, 210n9; see also citation behavior; constructive engagement Dobb, M. 111 Dobusch, Leonhard 2, 11, 12, 33–4, 62, 63, 65, 73, 114, 123n6 Docherty, Peter 4, 5, 9, 120, 224 Doeringer, P. 242 Doucet, A. 134, 139 Dow, Sheila 28, 37, 38n6, 81, 89, 100n5, 101n12, 116, 173, 174, 176, 183 Downward, Paul 57n15 Duesenberry, J.S. 178 Dugger, W.M. 109 Duménil, G. 26, 44 Dunlop, J.T. 242 Dunn, Stephen P. 9, 20, 33, 37, 38n6, 94, 212, 216–17, 222 Dutt, Amitava K. 18, 28–9, 31, 35, 42, 49, 51, 100n8 Earl, Peter E. 1, 6, 14n5, n9, 117, 174, 176, 178, 179, 182, 183, 187, 189, 191, 192, 193, 195 ecological economics 32 econometrics 29, 35, 136, 236–7; see also methodology economic geography 83n11 economic policy: and definitions of mainstream economics 48; impact of global financial crisis on 221–2, 226n6; see also policy relevance The Economist 220 Ehrbar, Hans 234 Eichengreen, Barry 168 Eichner, Alfred 14, 57n15, 113, 141, 208, 213, 214, 226n3 enlightened neoliberalism 45–6, 55; see also mainstream economics environmental issues see ecological economics epistemological communities 12, 133, 134–41; and commonalities between heterodox and mainstream economics 137–8; and commonalities within heterodox economics 141–2; defined 134; and heterodox/Post-Keynesian use of formal/econometric methods 136, 139–40; and mainstream dissenters 140–1; and mainstream economics 135, 144, 144; and marginalization of heterodox/Post-Keynesian economics 133, 134–6, 140, 141; and research review process 137, 146; see also heterogeneity within heterodox economics

256   Index experimental economics 47–8 Fat and Mean (Gordon) 160 Fazzari, Steve 30 Feldstein, Martin 172 feminism 135–6, 139; see also feminist economics feminist economics 142–3, 145 Ferber, M.A. 135 Ferguson, C.E. 123n8, 205 Feyerabend, P. 63 financial crises: as intrinsic to capitalism 45, 46, 176; and pedagogy 176–7; PostKeynesian economics on 51, 57n12; see also global financial crisis Fine, Ben 34, 37, 117, 124n18 Fischer, Stanley 56n6 Folbre, N. 135, 143, 154 Foley, Duncan 4, 12, 13 Fontana, Giuseppe 2, 3, 5, 9, 14n3, 18, 19–20, 24, 25, 26, 27, 27–8, 28, 29, 42, 50, 52, 105, 106, 112, 116, 212, 213, 217, 219, 221, 223, 224 Fordism 43, 243–5 formal models see methodology Foster, J.F. 109 Fox, J. 22 Frank, R.H. 178 Frankel, Jeff 168 Frey, B. 48 Friedman, Milton 22, 45, 190–1, 235–6, 242, 251n2 Friedman, Thomas 176 Frölich, G. 66 Fullbrook, Edward 74, 135, 137, 197 Galbraith, James 29, 160, 166 Galbraith, John Kenneth 14, 202–3 Garegnani, Pierangelo 202, 207 Garnett, Robert 18, 24, 26, 64 general equilibrium theory 164, 215 The General Theory of Employment, Interest, and Money (Keynes) 72, 73, 95, 204, 212, 213–14, 217, 248–9 George, D.A.R 124n20 Gerrard, Bill 2, 3, 5, 9, 14n3, 18, 19–20, 24, 25, 27, 27–8, 28, 29, 42, 52, 106, 112, 116, 212, 213, 217, 219, 221, 223, 224 Gigerenzer, G. 114, 180 Gilovich, T. 182 Gintis, H. 246 Glick, Mark 234 global financial crisis: and constructive engagement 3–4, 221; heterodox

predictions of 172, 212; impact on mainstream economics of 3, 4, 36, 46, 53–4, 62–3, 82n1, 212–13, 220–1; impact on policy of 221–2, 226n6; letters to the Queen about 172–4; and mainstream dissenters 36–7; mainstream economics as cause of 45, 46; mainstream versus heterodox perspectives on 174–9; and policy relevance 32, 53–4, 173–4, 221–2, 226n6; and stock-flow consistent (SFC) approach 36 Glyn, A. 43, 44, 47 Godley, Wynne 35, 172, 224 Gordon, David 29, 160 graduate programs see pedagogy Gramsci, Antonio 230, 235 Great Depression 19, 45, 212, 214, 220 Growth, Profits, and Property (Nell) 208 Gruchy, A.G. 109 Hamouda, O. 89, 208 Hanson, J.D. 188 Harcourt, Geoff C. 11–12, 49, 89, 203, 208, 209, 210n9, 214 Harley, S. 133, 141, 216 Harnad, K. 77 Harnad, S. 77 Harrison, G.W. 114, 124n15 Harrod, Roy 204, 214 Hartmann, Heidi 143 Has Globalization Gone Too Far? (Rodrik) 159 Hayek, Friedrich 45, 47, 173, 188, 202; see also Hayekian economics Hayekian economics 245–6 Hein, E. 49, 50, 51 Hennessy, Peter 172–3 Henry, Jacques 25, 118 heretics see mainstream dissenters heterodox critics see critics of heterodox economics heterodox critiques of mainstream economics 112, 114, 123n11; as counterproductive 24, 105, 106; disguise strategy 138–40, 189, 206–7; and evolution of Post-Keynesian economics 50; and mainstream dissenters 24, 27, 123n8; and mainstream refusal to engage in constructive engagement 117; and marginalization of heterodox/PostKeynesian economics 24, 216, 218; and methodology 9; and negative definitions of heterodox economics 31, 87, 89; as

Index   257 positive strategy 1–2, 6, 24; and realism 241, 242–5, 251n2; as straw-man critiques 24, 27 heterodox economics: commonalities with mainstream economics 137–8, 189, 217, 224–5; defensiveness of 25; discursive pluralism within 13–14, 33, 120, 210n9; and dissent 20–2; interdisciplinary engagement within 14, 112, 118; lack of discursive pluralism within 64–5; versus mainstream dissenters 21–2; negative definitions of 31, 87, 88, 89, 107; and orthodox versus mainstream economics 88–9, 100n3; overlaps within 12, 93, 99–100, 100n9; and political roots of mainstream economics 117–18; precursors of 203–4; quality of 118–19; survival of 169; see also commonalities within heterodox economics; constructive engagement; heterodox/ Post-Keynesian economics as alternative to mainstream economics; heterodox/ Post-Keynesian use of formal/ econometric methods; heterogeneity within heterodox economics; PostKeynesian economics; strategies for heterodox/Post-Keynesian economics Heterodox Economics Newsletter 104 heterodox journals: article access 78–80, 78, 79, 83n17; and commonalities within heterodox economics 196; discrimination against 66; intellectual tolerance in 14n2; see also citation behavior; institutional frameworks for heterodox economics heterodox/Post-Keynesian economics as alternative to mainstream economics 4–5, 31–2, 231–5, 241–51; approaches for constructing 32, 231–2, 233–5; and citation behavior 238; and commonalities within heterodox economics 5, 217; and constructive engagement 106–7, 239; and critics of heterodox economics 119, 124n19; and current changes within mainstream economics 235–7, 239–40; difficulties with 63, 208, 214, 226n3; and discursive pluralist paradigm 12–13, 65, 81–2; and heterodox critiques of mainstream economics 242–5; and Keynesianism 246, 251–2n5; versus mainstream dissenters 107; and mainstream economics as incorrect 5–6; and marginalization of heterodox/

Post-Keynesian economics 5, 234–5; and Marxian-Post-Keynesian cooperation 13, 14, 247–50; and methodology 232–4; and policy relevance 32; and political roots of mainstream economics 117–18; and theory 111–12, 170n5; see also commonalities within heterodox economics heterodox/Post-Keynesian use of formal/ econometric methods 35, 71–7, 72; analysis methodology 72, 83n12; and citation behavior 2, 74–7, 75, 83n13, n14; and epistemological communities 136, 139–40; Keynes’ opposition to 72; as positive strategy 26, 28–9, 35, 217, 223–4 heterogeneity within heterodox economics 14, 32–3, 124n20, 142–53, 145, 155; and citation behavior 12, 33–4; competitive nature of 10–12, 34, 38n6, 63, 207–9; and epistemological communities concept 133, 134–6; and institutional frameworks 11, 33, 54, 143–4; and intellectual tolerance 11–12, 146–7, 209, 210n8; and JEL categories 144–5; and marginalization of heterodox/Post-Keynesian economics 11, 147–8; and methodology 12, 152; positive effects of 139, 147, 154; and research review process 12, 133, 148–53 Hicks, John R. 73–4, 97, 213, 252n6 Hill, R. 26 Himmelweit, S. 183 Hirsh, M. 140 Hirshleifer, J. 113, 124n18 history of economics 120–1, 205 Hoang-Ngoc, Liêm 14, 25, 32, 123n6 Hodgson, Geoffrey 25, 37, 62, 65, 109, 174, 193 Holt, R.P.F 18, 22, 36, 87–8, 105, 116, 124n12, 206 Hopkins, Barbara 12, 13, 123n6, 124n20, 153 Hubbard, Glenn 167 Hume’s guillotine 241, 245, 246, 247, 251n1 Hutchison, T.W. 197 imagined communities 136–7; see also epistemological communities industrial relations 242 Ingrao, B. 164 institutional economics 93, 100n9, 139, 143, 146, 149, 162, 210n1, 243

258   Index institutional frameworks for heterodox economics: and commonalities within heterodox economics 104, 196; and heterodox/Post-Keynesian economics as alternative to mainstream economics 237; and heterogeneity within heterodox economics 11, 33, 54, 143–4; increase in 237; and intellectual tolerance 14n2, 54 intellectual tolerance: and commonalities within heterodox economics 118, 119–20; and cutting edge 206–7; and gender/ethnic diversity 153–4; and heterogeneity within heterodox economics 11–12, 146–7, 209, 210n8; and institutional frameworks for heterodox economics 14n2, 54; lack of in mainstream economics 138–9; and marginalization of heterodox/PostKeynesian economics 147–8; and pedagogy 183 interdisciplinary engagement 14, 34, 112, 118, 124–5n13, n18, n21, 141 International Association for Feminist Economics (IAFFE) 142–3 International Confederation of Associations for Pluralism in Economics (ICEPE) 33 Israel, G. 164 Izzo, P. 141 Jaggar, A.M. 145 JEL categories 144–5 Jevons, William Stanley 203, 204 Jo, T.-H. 109 Johnson, H.G. 213, 214 Journal Impact Factor (JIF) 77 Journal of Economic Behavior and Organization 57n14 Journal of Economic Literature 203 Journal of Economic Psychology 192 Journal of Post Keynesian Economics (JPKE) 14n2, 71, 72 journal rankings see research review process Kahn, Richard 19, 29, 49, 202, 207 Kahneman, D. 191 Kaldor, Nicholas 2, 29, 49, 50, 207, 249, 251 Kalecki, Michal 13, 52, 202; see also Kaleckian economics Kaleckian economics: and definitions of Post-Keynesian economics 90, 100n4, n6, 207; and evolution of

post-Keynesian economics 19, 49; and policy relevance 98; and tensions within Post-Keynesian economics 2, 10–11, 91–2, 100n8 Kandiyoti, D. 139–40 Kapeller, Jakob 2, 11, 12, 33–4, 62, 63, 65, 73, 114, 123n6 Katona, George 178 Katzner, D. 91 Kay, N.M. 191 Keen, Steve 113, 123n8, 172, 210n3 Kelly, G.A. 188 Kelton, S. 224 Kemp, Simon 192 Kerr, Clark 242 Keynes, John Maynard 19, 22, 57n13, 72, 98, 204, 207, 214, 217, 226n2; see also Keynesianism The Keynes Solution (Davidson) 219 Keynesianism: as abortive revolution 212, 213–14, 220; and co-optation of heterodox/Post-Keynesian economics 94–5; and definitions of Post-Keynesian economics 90; and heterodox/PostKeynesian economics as alternative to mainstream economics 246, 251–2n5; and origins of mainstream economics 44; and tensions within Post-Keynesian economics 91, 92, 93; see also New Keynesianism Kiel School 204 Kindleberger, C.P. 45, 176 King, J.E. 1, 18, 19, 29, 36, 42, 54, 64, 72, 73, 119, 120, 123n6, 133, 142, 143, 145, 154, 212, 217, 221, 226n2 King, Stephen 172 Kirman, A. 124n15 Klein, Lawrence 204 Kodrzycki, Y.K. 124n12, 125n21 Koppl, R. 116 Krasner, S. 169n1 Kregel, J. 203, 208, 213, 214, 226n3 Kriesler, P. 119, 120 Krugman, Paul 7, 8, 22, 24, 29, 36, 57n10, 159–60, 165–6, 213, 220 Kuhn, T. 63, 213 Kurz, Heinz 10 Kysar, D.A. 188 Lakatos, I. 63 Lange, Oskar 204 Lavaty, R. 78 Lavoie, Marc 7, 9, 19, 31, 32, 35, 37, 52, 64, 65, 89, 107, 117, 207, 209, 214, 217,

Index   259 218, 219, 221, 223, 224, 246, 248, 251n5 Lawson, Tony 18, 25, 28, 31, 32–3, 48, 52, 62, 63, 113, 117, 120, 124n15, n20, 137, 161, 170n4 Lazonick, William 44–5, 196 Lea, S.E.G 178 Leborgne, D. 243 Lee, Frederic 4–5, 7, 10, 11, 13, 18, 21, 31, 32, 57n15, 66, 67–8, 89, 100n3, 104, 106, 107, 110, 112, 113, 114, 118, 119, 120, 123n6, 123n8, n9, 133, 141–2, 143–4, 146, 154, 186, 216, 221 Leibenstein, Harvey 7, 22 Leontief, Wassily 7, 22 Lerner, Abba 204 Levhari, D. 49 Levitt, S.D. 114, 124n15, 140–1 Lévy, D. 26, 44 Levy, Frank 160 Lima, G.T. 76 Lipietz, A. 243 List, J.A. 114, 124n15 Liu, Henry 57n17 Lockett, A. 125n21 Lorde, Audre 139, 140 Lowe, Adolph 202 Lowenstein, Robert 180, 191 Lucas, Robert 29, 155n1, 221, 248 Mabe, M. 66 Mahner, M. 114, 123n9 mainstream dissenters 7–10, 21; and constructive engagement 28, 30, 53, 57n14, n16, 114, 116; and critics of heterodox economics 158–60, 163–4, 165, 167; definitions of 7–8, 14n6, n7, 20–2, 37n2; and epistemological communities 140–1; and feminist economics 143; and global financial crisis 36–7; and heterodox critiques of mainstream economics 24, 27, 123n8; versus heterodox/Post-Keynesian economics as alternative to mainstream economics 107; impact on mainstream economics of 31; importance of studying 22, 27, 112, 163; and mainstream economics as incorrect 113–14; and mainstream paradigmatic dominance 8–9, 159–60, 165–6, 169n2; and pedagogy 26; and realism 25; social purpose of 160, 169n3; and textbook writing 26 mainstream economics: and behavioral

economics 179–82; co-optation of heterodox/Post-Keynesian economics 29, 51, 94–5, 101n10, 160; commonalities with heterodox economics 137–8, 189, 217, 224–5; definitions of 46–9, 56n5, n6; n7, 57n10, n11, 88, 230–1; development of 43–6, 56n3, 164–5, 204–5, 242–3; and epistemological communities 135, 144, 144; feminist critique of 135–6; impact of global financial crisis on 3, 4, 36, 46, 53–4, 62–3, 82n1, 212–13, 220–1; and interdisciplinary engagement 124–5n13, n18, n21, 141; lack of discursive pluralism in 69, 215–16; lack of intellectual tolerance in 138–9; mainstream critiques of 3, 37–8n3, 46, 62, 116, 123n8, 124n15, 212–13; versus orthodox economics 37n2, 87–9, 100n2, n3, 206–7, 210n5; paradigmatic dominance of 8–9, 62–3, 159–60, 165–6, 169n2; political roots of 45, 48, 57n10, n11, 117–18, 124n16, 139, 160; self-referential nature of 118, 124n17; see also constructive engagement; heterodox critiques of mainstream economics; mainstream economics as incorrect; mainstream dissenters mainstream economics as incorrect 5–6, 112–16, 124n15; and anti-mainstream strategy 1–2; and capital controversies 164, 204–5; and critics of heterodox economics 119; and heterodox/PostKeynesian economics as alternative to mainstream economics 5–6; and mainstream dissenters 113–14; and marginalization of heterodox/PostKeynesian economics 165, 166; and methodology 114–16, 162; and pedagogy 114, 183; and scientific research 123n9 Mäki, Uskali 10 management education see business schools Mankiw, G. 62 March, J.G. 187, 190 marginalism 203–4, 210n1, n2 marginalization of heterodox/PostKeynesian economics 98–9, 212; and citation metrics 65–6, 81, 82n3, 141; and constructive engagement 29–30, 120, 219–20; and critics of heterodox economics 105, 121–2, 166, 168–9, 207; and current changes within mainstream

260   Index marginalization continued economics 48, 206; and definitions of mainstream economics 48; and discursive pluralism 193–4; earlier absence of 49, 51, 202–3, 207, 210n6; and epistemological communities 133, 134–6, 140, 141; and heterodox critiques of mainstream economics 24, 216, 218; and heterodox/Post-Keynesian economics as alternative to mainstream economics 5, 234–5; and heterogeneity within heterodox economics 11, 147–8; and intellectual tolerance 147–8; and mainstream co-optation of heterodox economics 94; and mainstream economics as incorrect 165, 166; and methodology 48, 205–6; negative effects of 215–16; and New Classical Economics 205; and pedagogy 98–9, 101n14, 183–4; political dimensions of 216; and research review process 54, 185–7; sociological dimensions of 216; see also self-marginalization Marglin, S. 49, 246 marketing 188–92, 195–7 Marshall, Alfred 203–4, 210n2 Marx, Karl 234; see also Marxian economics Marxian economics 143, 207, 208, 210n7, 236, 237, 246–7, 247–50 Mayer, M. 176 Mayhew, Anne 5 McCloskey, D. 35, 150–1, 158, 161 McTaggart, D. 62 McWilliams, A. 125n21 Mencken, H.L. 162 Menger, Karl 203, 210n1, 242 Merton, Robert K. 65 Methodenstreit 242 methodology: and commonalities within heterodox economics 28–9, 32–3, 52; and constructive engagement 27–9, 52–3, 161–2, 223–4; and critics of heterodox economics 114–16, 123–4n12–14, 161–2; critique of 232–3; and current changes within mainstream economics 236–7; and definitions of mainstream economics 88; and definitions of Post-Keynesian economics 90–1; and epistemological communities 134, 136; and evolution of PostKeynesian economics 19–20; and heterodox critiques of mainstream economics 9; and heterodox/

Post-Keynesian economics as alternative to mainstream economics 232–4; and heterogeneity within heterodox economics 12, 152; and interdisciplinary engagement 34; and mainstream dissenters 9; and mainstream economics as incorrect 114–16, 162; and mainstream paradigmatic dominance 136; and marginalization of heterodox/ Post-Keynesian economics 48, 205–6; and New Classical Economics 205; and pedagogy 184; and policy relevance 96–7, 101n12, n13; and realism 10, 12, 116, 161; and research review process 152, 186, 187; and tensions within PostKeynesian economics 92; as unimportant 9, 17n4, 23–4, 124n14, 161–2, 224; see also heterodox/PostKeynesian use of formal/econometric methods Milgate, M. 214 Milgrom, P. 175, 176 Mill, John Stuart 203–4, 210n1 Milonakis, D. 117, 124n18 Minsky, Hyman 2, 3, 29, 30, 49, 51, 100n4, 167–8, 174, 207, 220 Minskyian economics 10–11 modern monetary theory (MMT) 19, 35 Modigliani, Franco 14n7, 204, 213 Mongiovi, Gary 6, 11–12 Moore, Basil 2, 29, 50 Mr. Keynes and the Classics (Hicks) 73–4, 252n6 Muramatsu, R. 114 Muth, John 14n7 Myatt, A. 26 Myrdal, Gunnar 158 Nadal, A. 113 National Bureau of Economic Research (NBER) 162 Nell, Edward J. 208, 210n7 Nelson, J.A. 135, 136, 147 Nelson, L.H. 133 neo-Schumpeterian economics 93 neoclassical economics 88, 100n2, 112, 113, 204; see also mainstream economics; Neoclassical-Keynesian synthesis Neoclassical-Keynesian synthesis 9, 46–7, 48–9, 252n6 neoliberalism 44, 55, 56n3, 205; see also mainstream economics neostructuralist approach 35

Index   261 New Classical Economics 3, 9, 28, 47, 56n7, 205, 248 New consensus model (NCM) 22, 29, 47, 50 New Keynesianism 3, 9, 47, 48–9, 55, 56n6, n7, 243 Nickell, S. 56n6 Nilsson, Eric 150 Niskanen, Bill 168 Nobel Prize in Economics 22, 36, 48, 190, 191, 226n5 North, Douglass 101n10 Novarese, M. 78 O’Donnell, R. 89, 215–16, 218, 222 O’Hara, P.A. 64 On the Principles of Political Economy and Taxation (Ricardo) 117 One Economy, Many Recipes (Rodrik) 159 organized hypocrisy 158–9, 166, 167, 169n1 Orléan, A. 244 Orr, D.V. 143 orthodox dissenters see mainstream dissenters orthodox economics 37n2, 87–9, 100n2, n3, 206–7, 210n5; see also mainstream economics O’Shea, P. 179 Ostrom, Elinor 141 O’Sullivan, M. 44–5 Oswald, Andrew 172 Palacio-Vera, A. 113 Palley, Thomas 33, 34, 50, 97 Pantaleoni, Maffeo 202 paradigm change 63, 203–4, 210n1, 213, 214; see also self-marginalization Parguez, A. 248 Parsons, T. 242 Pasinetti, Luigi 202, 207, 212, 214, 217, 219, 222, 223, 226n3 Patinkin, D. 72 pedagogy 183–5; business schools 5, 37, 222–3; and constructive engagement 26; and financial crises 176–7; and mainstream economics as incorrect 114, 183; and marginalization of heterodox/ Post-Keynesian economics 98–9, 101n14, 183–4; and methodology 184; and realism 222; and stealth strategy 6, 192–4 Peng, Ti-Ching 1, 6, 14n5, n9, 174, 189, 194

Perlman, Mark 203 Pesendorfer, W. 221 Petri, F. 113 Pieters, R. 125n21 Pigou, A.C. 204 Piore, M. 242 pluralism see discursive pluralism; heterogeneity within heterodox economics; intellectual tolerance Polanyi, K. 109 policy relevance: and commonalities within heterodox economics 108–9; and evolution of post-Keynesian economics 20; and global financial crisis 32, 53–4, 173–4, 221–2, 226n6; heterodox/PostKeynesian contributions 2–3, 50, 57n17, 96–8, 170n7, 173–4; and heterodox/ Post-Keynesian economics as alternative to mainstream economics 32; Keynes on 57n13; and methodology 96–7, 101n12, 13; as positive strategy 32, 35, 53–4, 163, 168; Post-Keynesian shortcomings 43, 51–2, 54–5, 57n12, n13; and scholastic fallacy 96, 98, 101n11; see also realism Pollin, R. 50 Possas, Mario 101n13 Post-Keynesian economics: capital controversies 49, 51, 164, 165, 204–5, 214–15, 226n3; current limitations of 43, 51–2, 54–5, 57n12, n13; and discursive pluralism within heterodox economics 93–4; evolution of 19–20, 19, 49–50; and heterogeneity within heterodox economics 143, 145; mainstream co-optation of 94–5; and Marxian economics 13, 14, 247–50; negative definitions of 87, 89; overlap with other heterodox approaches 12, 93, 99–100, 100n9; policy relevance of 2–3, 50, 96–8; public perceptions of 98; and Sraffian economics 10, 11–12, 38n6, 89, 92, 100n4, n5, 207–8, 209; tensions within 2, 10–11, 34, 38n6, 91–3, 100n7, 208; unifying ideas within 89–91, 100n4–6, 214, 217, 226n3, n4; see also marginalization of heterodox/PostKeynesian economics; headings beginning with heterodox/PostKeynesian Post Walrasian economics 8, 22, 31, 42, 48 Postel, Nicholas 32, 37 Potts, J. 179, 195 Power, D. 44, 109

262   Index Power, Marilyn 143 psychology 177–8, 206; see also behavioral economics Quandt, R.E. 177, 181 Rabin, Matthew 180, 192 radical political economy 37 Rajan, Raghuran 172 Ramskogler, Paul 4, 11, 18, 30, 31–2, 33, 105, 120, 213, 216, 217, 220, 221 Reagan, Ronald 205, 251 real-world economics 197 realism: and commonalities within heterodox economics 108–9; and definitions of Post-Keynesian economics 90; and global financial crisis 220, 221, 222; and heterodox critiques of mainstream economics 241, 242–5, 251n2; and mainstream dissenters 25; and marketing 191; and methodology 10, 12, 116, 161; and pedagogy 222; and research review process 187; see also methodology; policy relevance Reardon, J. 69 refereeing process see research review process research review process: and commonalities within heterodox economics 196; and discursive pluralism 65; and epistemological communities 137, 146; and heterodox/Post-Keynesian economics as alternative to mainstream economics 238–9; and heterogeneity within heterodox economics 12, 133, 148–53; and intellectual tolerance 54; and marginalization of heterodox/PostKeynesian economics 54, 185–7; and methodology 152, 186, 187; see also citation behavior; citation metrics Ricardo, David 117, 203–4, 210n1, 236 Richardson, G.B. 193 Rizvi, S.A.T 113 Robbins, L. 206 Roberts, J. 175, 176 Roberts, R. 136 Robertson, Dennis 204 Robinson, Joan 19, 29, 46, 49, 202–3, 207, 209, 210n8, 251 Rochon, Louis-Philippe 4, 5, 9, 51, 120, 224 Rodrik, Dani 7, 22, 159, 164, 165, 167, 169n2 Romer, Paul 236

Roncaglia, A. 38n6, 164 Roosevelt, F. 210n7 Roscher, William 210n2 Rosser, Barkley 18, 57n14, 87–8, 105 Rothenburg, P.S. 145 Rothman, H. 65 Roubini, Nouriel 172 Rubinstein, A. 114 Rutherford, Malcolm 25 Ryoo, S. 76 Salvadori, Neri 10 Samuelson, Paul A. 49, 57n10, 164, 203, 205, 235–6 Santa Fe Institute 22 Santos, A.C. 114 Sawyer, Malcolm 37, 50, 51, 100n8 Schiller, Robert 172 Schmoller, Gustav von 242 scholastic fallacy 96, 98, 101n11 Searle, John 10 Seccareccia, M. 26 self-marginalization 63–82; and citation behavior 2, 33–4, 38n5, 67, 68–71, 81, 83n11; and lack of discursive pluralism 64–5; and paradigm change 63 Sen, Amartya 7, 22 Sent, E.-M. 9, 180, 190 Serrano, F. 210n10 Setterfield, M. 26, 28, 224 Shackle, G. 97 Shapiro, C. 243 Shapiro, Nina 57n15 Shefrin, H. 180 Shiller, Robert J. 7, 22, 36, 176, 179, 221 Simon, Herbert A. 7, 8, 14n7, 22, 180, 181, 190–1 Skidelsky, Robert 4 Skott, P. 76 Smithin, John 10, 44 Snowdon, B. 183 Sobel, Richard 32, 37 Social Science Citation Index (SSCI) 65, 66, 82n5 Society of Heterodox Economists (Australia), 11; l04 Solow, Robert 49, 124n15, 168 Spence, Michael 175 Sraffa, Piero 49, 202; see also Sraffian economics Sraffian economics 10, 11–12, 38n6, 89, 92, 100n4, n5, 207–8, 209, 210n7, n8; n10 standards of scholarship 137, 146, 155n1; see also research review process

Index   263 Stanislaw, J. 173 Starr, M. 81 stealth strategy 6, 14n5, n9, 192–4 Sterman, J.D. 63 Stevenson 109 Stigler 234 Stiglitz, Joseph 7–8, 22, 29, 46, 47, 56n6, 140, 175, 213, 220, 221, 243 Stilwell, Frank 6, 37 stock-flow consistent (SFC) approach 35–6 Stockhammer, Engelbert 4, 11, 18, 30, 31–2, 33, 45, 49, 50, 51, 105, 120, 213, 216, 217, 220, 221 Strassmann, D. 143, 154 strategies for heterodox/Post-Keynesian economics 1–6, 23–36, 23, 26, 31, 34, 52–5, 104–6, 212, 216–20; convergence goal 3, 25, 137–8, 219; critique disguise 138–40, 189, 206–7; disciplinary alternatives 5, 8, 34, 37, 99; econometrics use 35; increased article circulation 77–80, 83n17; marketing 188–92, 195–7; methodology as unimportant 9, 17n4, 23–4, 124n14, 161–2, 224; paradigm change as goal of 62, 81; stealth 6, 14n5, n9, 192–4; stock-flow consistent (SFC) approach 35–6; and straw-man critiques 24, 27; studying mainstream economics 22, 27, 112, 163; see also critics of heterodox economics; specific strategies Summers, Larry 166 Taylor, J.B. 220 Taylor, Lance 35 Tcherneva, P.R. 123n11 teaching see pedagogy technique see methodology Temin, Peter 160 textbooks see pedagogy Thaler, Richard 7, 22, 180, 191–2 Thatcher, Margaret 173, 205, 251 Thirlwall, A.P. 13 Tinel, B. 246 Tobin, James 204 Tong, R. 145 training see pedagogy

transcendental realism 161 Treatise on Probability (Keynes) 85 Truger, A. 50 Tullock, G. 245 Tversky, A. 191 Uchitelle, L. 180 van Bouwel, J. 64 van Staveren, I. 136, 137 Veblen, T. 73, 93, 154 Velupillai, K.V. 117 Vernengo, Matias 9, 10, 18, 29, 30, 32, 105, 112, 113, 117, 120, 164, 170n8, 213, 217, 221 Vickers, D. 89, 91, 97 Vickrey, William 7, 22 Vlachou, A. 119, 120 Wacquant, L. 96 Wakeley, T. 183, 195 Waller, William 139, 140, 146, 147, 152 Walras, Léon 203 Walrasian economics 234, 236, 241, 245; see also Post Walrasian economics Walters, B. 208, 214, 226n3 Wärneryd, K.-E. 178 Web of Science 66, 82n4 Weintraub, S. 29, 49 Weisdorf, J. 125n21 White, G. 113 Wilkinson, N. 179 Williamson, Oliver 7, 22, 141 Wittenberg, J. 63 Wolf, M. 46 Wolff, Robert Paul 162 Wray, L.R. 224 Wray, Randall 34 Wren-lewis, S. 9–10, 14n9 Wrenn, M.V. 142 Yergin, D. 173 Young, D. 208, 214, 226n3 Yu, P. 124n12, 125n21 Zimmerman, C. 78