Modern Mainstream Economics Research Articles

No Path to New Economics: John Komlos’s Foundations of Real-World Economics (Komlos 2019)

Abstract John Komlos’s Foundations of Real-World Economics is an ambitious book that aims at taking down the foundations of modern mainstream economics that students are taught at Econ 101 classes and replace them with a more reality-based alternative. However, Komlos’s falls way short of the stated objective. First, he fails to genuinely engage the introductory textbooks with which he supposedly argues. Komlos also appears to misunderstand the purpose of introductory-level economic models like perfect competition, as well as to entertain the idea that their rejection may lead to different conclusions from those that he seems to favor. Finally, Komlos does not cite sufficient research and evidence for his own potential building blocks for a new economics, such as the claim that the basic assumption of scarcity should be scrapped in favor of that of abundance.

A reflection on borrowing from western economics

Purpose Western economics came into being with the rise of the capitalist market economy. It had a nature of duality beginning from its birth: the justificativeness of providing theoretical pillars for the capitalist market economy system and the scientificity of revealing the internal relations and operating rules of the capitalist market economy. The paper aims to discuss this issue. Design/methodology/approach However, after the 1830s, this justificativeness gradually evolved into vulgarity. Since the 1930s, modern western mainstream economics has mainly explored the general market economy on the assumption that the capitalist system remains unchanged, and many outcomes of such research are positive and beneficial. Findings Political economy of socialism with Chinese characteristics, at the present stage, is mainly a Chinese socialist market economics. It is guided by the Marxist political economy and rooted in the great practice of China’s reform and opening up and socialist modernization. Originality/value According to political complexion, western economic theories can be divided into political economic theory, mainstream economic theory and basic economic theory. By subjecting these theories to what we term “elimination,” “transformation” and “transplantation” surgeries, respectively, we can absorb and accommodate their beneficial elements in building a political economy of socialism with Chinese characteristics, which in turn is conducive to the development and prosperity of such an economy.

Citation patterns in economics and beyond.

In this paper we comparatively explore three claims concerning the disciplinary character of economics by means of citation analysis. The three claims under study are: (1) economics exhibits strong forms of institutional stratification and, as a byproduct, a rather pronounced internal hierarchy; (2) economists strongly conform to institutional incentives; and (3) modern mainstream economics is a largely self-referential intellectual project mostly inaccessible to disciplinary or paradigmatic outsiders. The validity of these claims is assessed by means of an interdisciplinary comparison of citation patterns aiming to identify peculiar characteristics of economic discourse. In doing so, we emphasize that citation data can always be interpreted in different ways, thereby focusing on the contrast between a "cognitive" and an "evaluative" approach towards citation data.

Positive-Rationality Thinking and the Dilemma of Modern Mainstream Economics: The Root of Paradox between Rationalism and Social Darwinism

From ancient Greece, two traditions of rationalism have been bred in Western society. One is negative rationality, which contains two main connotations: （1）recognizing the shortcomings of human rationality; （2）recognizing the irrationality of the real world. Negative rationality leads to the thought trends of pluralism, evolutionism and empiricism, and then shapes a kind of contradictory, dialectical and critical two-dimensional thinking mode. The second is positive rationality, which contains two main connotations: （1）affirming human rationality; （2）affirming social reality. Positive rationality gives rise to the thought trends of monism, constructivism and transcendentalism, and then shapes a kind of one-dimensional thinking mode without negativity, criticism and transcendence. At the same time, because the thinking and cognition is from the exploration of nature, the rational thinking in Western society shows the trend of development from negation to affirmation, from evolution to construction. As a result, positive rational thinking is expanding and eventually gains a dominant position; accordingly, it lays the basic characteristics of thinking in Western society, and further constitutes the philosophical and methodological basis of modern economics. However, there are serious contradictions between the two main connotations of positive rationality. On the one hand, the affirmation of human rational ability brings out rationalism, which stimulates people to establish a perfect ideal society; on the other hand, the affirmation of the real world derives social Darwinism, which promotes people to accept reality without criticism. Applying this to social practice also brings great confusion: the former leads to fatal conceit” in the sense of Hayek, and the latter leads to one dimension state” in the sense of Marcuse. In fact, rooted in positive rational thinking, the modern mainstream economics tries to build a rational choice framework. On the one hand, it designs and guides social system reform based on the rational model; on the other hand, it rationalizes the reality based on ethical positivism. Furthermore, its social cognition and policy propositions tend to shift between two extremes: on the one hand, it turns to Keynesian economics with active intervention when the spontaneous market fails seriously; on the other hand, it turns to neoclassical economics with laissez-faire when government intervention fails seriously. Therefore, the theoretical system of the modern mainstream economics contains serious internal thinking tension and logical fault, which severely limits its ability to find and solve problems. Obviously, this inspires us to re-examine the positive rational thinking embedded in modern mainstream economics. In fact, human rationality is negative in essence, which embodies the ability to observe and discover the real existence. Unfortunately, positive rationality unifies thinking and reality, thus reflecting the alienation of human thinking.

The Paradigm Crisis of Modern Mainstream Economics

Theoretical economics should not be divorced from real life. If theoretical research cannot provide a good explanation for real-world economic phenomena, then we have to question the appropriateness of the paradigm that our theoretical research follows. The battle between neoclassical macroeconomics and Keynesian economics has exposed the inadequacy of the paradigm that modern mainstream economics has followed. Neoclassical macroeconomics and Keynesian economics have the same microeconomic(s) basis. However, the paradigm of the microeconomics on which they are based has serious flaws—the scarcity hypothesis and the economic man hypothesis—do not conform to the facts. These two hypotheses are the basis for other hypotheses and principles, but neither of these two hypotheses holds up to scrutiny. Then the economics edifice built on this foundation is certainly unstable, and the corresponding economic policies are certainly not perfect.

Price Level Stabilization: Hayek contra Mainstream Economics

The doctrine of beneficial effects of price level stabilization is an integral part of modern mainstream economics. In the 1920s and 1930s, Friedrich August von Hayek questioned this monetary policy regime, and stressed injection effects of the newly created money aimed at price level stabilization in the economy with expanding natural output. This paper compares the Hayekian theory with mainstream economics. A simple graphical apparatus is used to clarify major differences between the two theories. Standard textbook models are applied to show why the Hayekian approach favours secular deflation over price level stabilization which may lead to the boom-bust cycle. The next section presents New Keynesian arguments in favour of stable prices or even low inflation, and it shows why the Hayek recommendations may result in quasi-recession. The Wicksellian equation, which relates inflation gap to the real interest rate gap, is derived to reconcile the Hayek approach with the mainstream perspective. Finally, it is demonstrated that New Keynesian price rigidities might be of much lower importance when the decline in prices is caused by technological progress. A gradually falling price level is then identified as a natural response of the price system in the expanding economy.

METHODOLOGICAL INDIVIDUALISM AND HUMAN MODEL IN ORTHODOX ECONOMIC THEORY

Today it is widely recognized that the economic development is largely determined by the decision taken by economic agents. Modern economic science does not provide an undeniable and perfect definition of economic agents’economic behavior and a universally recognized and having no alternative model of human behavior is not yet formulated in the economic theory. Scientists proceed from the different methodological approaches and use various characteristics for the development perceptions regarding human behavior. Despite a large number of scientific schools, directions, and divisions of modern economic theory, there is a dominant model of human behavior which represents a specific orientation and comparable model for other economic schools this is the model of Homo Economicus that arose within the classical economic theory and was developed by the neoclassical economic school. This model is considered to be one of the founding dogmas of the modern Mainstream Economics in which the classical economic theory has reached the highest level of formalization. The given article considers the peculiarities and interconnections of orthodox economic theory and Mainstream Economics and mentions that along of evolution of their interrelations the optimization behavior, the principles of minimizing expenses and maximize of a profit still remain to be a general methodological approach. The modern economic mainstream is based on the fundamental postulate such as methodological individualism that is most widely used an analytical method in modern economic science. According to methodological individualism, the human behavior is the main indicator of the nature of economic phenomena The traditional microeconomic orthodox theory considers human beings as independent, associative, selfish, and rational species, which have stable and exogenous preferences and in every particular moment have full information about the current situation and use the information in order to satisfy own egoistic interests with a purpose to maximize a benefit. To define the model of economic men the acronym REMM (or «Resourceful, Evaluative, Maximizing Man») proposed by Karl Brunner and William H.Meckling is used. Based on the development of the acronym REMM the acronym RREEMM(or„Resourceful, Restricted, Expecting, Evaluating, Maximizing Man”)was developed. Other models of human behavior were developed by a sociologist Siegwart Michael Lindenberg. He distinguishes two types of human behavior and presents them by acronyms SRSM (or “Socialized,Role-Playing, Sanctioned Man”)and OSAM(or“Оpinionated,Sensitive, Acting Man”). The human behavior model is a fundamental and systematic element for any direction of the modern economic theory. Every economic school develops its own model of human behavior that best illustrates this school as a theoretical system.

From Monism Thinking to Pluralism Thinking : On the Transformation of Academic Manner in Modern Economics

The development of any theory should not be confined into a kind of exclusive way based on monism, but should hold the pluralism belief advocating the competition among kinds of theories. Otherwise, it will fall into the plight of myth. Clearly, so is it for the economics. The rational development path of economic theory lies in the consilience of knowledge and thinking on the basis of the competition and comparison between different schools and disciplines. However, The research of modern mainstream economics takes on a strong tendency of monism, which makes it try to maintain a specific research paradigm and degenerate into a autistic” interpretation community, as well create a obvious mainstream paradigm fetishism. The tendency of monism is especially obvious in the academic of economics in China. The reason lies in the fact that the utilitarian style of study is more prevalent and the pragmatism system of academic is more distorted in China. In view of this, it is urgent for modern mainstream economics to take a turn in academic attitude: breakthrough the plight of myth resulting from monism by importing the open and pluralistic thinking. Accordingly, it should focus on such two aspects: one is to pay attention to non-professionals’ challenges and criticism from the external power, the other is to cultivate the academic spirit based on critical thinking from the internal power.

Critical ethical naturalism and the transformation of economics

In this article I shall argue that critical ethical naturalism, an ethical position elaborated by Tony Lawson, can help understand Lawson’s critique of modern mainstream economics. According to critical ethical naturalism, human action should be concerned with removing obstacles that lie in the way of human development and flourishing. The attempt of transforming economics into a discipline that contributes to human development, rather than being an obstacle to such a development, can be seen as an exercise driven by critical ethical naturalism, albeit in a more implicit way in Lawson’s earlier writings, and in a more explicit way in more recent writings. But the significance of critical ethical naturalism, as elaborated by Lawson, goes well beyond the problem of transforming economics, and so I shall also highlight some more general implications of this ethical position before addressing the specific problem of transforming economics. To do so, I will first present Lawson’s critical ethical naturalism, while showing the relevance of his social ontology for the study of ethics at various levels of generality, including meta-ethics, ethical theory and applied ethics.

Why Can the Behavior Experiments Directed by Game Theory Experts Confirm the Mainstream Economics: On the Control of Experimental Conditions and Corresponding Diversity of Experimental Outcomes

The experimental outcomes are usually influenced by controlled experimental conditions. It is the different design of experimental conditions that leads to the diversity of experimental outcomes. To a large extent, because of the construction of double-blind settings that is similar with economic man, the experimental results achieved by game theory experts usually confirm the thinking logic and corresponding theories of modern mainstream economics. At the same time, knowledge structure of game theory experts and study objects contribute to the phenomenon that game theory experts tend to control experimental conditions strictly and are keen on double-blind settings. Generally, game theory experts prefer to test subjects' behavioral logic in the given game context, and even feel uneasy about the effects of some interference factors on the experimental results. However, this kind of controlled experimental condition is usually suitable to the market competition behavior where a large number of persons participate in, but is dramatically different from the situations of people's daily life. Therefore, in order to explore the general behavior mechanism in people's daily life better through behavioral experiments, it is necessary to improve the experiment conditions such as the matrix type of the game, environmental structure, subject characteristics and dynamics, so that the game context of experiments will be as close as possible to the real environment, which is the basic requirement and development direction of experimental and behavioral economics.

What is the Problem with Neoclassical Price Theory?

The article seeks to focus attention on Neoclassical price theory, as one of the two problematic foundations of modern mainstream economics—the other being the theory of distribution. After outlining what is understood to be Neoclassical price theory and noting the various criticisms which it has been subject to from both within and without the school, the article proceeds to argue that its major flaws need to be understood as stemming from how it conceives of the formation of prices in the first instance. Specifically, the article argues that the basic problem with the Neoclassical theory of price is that it abstracts from both production and money in the first instance, such that when these are eventually brought back into the explanation of price it is done so in an inessential manner; one where production and money have no bearing on the findings of the analysis of price which excluded them.

Theory, generalisations from cases and methodological maxims in evidence-based economics: Responses to the reviews by DiNardo, Guala and Kincaid

First, I wish to thank John DiNardo, Francesco Guala and Harold Kincaid for their very thoughtful and provocative reviews of Error in Economics. I do not want to hide my contentment with there bein...

Theorising technology

Technology is central not only to such traditional economic concerns as economic growth, wealth creation and the alleviation of poverty, but also to wider societal issues ranging from climate change, globalisation and the organisation of work, through to education, the provision of health care, and the development of media and the arts. It follows that, whatever their particular interests, economists, as well as social scientists and policy makers more generally, are at some stage likely to have to reflect upon the nature of technology. There are many potential issues to consider and some of the questions that arise include: ‘What is meant by technology?’, ‘What different kinds of technology are there?’, ‘What is technical change?’, ‘How do the material and social aspects of technology cohere?’ and so on. Although economics would seem a natural site for addressing questions of this kind, the analysis of technology in its own right within the discipline has been held back in several ways. First, although technology has been the subject of sustained and in-depth analysis by earlier generations of economists (e.g. in the works of Marx, Schumpeter and Veblen), modern mainstream economics has tended to downplay the analysis of technology per se in favour of a ‘black-box’ approach that reduces technology to a production function and technical progress to something that can be represented by (and that occurs between) shifts in production functions (Rosenberg, 1982). Economists interested in the nature of technology effectively face a choice between looking back to the contributions of their forerunners or looking outside their own discipline altogether. While the former route has been taken by some in recent years, this has tended to be restricted to those working in the Schumpeterian tradition (Dosi and Grazzi, 2010; Perez, 2010). The latter route, drawing on the wider literature in technology studies has, as yet, not been followed by many in economics. While there are no doubt a variety of reasons for this, an important factor appears to be the relative inaccessibility of some of the classic texts in these fields (especially in the philosophy of technology – for example Heidegger's Questioning Technology). Similarly, throughout the range of disciplines concerned with the study of technology, particular theories of technology are often interspersed with more detailed accounts of specific technologies or local intellectual disputes of one kind or another, making the main ideas in these literatures difficult to place and penetrate for those without a background in the particular disciplines.

OECD organisational discourse, peer reviews and sustainable development: An ecological-institutionalist perspective

As part of the recent ‘ideational turn’ in research on international organisations, the study of organisational discourse has gained popularity. Yet ecological economics has thus far paid little attention to the role of organisations as sites for the discursive battles over the meaning of sustainable development. For an international organisation without regulatory powers, such as the OECD (Organisation for Economic Co-operation and Development), discourse is the main vehicle for policy influence, but it also plays a key role in (re)defining the organisation's identity and authority. The OECD's organisational discourse has been strongly dominated by ‘modern mainstream economics’, and has given little room for marginalised discourses. This paper compares, from the perspective of institutionally oriented ecological economics (IOEE), and borrowing from critical discourse analysis, the experience from attempts to integrate the concept of sustainable development within two OECD peer review mechanisms – the Economic Surveys and the Environmental Performance Reviews. The extent to which the respective conceptions of sustainable development in the two reviews are in line with the principles of IOEE and the reasons for the apparent failure of sustainable development discourse to gain foothold within the organisation are analysed.

Marshallian Surplus for Differentiable Preferences: Partial Equilibrium Approach

Modern mainstream economics, intermediate and advanced micro textbooks teach us after classical Marshall, Hicks, Samuelson etc. contributions that Marshallian surplus - area to the left from the textbook demand function - represents exact change in consumers' money metric utility only in special quasilinear case, when marginal utility of income is every time unity. In the general case, it is recommended therefore to use Hicksian equivalent or compensated variations as a measures of utility change, keeping in mind Marshallian surplus as a useful, but rather poor, approximation of true utility change. Our paper shows that in one-dimensional case when only price of the good changes, area to the left of Walrasian demand curve every time represents exact, not approximate, change in consumer' indirect money metric utility function, for rather general class of differentiable preferences.

Consumer' Surplus, Fundamental Welfare Theorems and Revealed Preference Approach

Modern mainstream economics teach us that Marshallian consumer surplus concept can be correctly applied only in the special case of quasilinear preferences (when price of numeraire is normalized to unity), which is never observed in reality. Our paper shows the opposite: we can every time correctly apply individual and aggregate Marshallian surplus approach for the general class of differentiable preferences along subset of monotonous and piecewise monotonous parameterizations. Aggregate generalized consumer surplus - change in the sum of all consumers' incomes and net surpluses - is identically equal to the change in efficient social welfare function, if level of efficient social welfare is changing (piecewise) monotonously along adjustment path. Fundamental welfare theorems are proposed to generalization for potential application of aggregate Marshallian surplus measures and the relation between aggregated revealed preference approach, Coase' theorem, fundamental welfare theorems and representative consumer' approach is discussed.

Interest and the Marginal Product of Capital: A Critique of Samuelson

The association of the equilibrium real rate of interest with the marginal product of capital is a staple of modern mainstream economics. Indeed, when graduate students are asked to find a typical model's equilibrium values of the real wage and interest rate, there is apparently nothing more natural than calculating the derivative of the production function with respect to labor and capital, respectively. This seems to make perfect economic sense, because under competitive conditions, the laborer gets paid the marginal product of his labor, while the capitalist gets paid the marginal product of his capital. Students can even derive the “factor-price frontier” (developed in, for example, Samuelson 1953) to show the inverse relationship between real wages and the real rate of interest, where the “factors” are, of course, labor and capital.

Editorial: The »New Monetary Policy« – A Critical Appraisal

First paragraphThe »New Monetary Policy« (NMP) is the major stabilisation policy associated with the so-called »New Consensus« (NC) view in macroeconomics. NC is the dominant view in modern mainstream economics. Its major tenets are (1) the supply-side determined equilibrium level of unemployment (e.g. NAIRU), and, related to it, (2) the acceptance of the long-run Phillips curve. Within this classical framework, the NC has first explored and then supported a role for short-run effective stabilisation policies, which have usually meant aggregate demand fine-tuning via changes in the short-run nominal interest rate controlled by the central bank. The contributions to this special issue, which contains some of the papers presented at the workshop on Macroeconomics and Macroeconomic Policy organized by the Research Network Alternative Macroeconomic Policies (Germany), the Post Keynesian Economic Study Group (UK), and the Association pour le Développement des Études Keynésiennes (France) on 28th and 29th October 2005 in Berlin, discuss this NC view and its NMP implications from a variety of perspectives and economic traditions.

New paradigm in macroeconomics: solving the riddle of Japanese macroeconomic performance

Modern mainstream economics is attracting an increasing number of critics of its high degree of abstraction and lack of relevance to economic reality. Economists are calling for a better reflection of the reality of imperfect information, the role of banks and credit markets, the mechanisms of economic growth, the role of institutions and the possibility that markets may not clear. While it is one thing to find flaws in current mainstream economics, it is another to offer an alternative paradigm which, can explain as much as the old, but can also account for the many 'anomalies'. That is what this book attempts. Since one of the biggest empirical challenges to the 'old' paradigm has been raised by the second largest economy in the world - Japan - this book puts the proposed 'new paradigm' to the severe test of the Japanese macroeconomic reality.

Economics for the future

Many of us decided to study economics because we were interested in issues such aseconomic growth, unemployment, poverty, discrimination and social exclusion. Andfor much of the history of the discipline, economists grappled with explaining suchphenomena and, hopefully, helped to improve the development of economic policy.But now the discipline is increasingly dominated by other concerns, such asmathematical rigour and econometric modelling. The New York Times columnist,Michael Weinstein, recalled how his passion to learn economics, which was driven bya desire to understand the causes of poverty and the impact of technical change, wasimmediately quelled when on his first day as a graduate student at the MassachusettsInstitute of Technology the professor announced that ‘all of economics is a subset ofthe theory of separating hyperplans’ (Weinstein, 2000). The subject has become soobscure that even orthodox economists are bemoaning its intellectual poverty.AccordingtoMiltonFriedman,‘economicshasbecomeincreasinglyanarcanebranchof mathematics rather than dealing with real economic problems’ (Friedman, 1999,p.137). And Robert Solow has observed: ‘Today if you ask a mainstream economista question about almost any aspect of economic life, the response will be: suppose wemodel that situation and see what happens...modern mainstream economics consistsof little else but examples of this process’ (quoted in Lawson, 2005).So many economists are now increasingly engaged in research and teaching that isdisconnected from the issues that influence people’s lives, as Long (2005) observed:‘academiceconomistsremainhiddenintheirivorytowers.Theyareneitherhouseholdnames nor a significant presence in newspaper commentary pages. How strange fora country that produced the most famous economists of all time: Adam Smith, DavidRicardo and John Maynard Keynes’. But not all remain hidden in their ivory towers:there are a few who do influence the policy domain, but they come from the intel-lectually narrow sect of neoclassical economics. And there are those from the neo-classical sect who have managed to infiltrate popular culture by throwing away themaths, packaging their prose in airport-style books and entertaining their readerswithstories about why sumo wrestlers cheat and why drug pushers live with their mums(see Levitt and Dubner, 2005).As modern orthodox economics moves away from reality, there is both theopportunity and the need for heterodox economics to orientate economics towards