Only five years ago, many persons talked like Jean-Claude Trichet in the following citation:
In November 2010, European Central Bank (ECB) the then Governor, Jean-Claude Trichet, opened the ECBs flagship annual Central Banking Conference. He challenged the scientific community to develop radically new approaches to understanding the economy: ‘When the crisis came, the serious limitations of existing economic and financial models immediately became apparent. Macro models failed to predict the crisis and seemed incapable of explaining what was happening to the economy in a convincing manner. As a policy-maker during the crisis, I found the available models of limited help. In fact, I would go further: in the face of the crisis, we felt abandoned by conventional tools.’
(First paragraph from "Back to the drawing board for macroeconomics" Paul Ormerod and Dirk Hebling. Available from linked page below: )
Now it seems that many economists believe that nothing changed and the theory was valid. What is happening in economics? Are we all adapted to the new normal without any radical change in theory? I want to believe that there are serious endeavors to construct a new theory but they are only hidden under the surface. Am I right?
Article Back to the drawing board for macroeconomics
The existing capitalistic economic system has failed to deliver what equitable economic systems should be delivering. Capitalism is inherently unstable and we know it. For some bizarre reason however instead of trying to take drastic measures and get rid of the mutated economic monster, we have been desperately - through fancy nonsensical mathematical and econometric modelling - to justify the unjustifiable. What we need is not a new economic theory. What we need is reforming the existing neoclassical academic curricula that Universities offer and enrich them with philosophical as well as political economy courses so that the new trained economists take a more holistic approach. Relying purely on some sterile mathematical modelling that few if any can relate to is utterly regressive.....Thirty or forty years ago top economists used to publish 1 or 2 papers every 3 years....Now academia has turned into a factory of mass production of sterile papers that contribute nothing to economic theory.....It is all about how to secure your job and how to attract money by publishing to elite journals that only the well connected academics publish...What we really need is going back to our roots.....
Thank you, Constantinos.
You have written:
What we need is not a new economic theory. What we need is reforming the existing neoclassical academic curricula that Universities offer and enrich them with philosophical as well as political economy courses so that the new trained economists take a more holistic approach.
Do you believe we have enough knowledge on how to reform the existing economy? How about finance market? Do you simply think that we should abolish all that? I don't think so. It is evident that mains stream economics has a serious or fatal error, but I don't think we have already enough knowledge on how to reform our economy.
In this time of deep distrust in economic, we must make more efforts in construction a new theory. Do you know that what beats down a theory is also a theory?
Well....New economic theory for me implies rediscovering the wheel...There is no need to rediscover the wheel but instead we need to turn to theoretical arguments that were developed many decades ago....The problem with financial markets and in general free market economy is that they promote inequality and misery...We probably need to go back to the writings of many philosophers and rediscover the dormant but invaluable elements of what they advocated.....What we need to "beat" in not a theory as you suggest but the way we have embraced the current ideological framework....We need to start thinking in a more holistic manner, incorporating in our analysis elements that neoliberal thinkers have disregarded as inefficient....After all ECONOMICS is supposed to be belong to the nexus of Social Sciences....Nowadays, in the way economics is taught, the social aspect is conspicuous by its absence.........
Constantinos,
you wrote:
> There is no need to rediscover the wheel but instead we need to turn to theoretical arguments that were developed many decades ago.
It is an interesting allegory. Let us continue our story.
You do not see there lies a wide river ahead of you. You have succeeded in the past in carrying your burden and you believe you can continue in the same way. You still believe if others help you to turn the wheel you can go across the river. It is now time to find a boat.
Mainstream is thinking in this way. In your case, your old wheel is holism. When the wheels do not turn well, you try to turn them by adding more force. You do not see what kind of breakthrough in theory is necessary.
In view of complexity of modern economy, holistic view is necessary. You are right on this point but what you do not see is that it is not the sufficient condition. Holistic view has a risk of getting together many incoherent ideas. Accumulating facts and ideas is only a starting point. When you accumulated many facts, what do you do? We are after the ICT revolution. If you want, you can collect a very big data. If you have no theory to analyze or find meaning in it, you understand nothing. To get an insight requires to make the data to tell something. That is the role of the theories.
You criticize the state of the art economics but you look at only superficial phenomena. One example is the following sentence.
>we have been desperately - through fancy nonsensical mathematical and econometric modelling - [trying?] to justify the unjustifiable.
You criticize forms but no contents. Have you really detected what is wrong with mainstream economics? To criticize mainstream economics requires another economics. It may contain mathematical formulations. You cannot exclude them, because mathematics is for large part a form of our rational thinking. Of course, I admit that mathematics is not all mighty. We have even to say that the useful range of mathematical reasoning is desperately narrow. To analyze a complex system, we may have to develop a new method of understanding. Computer simulation is one possibility. That is why I am also working in developing and exploiting U-Mart. (See for this project, the link below.)
However, we know that computer simulations have their own defects and it is easy to drop in the similar situation as mathematics. We have already various maxims. Most famous one is "Garbage in, garbage out." Even if there is a big chance of walking on this pitfall, I believe it is better than to sit on a sofa and believe that you can get something only by speculation.
Book An Introductory Pamphlet to the U-MART: UnReal Market as an ...
I am a fan of mathematics as it is the only science that provides you with solutions to whatever problems you are facing...My problem however rests in the way mathematics have been applied in todays Economic theory....mathematical modelling is indeed fascinating and I use it extensively in papers that I write....In retrospect however I do not think that mathematical modelling has solved any of major economic problems such as unemployment, underdevelopment, inequality or poverty..It has however enabled many bankers to make an obscene amount of money and many economies to collapse...Obtaining optimal solutions can be effective in the lab but when it comes to real economic problems its limitations are paramount. As a Marxist economist I strongly believe that capitalism is inherently unstable...Trying to deal with the symptom rather than the cause is simply nonsensical....As for the simulations that you mentioned, this is exciting but again simulations are simply the outcome of human modelling...
Dear Constantinos,
simulation is an illustration that I have in mind the limitations of mathematical reasoning.
It is true that mathematics is used in a very bad way in economics. We can even say that many (if not majority of) economists are slaves of mathematics. They believe that they are using mathematics but in reality it is the mathematical formulation that forces them in a certain way of thinking. For example, equilibrium framework is so convenient and majority of economists cannot escape from this strong trap.
In Japan, we have some Marxists who believe that they can compete with neoclassical trends only by adopting neoclassical framework and producing papers. They believe they can change the situation by persuading mainstream people that there are other interpretations than they believe to be true. I am doubtful if this strategy works. Those Marxists increase variety of discussions but in the end I think they will only help neoclassical economics and the way of thinking to survive.
There are many economists, even among heterodox people, who believe that there is no problem left in the basic price theory (I doubt if Samuel Bowles is thinking in this way). The reason may be various. Some think that they cannot compete with the modern neoclassical price theory by their labor theory of value. More than one-century long debate revealed that labor theory of value has some crucial flaws as a price theory. Some think that price theory and other basic frameworks have no relevance to the policy debates. The ideological superiority and class struggles count for every thing.
My opinion is completely different from them. There are two mutually exclusive and contradictory theories of value. We may call one as classical theory and the other neoclassical theory. Between the two theories, there is a continued fight for hegemony ("struggle in theory" after A. Gramsci) and in these 140 years we have to admit that the neoclassical theory was dominant.
We should know the reasons why classical theory of value remained dominated by neoclassical theory. We may point out two main reasons for this. One is the labor theory of value. As a theory of exchange rate, the labor theory of value had a several defects. One instance is the transformation problem (from labor values to production values). Another important reason was that classical theory of value could not present a value theory in international trade situation. John Stuart Mill opened the way to neoclassical economics when he examined the gains from trade.
The situation in theory is changing rapidly in these days. First, Lehman shock taught ordinary people and students that neoclassical mainstream economics have something wrong. Second, a theory of value in the form of post Keynesian economics is now available. See for example, F.S. Lee's Post Keynesian Price Theory (1998). Major part of Keynes’s arguments in effective demand can be reformulated on this new price theory. Third, international trade theory was incorporated in the classical theory of value. The new theory of international value is constructed in a very general situation. It covers many-country, many-commodity cases, permits choice of production techniques and most importantly input trade. The last point is important, because this permits Ricardo-Marx-Sraffa tradition that capitals are not an endowment but machines and materials produced in the economic system. It also gives us strong arms in attacking neoclassical trade theories, HOS and HOV theories for example.
The international value theory (or the lack of it) was a weak link of the classical theory of value. Now the theoretical situation changed enormously. We have a more realistic and powerful theory than HOS or HOV theories. It is now time to mount a counter-attack to the neoclassical theory of value. We have still some weak points in classical theory for value. For instance, labor markets still remain obscure and require a new theory to be constructed.
In sum, there are now a fierce theory level struggle between neoclassical economics and classical economics. If the hegemony were turned again in favor of classical theory, many neoclassical common understandings will be overturned and political power balance changes accordingly. Theory is that powerful entity.
https://www.researchgate.net/publication/305815587_The_Dhaka_Mercantile_Co-operative_Bank_Limited_A_Case_of_Islamic_Shari%27ah_Banking_in_Bangladesh
Article The Dhaka Mercantile Co-operative Bank Limited: A Case of Is...
Dear Nabila,
very interesting paper on banking in Bangladesh. I knew very little about Bangladesh. I knew Gramin Bank and Professor Yunus's achievements but I never imagined that his system had to comply Shari'ah.
By the way, "richshaw" was invented in early Meiji Japan just after the Meiji revolution. Formal name in Japanese is "jinrikisha" but may sound "jinrik'sha". It once perished in Japan but we can see it now in some sightseeing places.
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