Roger Farmer — Standing on the Shoulders of Giants

The divergence of neoclassical economics from classical ideas does not have to do with mathematical formalism. It occurs when Walras and Pareto introduced us to homoeconomicus, a human being who springs fully formed into the world at the age of 18 with a complete understanding of his preferences over every conceivable outcome in his extensive choice set. That step enabled us to understand why markets are better ways of organizing economic activity than any other known form of social organization.…

Homoeconomicus [sic] brought understanding that was central to the neoclassical project. But his introduction to economics came at the cost of splitting economics off from sociology which retained the idea that our preferences are formed through social interaction. There is room for both ideas in the social sciences and economists and sociologists have much to learn from each other. But to engage in genuine dialogue we must first learn each other’s language.…

True to a point. But the fundamental assumptions of neoclassical economics that enable a formalistic approach to be tractable mathematically — methodological individualism, microfoundations, rational choice, preference maximization, money neutrality, and general equilibrium — are such gross oversimplifications as to make the models worthless beyond a very limited scope and at a restricted scale.

Moreover, abstraction of homo economicus from homo socialis implies that the economic system is being studied only from the perspective of the elements, ignoring the networked relations of the element.

"Economics" at the academic level now means neoclassical economics. While the neoclassical approach is useful, its usefulness is vitiated when it is dogmatized into the orthodox approach or put forward as the scientific consensus, ruling out other approaches by declaring that the methodological debate is now over. Relegating all approaches other than the neoclassical approach to the category of "heterodox" reveals foundational dogmatism, which is anti-scientific.

Roger Farmer's Economic Window

Standing on the Shoulders of Giants
Roger Farmer | Distinguished Professor of Economics at UCLA