On Economic Methodology: History of Economic Thought and a Tentative Comparison of Mainstream and Evolutionary Positions

Abstract

In this paper, I try to show how an integrated evolutionary and mainstream economics could be developed. At this beginning stage I do not give more than tentative hints, but these in a hopefully comprehensive way. I try to be comprehensive, because I think that it is one of foremost shortcomings of economic reasoning to focus on one issue and stop in front of connections to other issues and fields. A combination of these two modes is necessary. In my view, the focus on separate issues without consideration of linked issues is one of the causes for the proliferation of conflicting economic theories. In itself these are ‘right’ or at least ‘justified’, they are less useful as explanatory frameworks for real life phenomena. They capture only a part of reality and this under specific (different) conditions, which are related to the axioms and assumptions used in model building. They say more about the authors’ ability for rigorous reasoning than about their willingness to provide workable solutions for real problems. Empirical research in economics is not free from this problem, because theory and models serve as value foundations for deciding which questions to ask and which factors to research. The results again influence theoretical exercises. When certain factors are not judged important enough to be included in research, they cannot influence theory.It has maybe by now become clear that this essay aims at sketching a framework for research and theory. My aim is consequently not so much to answer one specific question, but to show how questions can be framed usefully in economics. The idea to give a remedy for the seeming separation between economic theory and reality. This is a necessity for a coherent scientific enterprise. I begin by discussing categorization as a means to cope with information gathered in the scientific process and stress the dangers which are implied by rigid categories. Then I shortly deal with some issues in the history of economic thought. The first is the debate on economic methodology at the end of the last century between the so-called German Historical school and the mainly Anglo-Saxon economists favoring a more analytical treatment. The second episode is centered around the development of the theory of firm based on Joan Robinson’s work. The third episode is connected to the emergence of the Chicago School of economics and the marginalist debate. The critical discussion of the emergence of present mainstream concepts leads to a discussion of Knight’s distinction between risk and uncertainty. This distinction is related to the Popperian solution of the problem of induction - falsification as the only acceptable criterion of science. Friedman’s and Popper’s views are then evaluated in the context of more recent positions in the philosophy of science based on evolutionary views. This sets the stage for a discussion of the evolutionary nature of the scientific process. I finish by evaluating tools available to modern economics.