Tony Lawson: Diagnoses in Modern Economics

BY ERIK VAN KESTEREN

The discipline of modern economics is, according to many commentators, in an unhealthystate.NobelPrizewinnerMilton Friedman remarked “economics has increasingly become an arcane branch of mathematics rather than dealing with real world economic problems”. His peer, Ronald Coase, adds: “Existing economics is a theoretical system which floats in theair and which bears little relation to what happens in the real world”. Finally, in the succinctwordsofeconomicmethodologist Mark Blaug: “Modern economics is sick”. What can accountfor this ‘illness’?

Contemporary British economist and philosopher Tony Lawson has dedicated his career to diagnosing the state of the discipline (Economics and Reality, 1997; Reorienting Economics, 2003; The Nature and State of Modern Economics, 2015). Lawson contends that the fundamental problemofmoderneconomicsstemsfrom its neglect of ontology. Now, what is ontology, and why is it relevant to economics?

Ontology derives from the Greek to on, meaning ‘being’, and logos, which in this context expresses something like ‘the study of’ or ‘an accountof’. So, ontology is the study of ‘being’. Put simply, ontology concerns the nature of things. While this mayseemobscure,forLawson,ontologyis rather something that each one of us is intimately familiar with. In fact, it is somethingwecannotavoiddoingaswego

To see why, we can consider what is involved in performing an everyday task, likecleaningawindow.Thetaskofcleaning a window requires selecting the appropriate tools. In this case, we would perhaps use a simple cloth, rather than, say, a pneumatic drill. The reason is obvious: the nature of a glass window is such that a cloth would function as an appropriate tool for cleaning it, and a drill would not. Implicitly we are making a judgment about the nature or ‘being’ of thetoolinrespecttothenatureofthetask at hand. Likewise, if we choose a spoon rather than a fork to drink soup, we do so under the assumption that the nature of the spoon, as opposed to that of the fork, fitsthetaskofdrinkingsoup.WhatLawson wantstogetatisthis:inselectingacertain toolforacertaintask,weimplicitlyassume or presuppose that the nature of the tool fitsthenatureofthetask.

Lawsonsuggeststhatsciencesproceedina similar fashion to the way we do as we go about our day-to-day lives. A science adopts various methods to illuminate a given aspect of reality. To do so successfully, the method must be appropriate to the nature of the subjectmatter. A scientist should ask: what is it that I am trying to study (the task), and how should I go about studying it (the tool)? These questions are basic ontological questions, as they are concerned with the nature of both the subject-matterandthemethodofstudy.In economics, Karl Marx remarked that for economic analysis, microscopes and chemicalreagentsareoflittleuse.Sowhat methodshouldweuseinstead?

Currently, the method that is almost universally adopted by modern mainstream economists is that of mathematical modelling, specifically models which rely on functional relations. Open any economics journal or textbook, and you will find reference to production functions, utility functions, investment functions,and etcetera.Lawsonpointsout that when economists use mathematical models,thismethodisitselfneverjustified in relation to whatever is being studied. Rather, economists proceed on the assumption that mathematical models are already relevant to their study. From this perspective, modern economics as a discipline is defined by its tools, not by its task.However,aswehaveseen,theuseof any tool also carries with it some implicit assumptions about the nature of the task towhichitisbeingapplied.Inparticular,it presupposes what the task should be like in order for the tool to be successfully applied to it. We are now in a position to ask, then, what the widespread use of methods of mathematical modelling presupposes with regards to economic analysis.

A function, put simply, is a relationship between variables. A change in one variable x will lead to a change in another, y, corresponding to the way in which the relationship is defined by the function. A basic example fromeconomics would bea demand function, which relates the demand for a good to its price. For example,ifthepriceofagoodincreasesby one unit, then demand falls by ten units. While economic models get vastly more complex than a basic demand function, theirbasic underlyingassumptions arethe same. Namely, the use of these models presupposes the ubiquity of what Lawson calls event regularities. These are regularities of the form: ‘whenever event (or state of affairs) x, then event (or state of affairs) y’. In order for these models to be successful tools for undertaking economic analysis, such event regularities should be widespread in the economic, or in general the human world. Is this found tobethecase?

In the natural sciences, event regularities intheform ‘wheneverx,theny’aremostly limited to the controlled experiment. A controlled experiment is a situation in which the effect of one variable on a certain outcome is isolated from all the other variables that could influence that outcome. If a leaf is dropped in a vacuum, it will fall at a constant rate, because only one causal mechanism is operating on it: gravity. In the outside world, however, additional causes such as wind and aerodynamicforces acton theleaf,andno eventregularityispossible.Wecanreferto the controlled experiment and theoutside world respectively as closed and open systems. A closed system is a system in whichasinglecausalmechanismisisolated andaneventregularityisproduced,andan opensystemisasysteminwhichmanyand changing causal mechanisms influence the courseofevents.

It perhaps becomes clear why modern economics is considered to lack relevance to the ‘realworld’.For itsmethodsassume that the economy, and the human world writ large, is a closed system. But we have goodreasontobelievethattheeconomyis an open system in which many different causes operate, and that these causes themselves are subject to change. Hence, the formula ‘whenever eventx, thenevent y’ is inapplicable to the study of the economy. However, the problem lies not with mathematics as such; cloths, drills, spoons and forks serve their purpose in certain contexts,butnotinothers.Rather, it is ontological neglect that lies at the heart of the problems of modern economics. Instead of determining the nature of the task and selecting the appropriate tools accordingly, modern economists pick their tools, and proceed on the assumption that they are fit for the task.

So what’s theway forward for economics?

Lawson’s gives us some ideas. Taking the nature of thing central to the study of economics, Lawson observes: Marx analyzed the nature of capital and capitalism, Veblen considered the nature of institutions, Keynes that of money and probability, Coase that of the corporation, etcetera.Inthisway,hiscallforareturnto ontology is a feat already familiar to us all, that is an essential feature of all science, that is already implicitly present in modern economics, and finally something that is itself part of the tradition of the disciplineofeconomics.

References

Lawson, T. (1997) Economics and Reality. London:Routledge.

Lawson, T. (2003). Reorienting Economics. London:Routledge.

Lawson, T. (2015). Essays on: the Nature and State of Modern Economics. London: Routledge.

Lawson, T.(2010)‘EconomicsandScience’, TheTransatlanticJournalofEconomicsand Philosophy.1(1),pp.9-13.