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Date:
Fri Mar 31 17:18:22 2006
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[log in to unmask] (Anne Mayhew)
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===================== HES POSTING ===================== 
 
I have probably missed some of the contributions toward defining 
neoclassical economics so that what I say here may repeat.  For that I 
apologize.  If it contradicts, that is another story.  In any event, 
and after many years of involvement with economics, usually from 
beyond the pale, here are the characteristics that seem to me 
fundamental to what I understand neoclassical economics to be.   
 
1.  An assumption that the most important aspects of the range of 
human activity  having to do with material provisioning (and corollary 
activity) can best be analyzed and described as a series of choices.  
That is, such activity is not best described as culturally patterned 
or repetitive, as institutionalists would say. 
 
2.  An assumption that the choices made are best analyzed and 
described as being structured by unlimited wants and scarcity of means 
and are made AS IF they were being made by a commercial firm using 
money as a multi-purpose unit of account (in other words, as a 
numeraire)  and using double-entry bookeeping. 
 
3.  An assumption that the individual human being is the appropriate 
unit of analysis and that social groups are the sum of individuals.  
This is close to the same as #1 but helps define the difference 
between classical and neoclassical.  One of the sloppy or useful 
things about classical as opposed to neoclassical economics--sloppy or 
useful depending on whether you take the neoclassical or 
classical/institutionalist view--is that the class analysis of 
classical economics carried with it a lot of cultural traits that were 
not individual--capitalists did one thing, landowners another.   
 -------- 
The power of neoclassical economics, both among economists and among 
others, derives, I think, from the power of a deeply embedded cultural 
process of reasoning.  Among the symbols and meanings that form 
Western culture are propositions about individuals and rationality 
that seem beyond question.  Among these is the view, argued by 
Schumpeter in Capitalism, Socialism and Democracy, that "rationality," 
is--simply is--the commercial rationality made possible by use of a 
numeraire and double-entry bookkeeping.  The growth of neoclassical 
economics in the 19th century, and in this, was part of the expansion 
of this "commercial logic" to an ever widening range of human 
activity.  (To go back to another thread, this is what Polanyi argues 
in The Great Transformation.)  Neoclassical economics is both analysis 
of and justification of this development since it reaffirms the 
proposition that such commercial logic is indeed the essence of 
rationality.  How else, the neoclassical economist and the 
well-trained political leader ask, can we make decisions about 
education, pollution, family organization save by rational 
cost/benefit analysis?  Anything other than a process of weighing 
costs and benefits (note the need for a numeraire and the process of 
bookkeeping) is fuzzy and soft thinking, and not really rational. 
 
At this point, after two centuries of extension of this logic, it is 
hard to question the assumptions without appearing foolish.  Wants, 
being culturally created, say institutional economists and many 
anthropologists among others, are not unlimited but that sounds 
utopian.  Households and other groups of people are not commercially 
driven firms (M--> C --> M is not what it is all about) but that 
sounds largely irrelevant or not very tough-minded.   So the power of 
neoclassical analysis remains unchallenged. 
 
Mary Schweitzer and others started this thread by wondering about the 
relationship between neoclassical and mainstream economics.  A lot of 
mainstream work does not require invocation of the assumptions of 
neoclassical analysis, so the two are not the same.  However, work 
that requires any direct challenge to the assumptions described above 
is non-mainstream.  Further, it is important, particularly for young 
economists, to show that their descriptive work is consistent with the 
assumptions above and that often requires logical contortions to show 
why some described behavior can be modelled as utility maximization.  
Indeed, a cynic might say that the greater the contortions, so long as 
elegantly presented, the more prestigious the publication. 
 
On a more generous note one interesting thing to read and think about 
is how great economic thinkers/researchers of this century--I would 
include Veblen, Schumpeter, Polanyi, Alfred Chandler among others--have 
either been "tamed" (Schumpeter and Chandler, and sometimes even 
Veblen) to be consistent with neoclassical assumptions, or have had to 
be rejected (Polanyi and most often Veblen).  It is a fascinating 
process of culture making as understood by anthropologists: a process 
whereby humans construct reality by use of common understandings, 
symbols and meanings that are assumed through cultural inheritance to 
be the nature of humans and of the universe.   
 
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