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Heterodox economics refers to the approaches, or schools of economic thought, that are considered outside of orthodox economics.[1] Heterodox Economics is an umbrella term used to cover various separate unorthodox approaches, schools, or traditions. These include post Keynesianism, Technocratic, (old) institutionalism, feminist, social, Marxian and Austrian economics, among others.[1] Orthodox economics, also known as mainstream economics, largely consists of the neoclassical synthesis, which combines a neoclassical approach on microeconomics and Keynesian approach to macroeconomics.[2][3]Non-market economics systems also present alternative methods of Thermoeconomics, that do not use a price system.

While mainstream economics may be defined in terms of the "rationality-individualism-equilibrium" nexus, heterodox economics may be defined in terms of a "institutions-history-social structure" nexus. Note that there is a different emphasis in distinguishing mainstream and heterodox economics in this way than is involved in distinguishing them as closed-system and an open-system approaches respectively (Lawson,1997);[1] Dow, 2000) [4]

It is difficult to define heterodox economics. The International Confederation of Associations for Pluralism in Economics (ICAPE) has prudently avoided defining its umbrella too specifically, choosing instead to define its mission as "promoting pluralism in economics." All strands of socialism are heterodox, but not all heterodox schools are socialist. A key challenge for "heterodoxy" is to define itself in ways that move beyond the rubric of "non-neoclassical" economics. In defining a common ground in the "critical commentary" some heterodox economists, such as Steve Cohn (Knox College, USA), have tried to do three things: (1) identify shared ideas that generate a pattern of heterodox critique across topics and chapters of introductory macro texts; (2) give special attention to ideas that link methodological differences to policy differences; and (3) characterize the common ground in ways that permit distinct paradigms to develop common differences with textbook economics in different ways.

Contents

Rationality

One of the most broadly accepted principles of neoclassical economics is the assumption of the "rationality of economic agents". Indeed, for a number of economists, the notion of rational maximizing behavior is taken to be synonymous with economic behavior (Becker 1976, Hirshleifer 1984). When some economists' studies do not embrace the rationality assumption, they are seen as placing the analyses outside the boundaries of the Neoclassical economics discipline (Landsberg 1989, 596). Neoclassical economics begins with the a priori assumptions that agents are "rational" and that they seek to "maximize their individual utility" (or profits) subject to environmental constraints. These assumptions provide the backbone for rational choice theory, and from this basis neoclassical economists derive the familiar supply and demand functions which, under certain conditions, will lead to a determinate market clearing equilibrium. Under even stricter conditions this equilibrium will be Pareto efficient.

Heterodox economics reject these fundamental assumptions on which most of neoclassical economics theory has been built. Up to 1980 heterodox economics could be defined as:

  1. rejection of the atomistic individual conception in favor of a socially embedded individual conception;
  2. emphasis on time as an irreversible historical process;
  3. reasoning in terms of mutual influences between individuals and social structures.

On 1980 (or thereabouts) significant changes begin to occur in economics; a number of new research programs began, in various ways, to be recognized by the mainstream economics. These include behavioral economics, complexity economics, evolutionary economics, experimental economics, neuroeconomics, and others. As a consequence, some heterodox economists, such as John B. Davis, proposed that the definition of heterodox economics has to be adapted to this new, more complex reality.[5]

The argument of the previous section is that heterodox economics post-1980 is a complex structure, being composed out of two broadly different kinds of heterodox work, each internally differentiated with a number of research programs having different historical origins and orientations: the traditional left heterodoxy familiar to most and the 'new heterodoxy' resulting from other science imports.[5]

Rejection of Neoclassical Economics

There is no single "heterodox economic theory"; there are many different "heterodox theories" in existence. "What they all share, however, is a rejection of the neoclassical orthodoxy as representing the appropriate tool for understanding the workings of economic and social life. The reasons for this rejection may vary."[6]

Reasons for the rejection of Neoclassical economics

  • That neoclassical theory is appropriate as a tool only under certain limited conditions, where there is "perfect" or "near-perfect" competition.
    • The Austrian School in particular considers neoclassical theory relevant for conditions of equilibriumcitation needed
  • That it is useless as a tool for understanding economic and social life.[7]
  • That all theories are valid so long as they are internally consistent.[8]
  • That neoclassical theory is a form of ideology or religion, which is grounded in unscientific concepts.[9]

According to Satya Gabriel:

Neoclassical economic theory is grounded in a particular conception of human psychology, agency or decision-making. It is assumed that all human beings make economic decisions so as to maximize pleasure or utility. Some heterodox theories reject this basic assumption of neoclassical theory, arguing for alternative understandings of how economic decisions are made and/or how human psychology works. It is possible to accept the notion that humans are pleasure seeking machines, yet reject the idea that economic decisions are governed by such pleasure seeking. Human beings may, for example, be unable to make choices consistent with pleasure maximization due to social constraints and/or coercion. Humans may also be unable to correctly assess the choice points that are most likely to lead to maximum pleasure, even if they are unconstrained (except in budgetary terms) in making such choices. And it is also possible that the notion of pleasure seeking is itself a meaningless assumption because it is either impossible to test or too general to refute. Economic theories that reject the basic assumption of economic decisions as the outcome of pleasure maximization are heterodox.

Most recent developments

Over the past two decades, the intellectual agendas of heterodox economists have taken a decidedly pluralist turn. Leading heterodox thinkers have moved 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, such as socially-grounded reconstructions of the individual in economic theory; the goals and tools of economic measurement and professional ethics; the complexities of policymaking in today's global political economy; and innovative connections among formerly separate theoretical traditions (Marxian, Austrian, feminist, ecological, Sraffian, institutionalist, and post-Keynesian) (for a review of post-Keynesian economics, see Lavoie (1992); Rochon (1999)).

David Colander, an advocate of complexity economics, argues that the ideas of heterodox economists are now being discussed in the mainstream without mention of the heterodox economists, because the tools to analyze institutions, uncertainty, and other factors have now been developed by the mainstream. He suggests that heterodox economists should embrace rigorous mathematics and attempt to work from within the mainstream, rather than treating it as an enemy.[10]

Energy accounting economics and balance

An energy balance can be used to track energy through a system, and is a very useful tool for determining resource use and environmental impacts.[11] The idea is to use the First and Second laws of thermodynamics to determine how much energy is needed at each point in the system, and in what form that energy is. An Energy Accounting system keeps track of energy in, energy out, and non-useful energy versus work done, and transformations within the system. [12]

Physical scientists and biologists were the first individuals to use energy flows to explain social and economic development. Joseph Henry, an American physicist and first secretary of the Smithsonian Institution, remarked that the "fundamental principle of political economy is that the physical labor of man can only be ameliorated by...the transformation of matter from a crude state to a artificial condition...by expending what is called power or energy."[13]

Energy Accounting which developed as a concept in the 1930's, is the hypothetical system of distribution, proposed by Technocracy Incorporated in the Technocracy Study Course, which would record the energy used to produce and distribute goods and services consumed by citizens in a Technate instead of relying on a system of using money.[14]

Scientists have written and speculated on different aspects of energy accounting.[15] Many variations of energy accounting are in use now, as this issue relates to current (price system) economics directly, as well as projected models in possible Non-market economics systems.

Fields or schools of heterodox economics

# Listed in Journal of Economic Literature codes scrolled to at JEL: B5 - Current Heterodox Approaches.

§ Scrolled to at JEL: C73 - Stochastic and Dynamic games; Evolutionary games.

Research is also being done in the multidisciplinary field of cognitive science on individual decision making, information as a general phenomena, distributed cognition and their implications on economic dynamicity.

Some schools in the social sciences aim to promote certain perspectives: classical and modern political economy; economic history; economic sociology and anthropology; gender and racial issues in economics; economic ethics and social justice; development studies; and so on.

References

  1. ^ a b c LAWSON, Tony. The nature of heterodox economics. Published by Oxford University Press on behalf of the Cambridge Political Economy Society, 2005, in: Cambridge Journal of Economics 2006 30(4):483-505; doi:10.1093/cje/bei093
  2. ^ Barry, C. (1998). Political-economy: A comparative approach. Westport, CT: Praeger.
  3. ^ Case, K. & Fair, R. (2008). The principles of economics. New Saddle River, NJ: Pearson.
  4. ^ DOW, S. C. Prospects for the Progress in Heterodox Economics. Journal of the History of Economic Thought 22 (2): 157-170., 2000.
  5. ^ a b DAVIS, John B. The Nature of Heterodox Economics. post-autistic economics review, issue no. 40, 1 December 2006, article 3, pp.23-30.
  6. ^ GABRIEL, Satya J. Introduction to Heterodox Economic Theory. , June 4, 2003 Satya J. Gabriel is a Professor of Economics at Mount Holyoke College
  7. ^ GABRIEL, Satya J. Introduction to Heterodox Economic Theory. , June 4, 2003, Based on lecture's notes at the author's website. Copyright © 1996-2007, Satyananda J. Gabriel, Mount Holyoke College.
  8. ^ GABRIEL, Satya J. Introduction to Heterodox Economic Theory. , June 4, 2003, Based on lecture's notes at the author's website. Copyright © 1996-2007, Satyananda J. Gabriel, Mount Holyoke College.
  9. ^ GABRIEL, Satya J. Introduction to Heterodox Economic Theory. , June 4, 2003, Based on lecture's notes at the author's website. Copyright © 1996-2007, Satyananda J. Gabriel, Mount Holyoke College.
  10. ^ Colander, D. (2007). Pluralism and Heterodox Economics: Suggestions for an “Inside the Mainstream” Heterodoxy
  11. ^ http://www.eoearth.org/by/Topic/Ecological%20economics
  12. ^ http://telstar.ote.cmu.edu/environ/m3/s3/05account.shtml Environmental Decision making, Science and Technology
  13. ^ Cutler J. Cleveland, "Biophysical economics", Encyclopedia of Earth, Last updated: September 14, 2006.
  14. ^ http://ecen.com/eee9/ecoterme.htm Economy and Thermodynamics
  15. ^ Stabile, Donald R. "Veblen and the Political Economy of the Engineer: the radical thinker and engineering leaders came to technocratic ideas at the same time," American Journal of Economics and Sociology (45:1) 1986, 43-44.
  16. ^ A Companion to the History of Economic Thought (2003). Blackwell Publishing. ISBN 0631225730 p. 452

See also

  • Marc Linder, Anti-Samuelson.
"competition: Austrian conceptions"
  • "biological applications of economics"
  • Francis Green & Petter Nore (eds.), Economics: An Anti-Text.

The following are entries for the above from The New Palgrave: A Dictionary of Economics (1987):


External links

Publications on heterodox economics

Articles
Books
  • LAVOIE, M. (1992) Foundations of Post-Keynesian Economic Principles, Aldershot: Edward Elgar.
  • McDERMOTT, John. Economics in Real Time: A Theoretical Reconstruction, Series Advances in Heterodox Economics, The University of Michigan Press, 2003 ISBN 978-0-472-11357-6
Articles, conferences, papers
  • SECCARECCIA, M. Early Twentieth-Century Heterodox Monetary Thought», Money, Financial Institutions, and Macroeconomics, ed. by A.J. Cohen, H. Hagemann and J.N. Smithin, Boston: Kluwer Academic Publishers, 1997, pp. 125-39
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