Rethinking Economics

Wetenschapsfilosoof van de economie Piet Keizer van de School of Economics trekt een parallel tussen de oorzaken van de economische crisis en de opstand tegen het rendementsdenken aan universiteiten.

The financial crisis 2008 has led to severe critique of the dominant neoclassical analysis in economics. Another excellent example of a wrong application of orthodox economics is the way, in which government and university administrations use the concept of ‘rendement’.

For a well-educated economist “rendementsdenken” is a good thing
The recent problems at the University of Amsterdam were caused by attempts to deconstruct Humanities, which were considered not profitable. Students, and increasingly also members of staff, blamed the University Board for their “rendementsdenken”, and claimed a change in the decision-making structure. For a well-educated economist “rendementsdenken” is a good thing! However, the administration of Dutch universities improve their ‘profitability’ by increasing the numbers of students and decreasing their study period. Implicitly they assume that the quality of the educational service remains the same ( the so-called ceteris paribus clause).

Drama of Economics
This is exactly the drama in economics, created by the neoclassical approach: the improper use of the ceteris paribus clause.On the most general level neoclassical economists uses the orthodox economic analysis, which assumes that human motivation is of an economic nature only, as theoretical foundation for empirical research. To isolate economically motivated behaviour from psychically and socially motivated behaviour, orthodoxy assumes perfect rationality and the absence of the social-moral issue.In this way it has constructed an economic world, in which there are no psychic and social problems The financial crisis is one big evidence in favour of the heterodox economic statement that psychology and sociology matter if economists want to explain the functioning of real-life economies rather than formulating equilibrium conditions in isolated abstractions.

In my book Multidisciplinary Economics, A Methodological Account I thoroughly discuss orthodox and heterox economics. I conclude that orthodox economics offers a strong analytical device, but is unacceptably poor in its empirical evidence. Heterodox economics sounds more empirically relevant – it is not based on isolated abstractions. However, the theoretical structure, which should explain empirical regularities, is inadequate most of the time.

To bridge the gap between orthodoxy and heterodoxy I discuss a whole series of psychological and sociological analyses, especially from a methodological point of view. On the basis of these accounts I construct two other isolated abstractions, a so-called psychic world or mind, and a so-called social world. Now we have three worlds, all describing their own mechanism.

To approach the real world, I have integrated the three worlds, leading to a multi-colour world. If we want to make this world more realistic, we can dynamize and historicize the analysis, and make the closed system to an open one. Then we are in the middle of a very complex world, which describes and explains the functioning of real-life economies and societies quite adequately. In this approach psychology offers the micro-foundation, and sociology the macro-foundation of economic processes.

Back to the students in Amsterdam. They claim more attention to methodology and multidisciplinarity, including history. It is as if they had read my book before it was published.

Piet Keizer (2015), Multidisciplinary Economics, A Methodological Account, Oxford: Oxford University Press. [ISBN 978-0-19-968649-0]