New Horizons in Institutional and Evolutionary Economics series
Chapter 1: Introduction
In the wake of recent financial and economic crises there is a swelling debate on the adequacy of economic science. Few economists foresaw the crises, predictions and recommendations on how to proceed vary greatly, there is difference of opinion on the root causes of the crises, there is little perspective of how to prevent similar crises in the future, and established practices in finance and business appear to simply continue. Apparently we need to delve deeper. A fundamental re-orientation seems in order. In this book I criticize fundamental intellectual and moral assumptions underlying economic science, and I unravel the notion of markets: how they work and fail, and how they may be redirected to better serve the good life. However, economics goes beyond markets. It has developed into a view of behaviour in general, and I will discuss that first. My criticism of economics is radical and I think that economic thought is doing much damage. However, I acknowledge that economics has also made important contributions. In many situations optimal allocation of scarce resources is in order; laws of supply and demand sometimes apply. Economics has yielded numerous useful notions, such as economies of scale, diminishing returns, substitution between labour and capital, opportunity costs, forms of competition, transaction costs, entry barriers, and much more. Game theory has yielded important insights into strategic and collective behaviour.