Method and Appraisal in Economics

238 Pages·1976·6.64 MB·English

by  Spiro Latsis (ed.)

Method and Appraisal in Economics

Method and Appraisal in
Economics
EDITED BY
SPIRO J. LATSIS
CAMBRIDGE UNIVERSITY PRESS
CAMBRIDGE
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CAMBRIDGE UNIVERSITY PRESS
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© Cambridge University Press 1976
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no reproduction of any part may take place without the written
permission of Cambridge University Press.
First published 1976
Reprinted 1978
First paperback edition 1980
Re-issued in this digitally printed version 2008
A catalogue record for this publication is available from the British Library
Library of Congress Cataloguing in Publication data
Main entry under title:
Method and appraisal in economics.
'Results from the Economics Sessions of the
Nafplion Colloquium on Research Programmes in
Physics and Economics held in Nafplion, Greece,
2-14 September, 1974.'
Includes index.
1. Economics-Congresses. 2. Economic research-Congresses.
I. Latsis, Spiro J., 1946-
HB21. M45 330 75-44581
ISBN 978-0-521-21076-8 hardback
ISBN 978-0-521-28050-1 paperback
Contents
page
Preface vii
A research programme in economics 1
s. j. LATSIS
Economics and psychology: the death and resurrection 43
of a research programme
A. w. GOATS
Schools, 'revolutions' and research programmes in 65
economic theory
A. LEIJONHUFVUD
Anomaly and the development of economics: 109
the case of the Leontief paradox
N. DE MARCHI
From substantive to procedural rationality 129
H. A. SIMON
Kuhn versus Lakatos or Paradigms versus research programmes 149
in the history of economics
M. BLAUG
On the history and philosophy of science and economics 181
T. W. HUTCHISON
'Revolutions' in economics 207
j. R. HICKS
Index 219

Preface
This collection of essays results from the Economics Sessions of the
Nafplion Colloquium on Research Programmes in Physics and Economics
held in Nafplion, Greece, 2-14 September 1974. A separate volume,
entitled Method and Appraisal in the Physical Sciences, edited by Colin How-
son, contains the papers arising from the Physics Sessions of the Collo-
quium.
The idea of holding this Colloquium was first conceived by my friend
and teacher, Imre Lakatos, Professor of Logic at the University of London
until his death in 1974. Its central purpose was a synoptic examination of
Lakatos's new and provocative methodology of scientific research pro-
grammes (MSRP) to developments in the physical sciences and in econo-
mic theory.
The papers by Coats, Latsis, Leijonhufvud and de Marchi were read
during the meetings of the Colloquium and have been modified in the
light of the discussions they provoked. Those by Hicks, Hutchison and
Simon, on the other hand, were prepared after the Colloquium and arose
from exchanges at the Sessions and informal discussions between the Ses-
sions. Blaug's paper was circulated during the Colloquium and was later
revised.
The central problem that binds together the contributions in this vol-
ume is the problem of theory-appraisal in economics. When is one
economic theory better than another? Are there objective criteria for
assessing the cognitive value of theories and what is the status of such
criteria ? Are there pragmatic temporary criteria ? Or are there no articul-
able criteria at all ?
Hicks, for instance, inclines to the view that our criteria are pragmatic
and can at best be valid for brief historical periods and relative to the
social and economic problems prevalent in them. Hutchison, on the other
hand, concludes that the criterion of falsifiability transcends particular
periods in the history of economic science and should be applicable to
good science across the board. The papers by Blaug, Coats, Latsis and de
Marchi are more or less straightforward attempts to discover the extent
of the applicability of Lakatos's MSRP to the development of economic
analysis.
MSRP, though closer in spirit to Hutchison's view than to Hicks's,
insists that the recognition of * goodness' in a theory is a complex matter
vii
PREFACE
and that no single criterion is capable of demarcating good from bad
theories. The criteria made available by MSRP supplement the usual
logical and empirical adequacy criteria: MSRP adds new dynamic
criteria for assessment of the process of theory-change as distinct from
assessment of the end results. In terms of MSRP, if we are comparing the
i*th version of some research programme - RP - with some other re-
X
search programme - RP — it becomes important for our relative ap-
2
praisal to know how RP and RP have been arrived at. The logical
U 2i
and empirical status of the isolated competing hypotheses h and h -
x 2
which form parts of RP and RP respectively - are no longer sufficient
U 2i
data for appraisal. MSRP provides the apparatus required to judge the
way in which a hypothesis h embedded in a research programme RP
x 1{
has been arrived at. Although several of the papers in this volume are
suggestive of the power of the approach in one social science, the desir-
ability that more work should be done is evident.
In most of the papers in this volume a backward look is taken at econo-
mic theory and there is heavy reliance on hindsight. This is in line with
Lakatos's methodological strictures according to which we should be
careful to demarcate appraisal from advice, Lakatos insisted (although some
of his earlier work bordered on the psychology of discovery) that the pro-
per domain of philosophy of science is the appraisal of past achievements
and not the rendering of heuristic advice. In particular, the descriptive
apparatus and the criteria of appraisal offered by MSRP were designed
to answer questions of the type * Why is theory A better than theory B ?J
and not questions of the type c Should I work on theory A rather than
theory B ?' or ' Will theory A be corroborated and theory B not ?'
The papers by Herbert Simon and Axel Leijonhufvud are different
from the others in that they include forward-looking elements. Simon
examines a fundamental concept of the neoclassical research programme
in economics - the assumption of 'substantive* rationality. He argues that
this concept has become progressively inappropriate. But he also points
into the future when he suggests that in the next few decades a different
concept of rationality -procedural rationality - will take over. Leijonhuf-
vud's paper examines and appraises the fundamental assumptions in the
hard core of neoclassical economics not only with a view to past per-
formance but also with regard to future prospects.
I would like to thank the participants in the Colloquium, the adminis-
trative staff- especially Mrs Daisy Mavratzioti - and my fellow members
on the organising committee - Hans Albert, Erwin Hiebert, Paul Feyer-
abend, John Watkins and Basil Yamey — for their continued help and
support. I am indebted to Mrs Diana Radsma for her help in the organisation
of the Colloquium and the preparation of the manuscript, and to Mrs
Barbara Lowe for the compilation of the index.
SJ.L.
viii
A research programme in economics1
SPIRO j. LATSIS
HARVARD UNIVERSITY AND BOSTON UNIVERSITY
I Alternative methodologies of economics
a Apriorism
b Falsificationism
c Conventionalism
II The methodology of scientific research programmes
a Situational determinism as a research programme
b Single- and multiple-exit decision situations
c Perfect competition and monopoly
d Monopolistic competition
e Duopoly and oligopoly
f Limit price theory
I Alternative methodologies of economics
A seemingly liberal adequacy requirement may be employed to test the
applicability of any methodological framework to economic theory.
That is, on the basis of the proposed methodological criteria, (i) not
every putative economic theory should automatically qualify as economic
science and (ii) not every economic theory whatever should be banished
as pseudo-science.
Unless the first requirement is satisfied, the criteria would obviously
be too lax: unless the second is satisfied they would equally obviously be
too restrictive. Both extremes defeat their purpose, which is to organise
and appraise some subject matter. The first extreme opens the floodgates
of confusion while the second legislates the subject out of existence.
Yet most economists and methodologists would feel uncomfortable if
these adequacy requirements were effectively imposed. And this is not
surprising. Most methodological frameworks transplanted from the
natural to the social sciences fail to fulfil even these minimal adequacy
requirements when applied to economic theory. More specifically, where
the subject matter is the history of economic theory, apriorism is too lax,
while falsificationism is too restrictive.
1 This is an extended version of a paper read at the Nafplion Colloquium on Research
Programmes in Physics and Economics in Nafplion, Greece on 8 September 1974.
Sections (d) and (e) in Part II of this paper are reproduced unchanged from my [1972].
I would like to thank Peter Bauer, Peter Clark, Kurt Klappholz, John Watkins and
Basil Yamey for helpful criticisms.
S. J. LATSIS
My thesis will be that there is however, a comparatively new method-
ology, the methodology of scientific research programmes (MSRP),
which fares better than any of the hitherto available methodologies of
economics for the description and appraisal of developments in economic
analysis. I am not seeking to argue that it solves all outstanding problems
in the methodology and history of economic theory; merely that it
appears better equipped for description and appraisal than alternative
currently available methodological frameworks.2
MSRP is applicable to economics only if there are research programmes
in economics. In the latter part of this paper I shall indicate why I think
there are research programmes (or at least one research programme) in
economics, and why the development of economic analysis may be fruit-
fully described and appraised in terms of MSRP. I shall also provide
detailed examples from the development of the neoclassical theory of the
firm.
1 would now like to discuss three alternative methodologies which have
gained wide currency, if not among economists, at least among method-
ologists of economics in recent decades: they are, apriorism, falsificationism
and conventionalism? Although I hold that these approaches have weak-
nesses, I also believe that each highlights important aspects both of the
nature of economic analysis and of the nature of the criticism to which it
has been subjected. Indeed, I shall be arguing that it is the chief merit of
MSRP that it captures the advantages of these three methodological
approaches without sharing some of their disadvantages. I note that
I shall be selective in my account of these three methodologies. That is,
I shall be highlighting those aspects which have counterparts in MSRP.
Apriorism claims that the assumption of rationality is an absolute
prerequisite for describing and explaining human actions and, in parti-
cular, economic actions. The reluctance to give up the rationalistic
approach in the explanation of economic action is mirrored in the eleva-
tion of the assumption of rationality to the status of an apriori true postu-
late. Falsificationism, on the other hand, with its emphasis on bold hypo-
theses and 'deadly' evidence, reflects the need to impose stringent empiri-
cal requirements on the acceptability of hypotheses; and it bars ad hoc
hypotheses introduced to accommodate counter-evidence. Conventionalism,
though apparently unduly defensive, has some merit of its own. We
2 The methodology of scientific research programmes was put forward by Imre Lakatos
in his [1968] and his [1970], It was applied extensively by Lakatos and others to the history
of physical theory but Lakatos himself doubted the applicability of his methodology to the
social sciences. In applying MSRP to economics I have adopted a slightly modified ver-
sion of the Lakatoshian framework. For instance, I shall not require that appraisal only
be relative to a competing programme. Rather I shall claim that a research programme
may progress, or indeed degenerate, in isolation. Finally, I shall often not require that,
to be non ad hoc, a. theory be Empirically progressive*.
8 This is not an exhaustive list of the available methodologies of economics. But it is, I
hope, representative of the intellectually respectable ones.