Globalization, Economic Development and Inequality

Globalization, Economic Development and Inequality

An Alternative Perspective

New Horizons in Institutional and Evolutionary Economics series

Edited by Erik S. Reinert

The expert contributors gathered here approach underdevelopment and inequality from different evolutionary perspectives. It is argued that the Schumpeterian processes of ‘creative destruction’ may take the form of wealth creation in one part of the globe and wealth destruction in another. Case studies explore and analyse the successful 19th century policies that allowed Germany and the United States to catch up with the UK and these are contrasted with two other case studies exploring the deindustrialization and falling real wages in Peru and Mongolia during the 1990s. The case studies and thematic papers together explore, identify and explain the mechanisms which cause economic inequality. Some papers point to why the present form of globalization increases poverty in many Third World nations.

Chapter 2: Natural versus Social Sciences: On Understanding in Economics

Wolfgang Drechsler

Subjects: economics and finance, evolutionary economics, welfare economics


* Wolfgang Drechsler Verstehen ist der ursprüngliche Seinscharakter des menschlichen Lebens selber. (Gadamer 1990, p. 264, 1989, p. 259) Half a century ago, Ludwig von Mises concluded an essay with a title very similar to the present one by addressing the proponents of mathematical economics thus: ‘If it may some day be necessary to reform economic theory radically this change will not take its direction along the lines suggested by the present critics. The objections of these are thoroughly refuted forever’ (1942, p. 253).1 Mises’s first statement was factually wrong; this does not mean, however, that the second one was incorrect as well. Indeed, it seems to me that the problem of the current mainstream, mathematical, usually neoclassical approach to economics2 is two-fold. It is flawed both practically and theoretically: practically because it does not deliver, theoretically because it rests on premises that are problematic at best, and extrapolates from them by equally questionable means. The argument by its protagonists has been to excuse practical problems by pointing to theoretical truth-value, and theoretical ones by pointing to practical success. This chapter concentrates on the theoretical problems. It rests on the assumption, rather than tries to demonstrate, that mathematical economics does not deliver; if one feels that it does, then one need not read on. But of course the theoretical problems have a practical connection (see Kant 1992, pp. 23–5), because the purpose of pursuing economic scholarship is not to create an aesthetically pleasing theoretical system, but rather to...

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