Realism in Economics: The New Classical Case

Abstract

For the last few decades, considerable attention has been paid to the methodology of mainstream economics. It is not accidental that economics is encircled by methodological debates. If its relevance is at stake, this can be either refuted or proved most efficiently at a methodological level. Arguments for and against mainstream economics underline the methodological homogeneity of mainstream economics, while serious though almost neglected arguments can be found for a view according to which the long history of mainstream economics could be described as a sequence of methodological breaks. I will argue, firstly, for a sharp demarcation by new classical macroeconomics from the Friedmanian instrumentalism and, secondly, the realism of new classicals. Efforts will be made to identify the epistemological principles underlying Lucas’ models and the signs of that demarcation will also be highlighted. I will concentrate on the techniques through which new classicals could put their models into an indirect relationship with reality. It will also be highlighted that the common terminology, according to which the assumptions of abstract economic models are uniformly regarded as “unrealistic”, actually refers to two different techniques. From these approaches, there is only one which is justified to be labelled as realist.