I respond to Nuno Palma’s suggestion, made in 2008, that we are approaching the day in which nothing new can be said about Adam Smith. I think that is unlikely. The paper presents a model to support the suggestion. To illustrate my counterargument, I focus on the problem of Adam Smith’s apparently contradictory claims about the effects of the division of labour on character.
Economists associated with the Austrian School of Economics are known to deny the value of macroeconomics as descended from the work of John Maynard Keynes and, especially, his followers. Yet, Austrian economists regularly engage in a related scientific activity: theorizing about the causes and consequences of economic fluctuations, i.e., the business cycle. What explains the Austrians’ willingness to engage in theorizing about the business cycle while denying the scientific import of macroeconomics? The present paper argues that the methodological precepts of (...) the School, which have remained largely in place since Carl Menger first pronounced them at the start of the Methodenstreit, justify the kind of business-cycle theorizing that Austrians do and imply the limited scientific value of macroeconomics as descended from Keynes. (shrink)
The article explores novel directions in the phenomenology of economics. It analyzes how the approaches of Till Düppe and Alfred Schütz, both inspired by Edmund Husserl, may shed light on the historical development of economics. I examine the substance and meaning of economics in the context of the forceful criticism of the whole discipline recently raised by Düppe. This examination uncovers important weaknesses and omissions inherent in Düppe’s argument against the economists’ scientific aspirations. The analysis of the social scientific endeavors (...) by Alfred Schütz who develops a phenomenologically informed ‘telescopic’ concept of an ideal type is then shown to be a more fruitful and methodologically rigorous way towards understanding the developments within economics. The Schützian view permits us to see how abstract economic models originate in the experience of the life-world and are continuous with it. Accordingly, the historical development of economic science may be viewed as consisting from two broadly defined phases, where at first the formalism is steadily increasing (the ‘zooming out’ phase) and later the discipline converges back to context-specific empirical examinations (the ‘zooming in’ phase). A case study concentrating on the economic theory of politics illustrates that both the drive towards abstraction that has culminated around 1950s and the more recent ‘zooming in’ is methodologically legitimate from the phenomenological point of view. I conclude that economics has never been completely severed from the paramount reality of the everyday life and for decades the interconnection has been growing stronger by the day. (shrink)
Throughout the history of mankind, energy security has been always seen as a means of protection from disruptions of essential energy systems. The idea of protection from disorders emerged from the process of securing political and military control over energy resources to set up policies and measures on managing risks that affect all elements of energy systems. The various systems placed in a place to achieve energy security are the driving force towards the energy innovations or emerging trends in the (...) energy sector. Our paper discusses energy security status and innovations in the energy sector in European Union (EU). We analyze the recent up-to-date developments of the energy policy and exploitation of energy sources, as well as scrutinize the channels of energy streaming to the EU countries and the risks associated with this energy import. Moreover, we argue that the shift to the low-carbon production of energy and the massive deployment of renewable energy sources (RES) might become the key issue in ensuring the energy security and independency of the EU from its external energy supplies. Both RES, distributed energy resources (DER) and “green energy” that will be based on the energy efficiency and the shift to the alternative energy supply might change the energy security status quo for the EU. (shrink)
My purpose is to appraise the recent critique of theoretical economics by applying the methodological perspective. Therefore, I start by identifying the main lines of criticism raised against theoretical economics in the aftermath of the post-2008 global economic crisis: namely, the voices criticizing economics for its unrealistic models, excessive mathematization, and overconfidence in its theoretical claims. First, I show that these issues are interconnected and should be jointly analyzed. Next, I investigate these lines of critique from the perspective provided by (...) the latest achievements in the philosophy of economics (e.g., studies on the epistemic role of economic models). Taking this perspective reinforces some allegations against economics (e.g., these voices accusing economists of treating economic laws as universal laws of nature) and makes some criticisms more nuanced (e.g., the issue of unrealistic assumptions). I conclude by stating that such a methodological perspective is necessary in critically apprising the recent critique of economics. (shrink)
F.A. Hayek essentially quit economic theory and gave up the phenomena of industrial fluctuations as an explicit object of theoretical investigation following the publication of his last work in technical economics, 1941’s The Pure Theory of Capital. Nonetheless, several of Hayek’s more methodologically-oriented writings bear important implications for economic phenomena, especially those of industrial fluctuations. Decisions (usually, for Hayek, of a political nature) taken on the basis of a “pretence” of knowledge impede the operation of the price system’s belief-coordinating function (...) and thereby contribute to episodes of economic disequilibrium. Moreover, this later account – which I call Hayek’s epistemic theory of industrial fluctuations – implies certain aspects of his earlier theory. The two accounts are connected in virtue of the role that ignorance and the limits of human knowledge play in each. Indeed, it turns out that – substantively, if not methodologically – Hayek’s early theory of the cycle is a special case of the more general epistemic account. (shrink)
The aim of this paper is to investigate the current debate on the state of economics from a methodological perspective. We claim that the majority of contributions criticizing modern economics are not based on clear methodological principles and thus many of them are not correct. We show this with respect to such issues as the problem of realisticness of models and their assumptions, the role of mathematics in economics, the way we conceptualize the relation between economics (theory) and economy (empiria), (...) as well as the general problem of comparing theories. In doing so we use the research apparatus taken form the philosophy of science and also we benefit a lot from recent developments in the philosophy of economics. Finally, we show one of the paradoxes of that debate, namely that many critics of economics accuse economists of using the wrong language (mathematics) while they do not use proper language themselves while criticizing economics, namely the apparatus taken from the philosophy of science. (shrink)
Conventional economic theory assumes that people care only about ultimate outcomes and are indifferent to the decision and allocation processes by which outcomes are brought about. Building on Sen (1997), I relax this assumption, and investigate the formal and philosophical issues that arise. I extend the formal apparatus of preference theory to analyse how processes may enter preferences, and investigate whether traditional invariance requirements like the Weak Axiom of Revealed Preference are still satisfied in this new setting. I show that (...) it is, provided certain conditions of separability hold, and I discuss the plausibility of these conditions. Further, I argue that processes are often valued in a mode that diverges from the conventional modes of instrumental and intrinsic/independent valuation. I introduce the notion of dependent non-instrumental valuation, and show how processes could depend on their instrumental function for their value – making their value dependent – and yet derive their value from something else – making it non-instrumental. Dependent non-instrumental value, I argue, can be explained by symbolic and evidential relations between processes and outcomes. (Published Online July 31 2007) Footnotes1 This article is based on the third chapter of my Ph.D. dissertation (Sandbu 2003). I would like to thank Richard Tuck for many discussions over several years, which helped me develop and elaborate the ideas presented here. I am also very grateful to Amartya Sen, Nien-hê Hsieh, Luc Bovens, and Xaq Pitkow for their close readings of various versions of the paper and their incisive comments, questions, and suggestions. Further thanks go to Christopher Avery, Matthias Benz, Jerry Green, Waheed Hussain, David Laibson, Robert Sugden, Alan Strudler, Justin Wolfers, and seminar participants at Harvard University and the Wharton School of Business. Akshay Jashnani provided helpful research assistance. Most of the ideas in the present article were developed while I was the recipient of a doctoral grant from the Research Council of Norway, which I gratefully acknowledge. (shrink)
Abstract Contrary to Peter J. Boettke's essay, ?What Went Wrong with Economics??, there is no connection between ?formalism? and the alleged inability of mainstream economists to regard theoretical models as anything other than either depictions of real market economies or bases for criticizing market economies and justifying government intervention. Although Boettke's criticisms of the excesses of formalism are justified, Austrian economists such as Boettke need to justify their view that government interventions into economic affairs are inevitably harmful.