Essays on Institutional and Evolutionary Themes
Chapter 7: The Problem of Formalism in Economics
7. The Problem of Formalism in Economics Modern economics is sick. Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing. Mark Blaug, ‘Ugly Currents in Modern Economics’ (1997b) 7.1 MODERN ECONOMICS IS SICK In his Reorienting Economics, Tony Lawson (2003b) cites the magnificently appropriate above quotation by Mark Blaug (1997b, p. 3).1 Lawson, Blaug and I are in full agreement that the supremacy of technique over substance is a chronic problem within modern economics. Although the victory of formalism can be dated to the 1950s (Blaug, 1999, 2003) – following the dramatic decline of American institutional economics after the Second World War (Hodgson, 2004a) – by the 1980s the problem had become much more serious. Today, because mathematics has swamped the curricula of leading universities and graduate schools, many student economists are neither encouraged nor equipped to analyze real world economies and institutions. In 1988 the American Economic Association set up a commission on the state of US graduate education in economics. In a crushing indictment, the commission feared that ‘graduate programs may be turning out a generation with too many idiot savants skilled in technique but innocent of real economic issues’ (Krueger et al., 1991, pp. 1044–5). Commission member Alan Blinder (1990, p. 445) found economists to be ‘obsessed with technique over substance’...
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