Published in the Atlantic Economics Journal, Vol 26, December 1998, pp. 431-440.
SHIFTING THE MAINSTREAM: LAWSON'S IMPETUS
Economics and Reality
Tony Lawson
Routledge, 1997, 364 pp.
Review Article by
Edward Fullbrook
Lawson's Economics and Reality is a deeply informed attempt to liberate economics from its metaphysical presuppositions, usually tacit, inherited from Newtonian physics and Enlightenment epistemology. Lawson fears that the economics profession faces declining prosperity due to its decreasing public credibility and to the increasing annexation of its traditional ground of inquiry by other disciplines. Lawson's book attempts to revamp economic methodology so as to reverse these trends. This article examines the recent philosophical ideas (especially the Critical Realism of Roy Bhaskar) informing Lawson's project; considers Lawson's critique of contemporary economics; and relates his ideas for reform to those of other economists. [B00, C10, D00, D12]
1. Introduction
It is no easy matter to date the end of the bull market for economics that began after World War Two. The erosion of faith in economics, both among ourselves as economists and our public, has been slow but persistent and long-term. What has changed in the 1990s is that it has become polite to talk about it. Discussions and pronouncements of doubt and disillusionment that would have been unthinkable or career-destroying only a few years ago have become commonplace at economic conferences [Pfouts, 1997; Roth, 1997]. Important mainstream economic journals, including this one, now as a matter of course feature articles, often by patrician figures, declaring agnosticism regarding fundamentals and pleading for serious reform [Baumol, 1991; Hahn, 1991; Wiseman, 1991; Klein, 1994; Caravale, 1995]. But these efforts, brave and often penetrating, lack--and their authors would probably agree--the weight and thrust of critical vision needed to overcome the mainstream's notorious inertia. Economics and Reality by Tony Lawson (University of Cambridge) takes as its immodest goal the provision of this impetus.
Lawson points to his own intellectual history--as a mathematician turned economist--as leading to his book's insights. Entering economics, he says,
I was immediately impressed by, as I saw it, the widespread and rather uncritical application of formalistic methods and systems toconditions for which they were obviously quite unsuited. In consequence, my interests turned fairly quickly to questions of ontology, and specifically to the study of how methods and modes of reasoning might be fashioned to insights concerning the nature of social being [p. xiii].
That word "ontology"--whose meaning is central to Lawson's project--drops us into relatively strange waters. For Anglo-Saxon philosophy and for the sciences following from it, ontology has been off-limits since the Enlightenment. From Locke onwards ontology's central question--What basic kinds of being exist?--was treated as closed, leaving Positivist philosophy and its scientific offshoots to concentrate on epistemology unfettered by first-order questions. This important chapter in the history of ideas lies behind Lawson's thought. Coming from mathematics, Lawson engages with economic ideas free from the preconceptions, usually tacit, which Enlightenment metaphysics impose on the intellectual practice of the discipline. Economics and Reality is the author's careful and deeply informed explication of those self-imposed metaphysical limitations and his program for their removal. This is an upbeat book for the young of mind, that aims to relaunch economics for the new millennium.
Like Lawson's book, this review divides essentially into three parts: an explication of the unfamiliar philosophical ideas informing his project; a look at his critique of contemporary economics; and a review of his ideas for reform. Valuable as it is, it would be miraculous if a project as ambitious as Lawson's was not open to some serious criticism. Mine falls most heavily on his vision for the future.
2. Bhaskar
The book begins rather inauspiciously. Learning in Chapter 2 that Lawson is a committed follower of a philosopher of science, my immediate response was to brace myself for a splash-down in a bog of terminological irrelevance. A half century and tens of thousands of pages of philosophy-of-science-led methodological analysis of economics has--or so I thought--established that this project, like a Möbius strip, leads nowhere except back into itself. But Lawson makes a philosophical move which transforms the game. Under the influence of the Oxford philosopher Roy Bhaskar, Economics and Reality shifts the primary field of play from epistemology to ontology. We need to turn briefly to Bhaskar's work to see what this means.
Like his forebears Hume and Popper, Bhaskar rearranges the philosophical furniture by appealing to a few simple but far-reaching and yet overlooked observations whose truth most readers would feel uncomfortable denying.[i] He begins with the observation that any theory of knowledge "entails some theory of the objects of knowledge; that is, every theory of scientific knowledge logically presupposes a theory of what the world must be like for knowledge, under the descriptions given it by the theory, to be possible" [Bhaskar, 1986, p. 6]. Because, as noted above, Positivist epistemology long ago banished ontological awareness, explication of this epistemology's presuppositions leads predictably to provocative disclosures. Bhaskar launches his critique with an ontological consideration of a pair of beliefs central to a broad spectrum of theories of science, running from Mill's ultra-empiricism to Popper's Neo-Kantianism.[ii] This mainstream is based on the premises, first, that scientific explanation invariably involves laws, and, secondly, that those laws are themselves or depend upon empirical regularities [Bhaskar, 1986, p. 66], that is, constant conjunctions of events which take the form "if x, then y." Bhaskar offers a disarmingly simple refutation of these two supposed verities. He directs attention to the difference between open systems and closed systems. This distinction, so strategic to the daily practice of empirical science, has been ignored by the philosophy of science [1986, p. 64].
Leaving aside astronomy, it is only under conditions that are experimentally produced and controlled that a closure, and hence a constant conjunction of events, is possible. The empiricist is now caught in a terrible dilemma: for to the extent that the antecedents of law-like statements are instantiated in open systems, he must sacrifice either the universal character or the empirical status of laws. If, on the other hand, he attempts to avoid this dilemma by restricting the application of laws to closed systems (e.g. by making the satisfaction of a ceteris paribus clause a condition of their applicability), he is faced with the embarrassing question of what governs phenomena in open systems [Bhaskar, 1975, p. 65].
Bhaskar traces this antinomy to an ontological deficiency. The epistemological theories under scrutiny, he shows, are founded on an ontology insufficiently rich to explain the projects of empirical science and their applicability to open systems. Traditional Positivist ontology postulates no existence beyond the events observed by scientists, and it is this extreme anthropomorphism which renders traditional philosophy of science incapable of reconciling scientific explanation with open systems. Bhaskar's remedy is simple and, except for the vulgar Positivist, painless. In addition to the events observed by experimental science in its closed systems, Bhaskar postulates the existence of unobserved events and of the structures or mechanisms which generate those events and which he identifies as the primary objects of knowledge [1975, pp. 46, 25]. This introduces two levels of realism beyond that of observed events, hence the "transcendental realism" tag applied to Bhaskar's philosophy.
These moves by Bhaskar lay the ontological foundations for a new and broader theory of science, one applicable to open systems as well as to closed ones composed of atomistic individuals.[iii] In particular, the admission of open systems to scientific investigation demands alternatives to the deductivist model of explanation with its requirement that the explanandum be constituted so that descriptions which take the form "whenever this, then that" apply. "Only with an actual isolation of atomistic individuals will the regularity determinist be able to categorically predict the future; without it, it always remains on the cards that an unpredicted change in the external circumstances of the system or the internal states of its individuals will occur so as to upset an established regularity" [1975, p. 75]. Bhaskar's foregrounding of open systems of internally structured individuals and his exposure of science's tacit metaphysics suggest possibilities for the reform and reconceptualization of the social sciences to a degree which exceeds the combined effect of his predecessors from Popper onwards. It is this hand of aces which Lawson's book plays out in the context of economics.
3. Lawson's Critique of Contemporary Mainstream Economics
Lawson's quarrel with economic orthodoxy does not take place at the level of substantive theory. His dispute occurs on the grounds of methodology and its supporting metaphysics. He advances the thesis that economics' "state of disarray" [p. 282] is due to its presuppositions regarding the nature of economic systems, presuppositions which arise from its insistence that "certain methods and procedures" [p. 16] be employed regardless of the nature of the object of inquiry. The doctrine of determinism, including the deductivist mode of explanation, heads Lawson's list of methodological misadventures. Economic theory, with its superstructure of axioms (or assumptions), equilibrium states and socially impervious individuals, presupposes the universal legitimacy of deductivist explanation for economic phenomena. Lawson takes great care to show the restraints which this determinist metaphysic places on theory construction and econometric practice.
He identifies two types of closure, intrinsic and extrinsic, as essential to the belief that "for every economic event or state of affairs y there exists a set of events or conditions x1, x2 ...xn, such that y and x1, x2 ...xn are regularly conjoined under some (set of) formulation(s)" [p. 98]. Intrinsic closure is the requirement that the internal structure or state of any individual unit of analysis is constant and reducible to the system conditions obtaining. Economic theory's atomistic conception of individuals (as having no internal structure) provides a short-cut to this closure. Extrinsic closure is the need for deductivist explanations to internalize, that is to include in their specified set of conditions x1, x2 ...xn, all potential influences on the outcome or to show these conditions to be constant in their influence. The "need to satisfy the extrinsic condition encourages formulations in which each individual acts in relative isolation" so that "the overall outcome of a system composed of numerous such individuals can then be determined merely by adding together (or otherwise mechanistically combining) their separate responses" [p. 99]. Lawson's key point here is that it is these tacit requirements of the deductivist mode of explanation, rather than substantive considerations, which lead to economic models being predicated in terms of atomistic individuals acting in relative isolation. In other words, metaphysics, and metaphysics of a particular sort, is shown to be the primary determinant of the shape of economic theory. Deductivism "presupposes a ubiquity of social closures, while in the event, social closures of an interesting kind appear to be extremely rare", thereby making the range of socio-economic phenomena open to deductivist investigation extremely narrow [p. 98].
Lawson's critique of econometrics follows the same pattern as his critique of economic theory. He reads econometrics as a probabilistic interpretation--"regularity stochasticism"--of the "whenever this, then that" mode of explanation. Under this revised "metaphysical thesis", every event or state of affairs is conjoined with a set of events or conditions under "well-behaved" probabilistic formulations. In other words, "stochastic closures are everywhere assumed to hold" [p. 76]. The identification of stable econometric relationships requires that the system of investigation be "closed-off" from extraneous effects (the "extrinsic closure condition"), and from changes in the internal states of the individuals under analysis (the "intrinsic closure condition") [pp. 78-9]. The first requirement leads to the supposition that the behavior of individuals--for example, consumers' preferences--can always be analyzed as if those behaviors were not interdependent. The second requirement leads to the supposition that the individuals can be conceived of atomistically.
It is under the influence of these [isolationist and atomistic] fallacies that econometricians attempt repeatedly to shore up the closure conditions. And in the limit the tendencies so set in train amount to the search for systems so large that they exclude nothing, couched in terms of single individuals so small that they include nothing [p. 84].
Adherence to this regularity stochasticism, says Lawson, "sets us off searching in the wrong direction" [p. 84]. Regularity conjunctions do not characterize economic systems. Instead, in the manner of open systems, various generative mechanisms operate concurrently and intermittently so that alternately they may intensify, inhibit or cancel each other out. Lawson, like Bhaskar, gives the example of falling leaves. A search for constant conjunctions in the paths of their fall will lead only to disappointment. It is certainly true that well-understood forces (gravitational, aerodynamic and thermal) are at work in "determining" the leaf's flight path in the forest as much as these forces are at work in laboratory experiments. But, unlike computers and other closed systems, there is no synchrony between the operative forces. Economics also presents the case of an open not a closed system. Furthermore, economic systems display a qualitatively greater order of openness than the purely physical systems which govern falling leaves. Because economic systems are human creations, the operative structures and forces of those systems tend to change over time. This evolutionary, unsynchronized and intersubjective nature of economic systems accounts, says Lawson, for the well-known failure to uncover stable econometric relationships.
At times Lawson's critique lapses almost into burlesque, for example in his selection of Frank Hahn's well-known but immoderate prescriptions for economic theory, and when he depicts econometric practice by considering the "Lucas Critique" [Lucas, 1976] and responses to it. Lawson, however, uses these colorful cases not as easy targets, but rather as vivid illustrations of the preconceptions (and their ramifications), which in various degrees pervade mainstream tradition. However, Lawson fails to mention that the econometrician's multivariate analysis may constitute a search for the deeper structures and mechanisms which Economics and Reality identifies as economics' proper object of inquiry [Baert, 1996, p. 519].
4. Lawson's Reforms
Lawson is least convincing when offering alternatives to the status quo. Again he relies heavily on Bhaskar, whose philosophy of science and "theory of social ontology" he combines and fleshes out in the context of economics. The result is not so much ill-conceived as incomplete. Lawson begins with the significant and well-defined Bhaskarian distinction between external and internal relations. "Two objects or aspects are said to be externally related if neither is constituted by the relationship in which it stands to the other," as for example, bread and butter. "[T]wo objects are said to be internally related if they are what they are by virtue of the relationship in which they stand to one other," for example, "teacher and student, magnet and its field" [p. 164]. Economics, we are told, should abandon its commitment to atomism and recognize "the internal relationality" [p. 164] of economic life; identify "the relationship between human agency and social structure" [p. 167]; incorporate a "transformational conception of social activity" [p. 171]; accommodate "the phenomenon of emergence" [p. 176]; and recognize the historical specificity of economic systems. But this program is as old as it is worthy. Schools and would-be schools encompassing some or all of these goals litter the history of economic thought. What does Lawson offer toward these ends that his predecessors did not?
At first glance it seems not overly much. His book lacks usable conceptual tools and ideas for establishing new research programs, so that when it comes to the actual journey to the brave new future, his effort, like other methodologically inspired critiques, never lifts off. Even so, it facilitates reform of economics in significant ways. It offers some--but not all--of the philosophical foundations needed for substantive changes which do not conform to neoclassical ontology. It engraves on the reader's mind, by repetition and felicitous example, the predominately open nature of economic systems and the need for both theoreticians and econometricians to come to terms with this central dimension of economic reality. Lawson's analysis also opens the door to the kind of methodological and conceptual pragmatism which has always, thank goodness, predominated in the natural sciences. Economics tends to forget that different methods and conceptual systems admit and exclude different kinds of empirical phenomena, so that choice of methodological frameworks determines which subsets of economic phenomena are subjected to disciplined inquiry and which are not.[iv] In the natural sciences discussion of methodology is concerned with which sets of preconceptions and procedures best fit various possible objects of inquiry. But in economics, discussion of methodology traditionally is confined to arguments about which preconceptions and procedures should be adopted to the permanent exclusion of all other sets. And so, of course, great chunks of economic reality are precluded from inquiry altogether. If, however, economics reinvents itself as predominantly concerned with understanding economic reality in all its changing diversity, if it places the empirical pursuit ahead of metaphysical purity, then many frameworks may have their useful places.
Lawson makes the case that conceptual flexibility looms especially important in economics, since socio-economic structures are human creations and, therefore, space-time dependent [pp. 163-173]. Ordinary historical processes, in addition to the discipline's internal dialectic described by Thomas Kuhn, creates the need for amendment and expansion of economics' conceptual frameworks. But economists who are not engaged in a critique of the discipline's methodological foundations also have emphasized the historical relativity of economic reality, and one strand of these more worldly critiques offer a means of bringing Lawson's ideas down to earth. In the twentieth century, economic life has grown increasingly intersubjective, and social and economic realities more compounded, so that an ever diminishing proportion of economic phenomena falls within the compass of the mainstream's methodological brief. Recently various economists have commented on this phenomenon in relation to market theory. Caravale, for example, notes that "the neoclassical scheme refers to an institutional framework which in no way resembles that of present-day economic systems" [1995, pp. 243-4]. Jonsson observes that the determination "to sidestep the issue of preference formation" in an age of emulative desires has led to such a loss of regard for economics "that many researchers in the fields of consumer psychology and marketing actually believe that the economic literature over the last few decades has contributed nothing to the understanding of consumer behavior" [1996, p. 113].