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"Common Sense Economics"
Flavio Comim
Cambridge University
Economics has been accused of being too abstract, irrelevant, unrealistic
and of employing a wrong deductivist ontology. I would rather blame it,
when practised under the rules of the `formalist revolution', for
distancing itself from common sense - this seldom understood notion
responsible for the ways in which we, as social beings, conceive of
reality.
The `formalist revolution', the `engine' of economic theorisation since
the beginning of the 1950s, has become the absolute approach in
economics. It has determined overwhelmingly the methods, techniques,
contents and results of the discipline. It also implies an adoption of
mathematical values, a scientistic style and a maintenance of the
traditional neoclassical core of economic theory. Attempts at criticising
the theoretical aspects of the `formalist revolution' have often been
unsuccessful due to their dismissive attitude to economists' practices,
practices which have provided posts, papers and academic prestige for
economists. I agree with Debreu's (1986, 1991) accounts of the `formalist
revolution' having produced a `rapid contemporary construction of
economic theory' which has `profoundly transformed our profession'. I
also agree with him that the `formalist revolution' is not particularly
vulnerable in its theoretical aspects. I do, however, have strong doubts
about the success of the practical aspects of this style of theorising.
The extensive mathematisation of economics has produced a `fossilisation'
(see Woo, 1986) of economic concepts which has, through a provision of
ready-made and general answers, undermined the economists's practical
abilities to exercise judgement, to use discretionary reasoning and to
discern complex phenomena. The rigid theoretical structures developed
through `fossilisation' have fostered abstractions but not the
economists's capacity to abstract. As a result, `reality' has become very
difficult to introduce into the core structure of theories. The aspects
of reality that are little or non-formalisable are practically ignored by
economic theories. Moreover, as extra- empirical criteria became more
important to the development of theories, formal reconstitution of old
theories became the aim of much of new theorising.
Fossilised theories do not provide good practical guidance. With
economists' expressible intuition about economic phenomena restricted to
the limit of what is expressible mathematically, attempts at linking
economics to `reality' face the mismatch and credibility problems. In
general lines, the mismatch problem consists of i) the economists's
struggles to adapt their empirical, fuzzy and commonsensical ideas about
the world they live in to the rigid theoretical predicates of their
axiomatised theories and ii) the economists's difficulties to falsify
(or, if nothing more, test empirically) their theories, for instance with
`data-mining' routines and ad hoc apriorisms. Because of the ways in
which empirical results are obtained, how arbitrary are the provisos
needed to make theoretical results applicable, and what these results
supposedly represent, economists and the general public tend to regard
them with scepticism, giving rise to the credibility problem. Thus, as
far as the practical aspects of the `formalist revolution' are concerned,
economists build precise theories and models, but do not seem to have
much confidence in them once they look incomplete or inapplicable in
relation to reality.
The credibility of economic knowledge may rest on its emulation of the
methods used in natural sciences, on its predictive features or merely on
its use of mathematics. However, credibility is ultimately based on some
correspondence between scientific statements and the complex, incomplete
and intertwined elements which constitute our conception of reality. This
means that the validation of models is not a mechanical process, based
purely on formal elements, but on a social process, involving scientists'
judgements, experiences and their capacity to persuade. Persuasion may be
explained by the historical processes of paradigm formation and the
derived standards of communication and consensuality. Nevertheless, there
is a wide and important region of agreement constituted by the common
sense cognition of the real world, of everyday things. This is based on
individuals' faculties of pattern recognition which express their
awareness of their social experience of the world's significant features.
People's sense of reality is provided by their common sense. By common
sense I understand a complex set of beliefs and propositions about
fundamental features of the world that we assume in whatever we do in
ordinary life. It relies on individuals' socialisation and social
practices as a source of cognition and entails a learning process. The
empirical reality of common sense consists of qualified objects and the
process of developing common sense is the process of qualification of
experience. Thus, from their social experience people learn many things,
for example, that factual statements are contingently true, in the sense
that they may change according to the circumstances [for more on this see
Grave (1972), Ayer (1969) and Bharadwaja (1977)]. It is precisely because
of its flexibility as a body of practical knowledge that common sense is
considered here as people's notion of reality. They also learn that in
order to understand reality we need to individuate it according to its
basic elements. Hollis (1994: 237) has observed that "Westerners organise
their experience and make sense of it by means of categories of space,
time, causation, number, agency and persons". As a result, common sense
is articulated through many subtle modes of reasoning used by individuals
in their complex interactions with reality.
Common sense provides a critical foundation for the assessment of our
experiences. As Anderson (1993: 104) has pointed out, "Commonsense
critical practices can objectively endorse the intuitions they employ
because they already contain methods for criticising what people take to
be reasons and for introducing novel reasons in normative discussions".
For instance, Sen's ethical considerations which affect actual human
behaviour, Simon's concept of procedural rationality, Kahneman's
criterion of substantive rationality, Mortimore's ordinary sense of
rational action and Schutz's weak rationality are all examples of
economists' critical use of common sense as a foundation for economic
analysis.
I have mentioned many times the word reality, but what is reality all
about? Perhaps we should read Tony Lawson's new book or attend this
month's conference at the Erasmus Institute of Philosophy and Economics
in order to find out what reality means for economists and how their
theories should relate to it. Or, we could first turn to the History of
Economic Thought and look for the critical common sense practices of
economists concerned with reality.
There is much to be learned, for instance, from Adam Smith's conceptual
building based on the reality of his time, Stuart Mill's theory-practice
distinction, Philip Wicksteed's Aristotelian reading of the marginal
principle, Alfred Marshall's appeal to ceteris paribus as a device used
in ordinary thinking, Maynard Keynes's notion of vagueness and Kaldor's
principle of stylised facts, to mention just a few. There is also much to
be learned from Geoff Harcourt's `horses for courses' approach. Common
sense is the veiled, unexplained and taken for granted principle behind
these contributions. An explicit discussion of the role of common sense
in economic theory may contribute to an understanding of the practical
aspects neglected by the `formalist revolution' and help us to build up
more reliable knowledge in our discipline.
Yes, you may say, but how are we to build scientific economic theories
based on common sense? [This point was fastened upon by both Arthur
Diamond and Wade Hands in the discussion of the paper (On the Concept of
Common Sense Economics) that I presented last summer at the HES meeting
in Charleston.] The answer is to structure economic explanation in a way
similar to the manner in which we describe objects and propositions in
the real world, that is, in spatio-temporal frameworks which respect the
existence of particular realities. A concrete common sense research
agenda could entail three lines of action: the establishment of common
sense rules of thumb based on economists's critical discussions; the
development of methods following a social ontology; and the study of the
History of Economic Thought. These devices could be used by economists to
make a bridge between theories' universality and their practical aspects.
A preliminary list of common sense methodological rules of thumb,
provided by the critical reflections on the formalist revolution, would
include: 1) use of introspection and social experiences as the
starting-point of analysis; 2) starting theoretical analysis from a
conceptual inquiry, so that the limits, restrictions and particularities
of the study are clearly stated and known with confidence; 3) choose the
technique, and the level of abstraction (and reduction) in the theorising
process, according to the questions being asked; 4) give epistemic
priority to particular situations over general ones; 5) aim for accuracy
of the models (in terms of empirical relevance) and not formalist
precision; 6) employment, whenever possible, of more concrete categories,
facilitating the task of applying theory; 7) emphasis on history and
institutional context; and 8) use of mathematics as a tool, not as an end
in itself.
I propose that instead of adopting the scientific strategy of looking for
global attractors in economic systems, we should look for local
attractors and their patterns of change. Instead of assuming that
behavioural patterns are homogeneous, I propose that we should
individuate each pattern or group of patterns and articulate them.
Instead of developing models based on an optimal representative agent, I
propose that we should include a diversity of economic agents pursuing
different aims using different strategies. Instead of analysing
decision-making based on theoretical uniform guidelines, I propose that
we take into account the practical and axiological aspects of rationality
involved in each process of decision-making. Instead of presupposing
logical, reversible structures, I propose that we should work with a
concept of irreversibility of economic structures and with
decision-making which emphasises the causes of the change and evolution
of systems rather than their equilibrium properties. Finally, I propose
that we organise the relevant features or aspects of reality through
concepts that represent the idea of cluster, serving the purpose of
individuating reality. Two organising concepts that would do this job are
the concepts of history (see Hayes, 1985) and schemata (see Martin,
1994).
What I have called `Common Sense Economics' (CSE) is an argument for a
more realistic economics that is developed at three levels: the
methodological level, the level of History of Economic Thought and the
applied or empirical level. From the methodological level, I define CSE
as an attempt to develop methods close (and logically similar) to the
social realities they refer to. From the HET perspective, I define CSE as
a tacit tradition in economics which stresses the use of commonsensical
categories with regard to the aims and ways of theorising. From the
applied level, I define CSE as an strategy for a more reliable
theorisation in economics.
To conclude, I would like to make a mention of the many criticisms of
mainstream economics that have proposed alternative methodological
approaches for our discipline, i.e. Post-Keynesians, Methodological
Pluralists, Feminist Economists, Institutionalists, Critical Realists and
supporters of McCloskey's Rethorics of Economics, to name just a few.
However, because each stream defines its own qualities and emphasises its
differences from the others, there has been no fruitful dialogue among
alternative approaches. There is no unified approach able to question the
usefulness of contemporary economics, and consequently there is no real
challenge to mainstream economics. The only constructive approach is one
that emphasises the similarities in the alternatives proposed, not their
differences.
The common ground in these alternative approaches is their underlying
concept of reality. The reality they appeal to in their theories is the
reality perceived through their common sense. This common base could
provide the consensus needed for the different streams to be compatible.
There is an urgent need to reach consensus among the profession on new
practical guidelines to be followed in order to make economics a more
reliable discipline. Common Sense Economics provides the framework needed
to assemble the alternative streams into a unified effort to restructure
economics.
References
ANDERSON, E. (1993) Value in Ethics and Economics. Cambridge and London:
Harvard University Press.
AYER, A. (1969) Metaphysics and Common Sense. London: MacMillan Press.
BHARADWAJA, S. (1977) Philosophy of Common Sense. New Delhi: National
Publishing House.
COOLEY, T. and LEROY, S. (1981) "Identification and Estimation of Money
Demand", American Economic Review 71 (December): 825-43.
DEBREU, G. (1986) "Theoretic Models: Mathematical Form and Economic
Content". Econometrica 54 (November): 1259-70.
DEBREU, G. (1991) "The Mathematization of Economic Theory". The American
Economic Review 81 (March): 1-7.
GRAVE, S. (1972) "Common Sense". In: EDWARDS, P. (ed.) The Encyclopedia of
Philosophy, vol. 1, pp. 155-60. New York: MacMillan Press
HAYES, P. (1985) "The Second Naive Physics Manifesto". In: HOBBS, J. and
MOORE, R., Formal Theories of the Commonsense World. Ablex
Publishing Corporation.
HOLLIS, M. (1994) The Philosophy of Social Science: an introduction.
Cambridge: Cambridge University Press.
LAWSON, T. (1997) Economics and Reality. London: Routledge.
MARTIN, B. (1994) "The Schema". In: COWAN, G., PINES, D. and MELTZER, D.
(eds) Complexity: Metaphors, Models, and Reality, 263-85. Proceedings
Vol. XIX, Santa Fe Institute. Addison Wesley.
WOO, H. (1986) What's Wrong with Formalization in Economics? Hong Kong:
Victoria Press.
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