One of the important lessons to be learned from neoclassical economics is that we should avoid monopoly. This idea is not only crucial in the economy, but also in the realm of theory and ideas.
After taking most of the core modules of economics for two years at Durham, my impression is certainly that this is an issue. This is probably the case for most universities in the UK, if not in most of the world; neoclassical economics is the dominant school in the economics degree.
Before following up this point, this picture for us here at Durham deserves to be nuanced. Our university offers a module in Post-Keynesian Economics, two in History of Economic Thought and there is a Heterodox Economics module in the making. These modules offer important economic insights, encouraging students to understand a broad range of relevant economic approaches. Outsiders trying to challenge the big guy in the market of ideas. Nevertheless, the main tendency is still that the dominance of neoclassical economics continues to prevail.
There are reasons for why this problem is not recognised. The dominant paradigm in economics aims to find natural laws in the economy, in the spirit of natural sciences. Having this starting point, it is not surprising that we are approaching what is believed to be the one truth. Nobel laureate Robert Lucas declared in 2003 that “[the] central problem of depression prevention has been solved, for all practical purposes”. There is no need for competition of ideas when the ‘big guy’ in the market has the ultimate theory to solve all our problems.
Although neoclassical economics provide us with a great deal of important knowledge, we should be sceptical of it’s dominance for at least two reasons.
Firstly, we would have a much better understanding of many more aspects of the economy if we knew more theories and approaches. Arguably, key issues like institutions and financial instability are facets that neoclassical economics does not explain very well. Other issues, like economic growth, innovation, inequality and individual economic behaviour are not necessarily poorly explained by neoclassical economics, but other schools offer interesting alternatives that can increase our understanding. For example, when discussing economic growth and innovation, the neoclassical approach of capital accumulation and the function of savings is important, yet so is the Schumpeterian approach, which emphasises the inherent roles of entrepreneurs and technological innovation.
Secondly, as a consequence of the first point, I think a plurality of theories and a broad understanding will lead to a more dynamic and fruitful discourse in the economics discipline. This is pivotal for a science in the strive for truth. For social sciences, which is what economics really is, ‘the truth’ is very hard to find. It has another nature compared to natural sciences, and the theories will have a somewhat different relevance in different times and societies. Therefore, to keep academic legitimacy, we need very good justification for dismissing most theories and focusing on only one. We need very good reasons, we should be close to certain a theory is right, if we go from competition of ideas to monopoly.
As of today, I do not believe that neoclassical economics deserves such a monopoly of economic understanding. Rather, I think that a diverse competition of theories and ideas is crucial. This is because the nature of disagreement, based on different assumptions, methodological frameworks etc., will create important dynamics within the subject. This will give us a more fruitful, critical and holistic academic discourse, which in turn will give us a better understanding of ‘the truth’.
There are, of course, qualms as to how far this plurality will go. I agree that we must avoid a state of theoretical relativism where no forms of facts or truths can be established, where we cannot give any policy recommendation, and where all forms of theories are accepted. As pointed out by one of my lecturers, such tendency of postmodernism, which is arguably what we see in some social sciences these days, is not what we want. But claiming that this is the mission of economic pluralism is wrong. On the scale between complete relativism and absolute monopoly-one-truth-theory, the answer lies somewhere in the middle – a plurality of legitimate theories that is based on scientific methodologies.
If the goal is for economics to fit the economy, not the economy to fit economics, a more diverse approach is needed. It will increase our understanding and make the discourse in the economics subject more dynamic. In a time of great changes and numerous challenging issues, this is what society needs from economics.
Ola Helmich Borchgrevink Pedersen,