What Is Neoclassical Economics?
Source Jim Devine
Date 06/07/09/18:07

What Is Neoclassical Economics?
The three axioms responsible for its theoretical oeuvre, practical
irrelevance and, thus, discursive power

Christian Arnsperger (University of Louvain, Belgium)
Yanis Varoufakis (University of Athens,Greece)

(c) Copyright: Christian Arnsperger and Yanis Varoufakis 2006

1. Introduction

There is nothing more frustrating for critics of neoclassical
economics than the argument that neoclassical economics is a figment
of their imagination; that, simply, there is scientific economics and
there is speculative hand-waiving (by those who have never really
grasped the finer points of mainstream economic theory). In this
sense, neoclassicism resembles racism: while ever present and
dominant, no one claims to be guided by it. Critics must find a clear
definition of neoclassicism if only in order to liberate neoclassical
economists from the temptation to barricade themselves behind
infantile arguments viz. the non-existence of their school of thought.
Then, the good debate may begin.

In this chapter, we offer a definition of neoclassical economics
which turns on three crucial axioms and which, in conjunction with one
another, as we shall claim, underpin all (and only) neoclassical
theory. Later, we argue that these very axioms are simultaneously
responsible for: (a) the difficulty mainstream economics faces when it
comes to illuminating economic and social reality, and (b) the
discursive success of neoclassical economics which gives it an
effective (politically driven) stranglehold over alternative modes of
economic reasoning.

We think our definition of neoclassical economics is important
because critics are often caught off-guard by sophisticated
neoclassicists (see Dasgupta, 2002) who take advantage of gaps in
existing definitions in order to turn criticisms on their head. In
short, the critique of neoclassical economics is bound to be as
effective as sophisticated is its definition of the opposition. For
instance, criticism that neoclassical economics necessarily posits
hyper-rational bargain-hunters, never able to resist an act which
brings them the tiniest increase in expected net returns, is apt but
not telling. There are plenty of neoclassical models featuring
boundedly rational agents; even utterly irrational ones (e.g.
evolutionary game theory; for a critical review in the spirit of this
chapter, see Hargreaves-Heap and Varoufakis, 2004). Similarly with
criticism focussed on 'neoclassical features' like market-clearing,
selfish individualism or Pareto optimality. None of these cut ice
because, though these features are usually present in neoclassical
modelling, they are not necessary features of some neoclassical model.

Thus, as long as critics' slings and arrows are directed against
features of neoclassical economics that the latter can shed
strategically, like a threatened lizard 'loses' its tail, they shall
miss their target. Nevertheless, we do believe that there are at least
three features of neoclassical economics that cannot be so shed; and,
therefore, if the critics concentrate on them they shall, at the very
least, force neoclassicists to engage in a fruitful dialogue. The
single most promising prize from such a development ought to be the
clarification of the origin and nature of the greatest paradox in
social science: that mainstream economics is as dominant as it is
unappetising (even to some of its own practitioners).

In this sense, our axiomatic definition of neoclassicism, rather than
being an idle methodological exercise, aims at exposing the root-cause
of mainstream economics' failure to say much that is helpful about the
contemporary economic world. And it throws useful light on the reasons
why such failure, instead of weakening neoclassicism, has reinforced
its hold over the imagination of both the elites and the public at
large. However, this is a longer argument which we shall only touch
upon here (see Arnsperger and Varoufakis, 2005, for more).

Once upon a time, it could be argued that neoclassical economics is
typified by a familiar melange of theoretical practices: positing an
equilibrium in the labour market, the habitual recourse to Say's Law,
the assumption that the interest rate will adjust automatically so as
to equalise investment and savings, the depiction of capitalist growth
a la Robert Solow and company, the imposition of Cobb-Doublas or CES
production and utility functions etc. Nowadays, any attempt to define
neoclassicism by reference to these practices is music to the
neoclassical ear: For there is an endless list of mainstream models
which distance themselves from some, if not all, of the above. One of
two conclusions appear in front of us: Either the mainstream has moved
on from neoclassicism (as neoclassical economists claim) or the
definition of neoclassicism needs to be re-thought and abstracted from
a list of neoclassical practices like the one above. We choose and
latter. So, the remainder of this chapter concentrates primarily on
the three axioms which we think lie at the heart of neoclassical
economic theory, old and new alike.

2. The first axiom of neoclassical economics: methodological individualism

Unsophisticated critics often identify economic neoclassicism with
models in which all agents are perfectly informed. Or fully
instrumentally rational. Or excruciatingly selfish. Defining
neoclassicism in this manner would perhaps be apt in the 1950s but,
nowadays, it leaves almost all of modern neoclassical theory out of
the definition, therefore strengthening the mainstream's rejoinders.
Indeed, the last thirty years of neoclassical economics have been
marked by an explosion of models in which economic actors are
imperfectly informed, some times other-regarding, frequently
irrational (or boundedly rational, as the current jargon would have
it) etc. In short, Homo Economicus has evolved to resemble us more.

None of these brilliant theoretical advances have, however, dislodged
the neoclassical vessel from its methodological anchorage.
Neoclassical theory retains its roots firmly within liberal
individualist social science. The method is still unbendingly of the
analytic-synthetic type: the socio-economic phenomenon under scrutiny
is to be analysed by focusing on the individuals whose actions brought
it about; understanding fully their 'workings' at the individual
level; and, finally, synthesising the knowledge derived at the
individual level in order to understand the complex social phenomenon
at hand. In short, neoclassical theory follows the watchmaker's method
who, faced with a strange watch, studies its function by focusing on
understanding, initially, the function of each of its cogs and wheels.
To the neoclassical economist, the latter are the individual agents
who are to be studied, like the watchmaker' cogs and wheels,
independently of the social whole their actions help bring about.

So, the first feature of the 'body of theory' we think of as
neoclassical is its methodological individualism: the idea that
socio-economic explanation must be sought at the level of the
individual agent. Note two things: First, this was not the method of
classical economists like Adam Smith and David Ricardo. Or, indeed, of
Keynes. Or Hayek. Secondly, this proclivity is fully in tune with the
mid-19th Century angloceltic liberal individualism (though the
opposite does not hold) as it imposes axiomatically a strict
separation of structure from agency, insisting that socio-economic
explanation, at any point in time, must move from agency to structure,
with the latter being understood as the crystallisation of agents'
past acts. We shall argue later that this strict separation is
central in not only defining but also undermining the most recent
claims of neoclassicism.

It is, we think, indisputable that all the new manifestations of what
we term neoclassicism still subscribe to methodological individualism.
While it is true that mainstream economists have, during the last few
decades, acknowledged that the agent is a creature of her social
context, and thus that social structure and individual agency are
messily intertwined, their models retain the distinction and place the
burden of explanation on the individual. Individual worker effort is
nowadays often modelled as a function of sectoral unemployment (e.g.
efficiency wage models), and the firms' micro-strategies reflect the
macroeconomic environment. Nevertheless, and despite these interesting
linkages between the micro-agent and the macro-phenomenon, the
explanatory trajectory remains one that begins from the agent and
maps, unidirectionally, onto the social structure.

3. The second axiom of neoclassical economics: methodological instrumentalism

We label the second feature of neoclassical economics methodological
instrumentalism: all behaviour is preference-driven or, more
precisely, it is to be understood as a means for maximising
preference-satisfaction. Preference is given, current, fully
determining, and strictly separate from both belief (which simply
helps the agent predict uncertain future outcomes) and from the means
employed. Everything we do and say is instrumental to
preference-satisfaction so much so that there is no longer any
philosophical room for questioning whether the agent will act on her
preferences. In effect, neoclassical theory is a narrow version of
consequentialism in which the only consequence that matters is the
extent to which an homogeneous index of preference-satisfaction is

Methodological instrumentalism's roots are traceable in David Hume's
Treatise of Human Nature (1739/40) in which the Scottish philosopher
famously divided the human decision making process in three distinct
modules: Passions, Belief and Reason. Passions provide the
destination, Reason slavishly steers a course that attempts to get us
there, drawing upon a given set of Beliefs regarding the external
constraints and the likely consequences of alternative actions. It is
not difficult to see the lineage with standard microeconomics: the
person is defined as a bundle of preferences, her beliefs reduce to a
set of subjective probability density functions, which help convert
her preferences into expected utilities, and, lastly, her Reason is
the cold-hearted optimiser whose authority does not extend beyond
maximising these uilities. However, it is a mistake to think that Hume
would have approved. For his Passions are too unruly to fit neatly in
some ordinal or expected utility function. It took the combined
efforts of Jeremy Bentham and the late 19th Century neoclassicists to
tame the Passions sufficiently before they could initially be reduced
to a unidimensional index of pleasure before turning into smooth,
double differentiable utility functions.

During the tumultuous 20th Century, neoclassicists invested greatly
in bleaching all psychology out of the rational agent's decision
making process. All hints of a philosophical discussion regarding the
rationality of homo economicus were thus removed. People could, and
'should', be modelled as if they possessed consistent preferences
which guide their behaviour automatically. The question of whether all
rational women and men are condemned to maximise some utility function
all the time became…nonsensical. Thus, instrumentalism lost its
connection to the philosophies of Hume, Bentham or Mill and became a
technical move that economists made instinctively with the same
nonchalance as that of an accomplished artist preparing his oils and
canvass before getting down to business.

However, it is false to claim that this state of affairs, even though
ubiquitous in economics departments the world over, is essential for
neoclassical economics. The first signs that it need not be came with
the literature on endogenous preferences. Neoclassical economists
increasingly sought to distance themselves from the assumption that
preferences are fixed and exogenous. During the past twenty five years
or so, homo economicus has developed a capacity to adapt his
preferences in response to past outcomes (see Bowles, 1998). However,
while the assumption that current preferences are exogenous was
dropped, they remained fully determining. Thus, instrumentalism was
preserved albeit in a dynamic context.

A more recent development has taken neoclassicism, and homo
economicus, onto higher levels of sophistication. The advent of
psychological game theory (see Rabin, 1993, and Hargreaves-Heap and
Varoufakis, 2004, Ch. 7) has brought on a reconsideration of the
standard assumption that agents' current preferences are separate from
the structure of the interaction in which they are involved. Suddenly,
what one wants hinged on what she thought others expected she would
do. And when these second order beliefs (her beliefs about the
expectations of others) came to depend on the social structure in
which the decision is embedded, the agent's very preferences could not
be linked just with outcomes: they depended on the structure and
history of the interaction as well.

In view of the above, there is no future in criticisms of
neoclassicism based on the charge that the latter must take for
granted preferences which are either exogenous or independent of the
agents' socio-economic relationships. Critics toeing that line will be
met with the scornful rejoinder that they criticise out of ignorance.
However, our point that neoclassicism is still rooted in
methodological instrumentalism cannot be so dismissed. For even in the
latest reincarnation provided by endogenous preferences and
psychological game theory, homo economicus is still exclusively
motivated by a fierce means-ends instrumentalism. He may have
difficulty defining his ends, without firm beliefs of what means
others expect him to deploy, but he remains irreversibly ends-driven.

4. The third axiom of neoclassical economics: methodological equilibration

The third feature of neoclassical economics is, on our account, the
axiomatic imposition of equilibrium. The point here is that, even
after methodological individualism turned into methodological
instrumentalism, prediction at the macro (or social) level was seldom
forthcoming. Determinacy required something more: it required that
agents' instrumental behaviour is coordinated in a manner that
aggregate behaviour becomes sufficiently regular to give rise to solid
predictions. Thus, neoclassical theoretical exercises begin by
postulating the agents' utility functions, specifying their
constraints, and stating their 'information' or 'belief'. Then, and
here is the crux, they pose the standard question: "What behaviour
should we expect in equilibrium?" The question of whether an
equilibrium is likely, let alone probable, or how it might
materialise, is treated as an optional extra; one that is never
central to the neoclassical project.

The reason for the axiomatic imposition of equilibrium is simple: it
could not be otherwise! By this we mean that neoclassicism cannot
demonstrate that equilibrium would emerge as a natural consequence of
agents' instrumentally rational choices. Thus, the second best
methodological alternative for the neoclassical theorist is to presume
that behaviour hovers around some analytically-discovered equilibrium
and then ask questions on the likelihood that, once at that
equilibrium, the 'system' has a propensity to stick around or drift
away (what is known as 'stability analysis').

It is quite remarkable that the above has been with us since the very
beginning. When A.A. Cournot constructed the first model of
(oligopolistic) competition in 1838, he immediately noticed a lacuna
in his explanation regarding the emergence of an equilibrium. Rather
cunningly, instead of discussing this difficulty, he studied what
happens when we begin from that equilibrium. Would the system have a
tendency to move away from it or was the equilibrium stable? The proof
of its stability secured his place in the pantheon of economic theory.
Moreover, it established this interesting practice: First, one
discovers an equilibrium. Second, one assumes (axiomatically) that
agents (or their behaviour) will find themselves at that equilibrium.
Lastly, one demonstrates that, once at that equilibrium, any small
perturbations are incapable of creating centrifugal forces able to
dislodge self-interested behaviour from the discovered equilibrium.
This three-step theoretical move is tantamount to what we, here,
describe as methodological equilibration.

Note that methodological equilibration is equivalent to avoiding
(axiomatically) what ought to be the behaviourist's central question:
Will rational agents behave according to the theory's equilibrium
prediction? Instead, the question becomes: If rational agents are
behaving according to the theory's equilibrium prediction, will they
have cause to stop doing so? Note also that methodological
equilibration has remained intact since 1838 and Cournot's first use
of it. To see this, consider the two great success stories to have
come out of neoclassical economics since WW2: General Equilibrium
Theory and Game Theory. In neither case does the equilibrium solution
spring naturally from the models' assumptions.

In General Equilibrium Theory its best practitioners state it quite
categorically: convergence to some general equilibrium can only be
proven in highly restrictive special cases. More generally, it is not
just difficult to demonstrate that a system of theoretical markets
will generate an equilibrium in each market, on the basis of rational
acts on behalf of buyers and sellers; rather, it is impossible! (See
Mantel, 1973, and Sonnenschein, 1973,1974.) In Game Theory the same
result obtains: in the most interesting socio-economic interactions
(or games) common knowledge that all players are instrumentally
rational seldom yields one of the interaction's Nash equilibria.
Something more is required to bring on an equilibrium. That something
comes in the form of an axiom that the beliefs of all players are
consistently aligned at each stage of every game (see Hargreaves-Heap
and Varoufakis, 2004, Chapters 2&3). This assumption is, of course,
yet another reincarnation of methodological equilibration: for once we
assume that agents' beliefs are systematically and consistently
aligned, they are assumed to be in a state of (Nash) equilibrium. Yet
again, equilibrium is imposed axiomatically before stability analysis
can test its susceptibility to perturbations. Cournot's spirit lives

5. Three axioms, one neoclassical economics

It is hard to imagine how any standardly trained economist could deny
that her theoretical practices digress from the three methodological
moves mentioned above: Methodological individualism, methodological
instrumentalism and methodological equilibration. For simplicity we
shall henceforth refer to them as the neoclassical meta-axioms.
Whether it is general equilibrium theory, evolutionary game theory,
non-Walrasian equilibrium theory, social choice theory, industrial
economics, economic geography, new political economy, analytical
Marxism, public choice economics etc., all mainstream approaches in
these fields remain loyal to the three meta-axioms above.

In fact, the meta-axioms are beginning to develop much closer, almost
symbiotic, links with one another than was the case until fairly
recently. Take for instance, the attempts by psychological game
theorists to create a sophisticated model of men and women, capable of
drawing utility not only from socio-economic outcomes but also from
the means that bring them about. When homo economicus learns that the
ends do not necessarily justify the means, he develops a welcome
capacity to ponder, prior to acting, what others expect of him so that
he can decide how much he values the various alternative outcomes.

For example, when deciding on whether to act bravely in defence of
someone in need, his second order beliefs (i.e. his beliefs regarding
what others expect of him) influence his estimate of the
(psychological) cost of acting selfishly. To put it simply, his
utility function cannot be defined independently of (a) the structure
of the strategic interaction and (b) the beliefs that all participants
would have in equilibrium. In this sense, methodological equilibration
is no longer prior to methodological instrumentalism (as is the case
in standard consumer or game theory): the axiomatic imposition of
equilibrium is not only necessary in order to predict the
interaction's outcome but it is also essential in order to define the
instrumentally rational agents' preferences! (See Hargreaves-Heap and
Varoufakis, 2004, Ch. 7 and Fehr and Gächter, 2000)

It is, therefore, uncontroversial to state that every aggregate
phenomenon scrutinised by neoclassical minds is explained increasingly
and exclusively as some axiomatically imposed equilibrium emerging
from the interaction of instrumentally rational individuals who are
either optimising consciously (as in rational choice or game theory)
or are drawn to such behaviour through a process of 'natural
selection' (as in, for instance, evolutionary game theory). The bottom
line, then, is clear: despite all denials, there is such a thing as a
body of social theory that subscribes to the three meta-axioms above
and which we can legitimately, for want of a better term, label

At this juncture, there is one move open to neoclassical economists
who still insist that what they are doing ought not be labelled as
anything other than scientific economics: they need to persuade us
that the neoclassical method, i.e. models based on the three
meta-axioms, is the only proper method; which obviously implies that
there is no distinctly neoclassical method after all, even once that
method has been characterised as above.

Effectively, they would have to adopt a rather extremist defensive
posture: to claim that the combination of the three meta-axioms above
is indispensable to any economic theory worth its salt; that the
neoclassical method, as founded on the triptych of individualism,
instrumentalism and equilibration, is not just one possible analytical
strategy but that it is somehow uniquely and ontologically grounded in
social reality. It would amount to a claim to the effect that all
other economic approaches, including for instance Adam Smith's, is not
in the same scientific league as their own. Undoubtedly, many
neoclassical economists think that (although few would state it in
polite conversation.)

Nonetheless, the truth status of that defence must be an empirical
matter rather than a methodological one, and the defender of
neoclassisism has to provide hard evidence concerning the actual,
material processes of (a) how preference orderings determine actions
uniquely, and (b) how their reasoning skills, or social/natural
selection, slice through indeterminacy to bring about an equilibrium.
Needless to say, such extreme naturalism has no chance of being
empirically supported. Even sophisticated empiricists like Karl Popper
rejected the idea that the joint hypothesis of individualism and
equilibrium can be tested empirically; they are, he rightly claimed,
preconditions for knowledge rather than objects of knowledge. Hence
there is no such thing as a 'natural method'. The very thrust of the
Enlightenment project rules it out of court.

The last resort of the mainstream economist, who wants to defend the
presumption that the three neoclassical meta-axioms are essential to
any scientific analysis of the social economy, is to argue that the
neoclassical method of explanation, while not being a 'natural
method', has nevertheless evolved historically as the most adequate
method for studying a society of free, enlightened individuals. That
it is, in short, the only non-contradictory embodiment of the
Enlightenment project itself. That, just as representative liberal
democracy is a bad system of government but remains the best one
available, neoclassicism has evolved as the best economic analysis
that is consistent with the liberal human condition.

However, such a rhetorical strategy can only work if it is
accompanied with a sound evolutionary argument depicting the three
meta-axioms as the unique 'attractor' of liberal social science.
Unfortunately, no such argument seems to be forthcoming. Instead,
mainstream economics is perpetually reproducing itself through a
series of metamorphoses that Ovid would have been jealous of. The
resulting models gain in complexity, expand in scope, and move into
areas hitherto untainted by the economist' inquiring gaze.
Nonetheless, all these models, in all their multiplying guises, share
a well hidden, and almost completely unspoken of, foundation: the
three meta-axioms above. The radical absence of a debate about them
is, we shall argue below, essential to the discursive power of
neoclassical economics. As for the latter's aversion to pluralism, it
is a natural by-product of this dance of veils whose purpose is to
maintain neoclassicism's discursive edge by keeping our eyes off the
theory's meta-axioms.

6. Some thoughts on neoclassicism's discursive power and its aversion
to pluralism

What does an intelligently dispassionate observer of neoclassical
economics see? She sees an ever expanding technical literature, most
of which she cannot comprehend. She sees an almost infinite series of
mathematical models that explain diverse socio-economic phenomena as
part of some equilibrium scenario which posits autonomous actors
bringing on the phenomenon under study, often supra-intentionally,
through choices that are rational given everyone's beliefs (even when
the actions are self-defeating). She sees a series of career paths
that are made generously available to those who participate in this
global research project. She sees economists the world over being
taken seriously only to the extent that they speak this particular
'language'. She sees the powers-that-be speak this very 'language'.
Finally, she sees enterprising academics in other social sciences
adopting this 'language', in a transparent bid to share into
neoclassicism's discursive success. In short, the onlooker sees,
correctly, power oozing out of the mainstream economists' theoretical
practices. There is only one thing she does not see: the three
meta-axioms, none of which are visible to the naked eye.

Note how instrumental to the discursive power of neoclassicism is the
fact that its three foundational axioms are hidden from our onlooker's
view. For if they were evident, she might start asking difficult
questions for which, as we argued above, neoclassicism has no real
answers (except to re-phrase its axioms). This helps explain, in more
than one ways, the authoritarian dynamics and the disdain shown toward
pluralism of Economics Departments which have either managed to rank
highly within mainstream economics or are striving to do so.

We suggest that there are two equally important types of explanation
of neoclassicism's evolution into an authoritarian research project
that discourages pluralism: One is a type of intentional explanation
while the second is a functional explanation. The intentional
explanation is simple enough and runs as follows: When an inquisitive
graduate student, or academic, who has mastered neoclassical technique
but has started developing doubts, starts questioning the meta-axioms,
she is effectively questioning the hegemony of her profession. At
best, her queries and arguments are met with sympathetic nods, at
worst with a great wall of dogmatic put down lines and an avalanche of
advice to the effect that these are matters that she ought to worry
about after retirement. Publishing in the 'good' journals is hard
enough. Publishing articles which question the meta-axioms is even
harder. Indeed, it takes a foolhardy young soul to jeopardise a
hard-earned career path in pursuit of the truth-status of one or more
of the meta-axioms which allow the profession to flood the journals
with mathematical models that are so highly regarded and so little
discussed. And as is so often the case with dominant paradigms,
self-censorship is the predominant vehicle for neoclassicism's
unimpeded march.

The functional explanation adds an interesting twist to the same tale
of intellectual authoritarianism. If phenomenon X is functionally to
explain the occurrence of phenomenon Y, this explanation has merit if
and only if the following four conditions are met (see Elster, 1982):
(1) Y must be beneficial for some group of agents Z. (2) Members of
group Z must be responsible for the practices that cause X but must
not intend to bring Y about through practices that result in X;
indeed, Z members must remain innocent of the causal link between X
and Y. Lastly, (3) phenomenon Y, which is caused by X, must be shown
to reinforce X through a feedback mechanism involving,
unintentionally, members of group Z.

In our case, Y is the discursive power of neoclassical economics, X
are the practices which keep neoclassicism's meta-axioms hidden, and Z
is the set of neoclassical economists. Can a convincing functionalist
explanation of how X causes Y be built along the lines sketched above?
If it can, then we shall have an interesting (and possibly correct)
explanation of why pluralism is absent from Economics Departments: its
radical absence, which is guaranteed when an eerie silence engulfs the
three neoclassical meta-axioms, emerges as a prerequisite for
neoclassicism's dominance. Let us now put together the basic elements
of such an explanation.

Before we proceed further, it is important to note that the merit of
this functional explanation is that it is entirely consistent with a
distaste for conspiracy theories. As it will transpire shortly, the
offered explanation does not presume neoclassical economists in
cynical pursuit of discursive power; no theorists are imagined who
silence subversive voices within the profession so as to preserve the
power vested in them by their models [see part (2) of the argument
above which rules out such intentional cynicism]. In fact, our
explanation works better when most neoclassical economists would have
been (honestly) appalled at the thought that we suspect their
practices as driven by anything other than scientific rigour. From
experience, we can confirm that most neoclassicists believe strongly
in the theoretical superiority of their models and may even have a
moral commitment to pluralism. Nevertheless, even if we accept that
these fine sentiments are all pervasive in the economics profession,
our argument still stands.

To render coherent the functional explanation of neoclassicism's
discursive power as the result of a general 'silence' regarding the
three meta-axioms at the bottom of all neoclassical theory, we needed
three arguments: The first [see (1) above] is that neoclassicism's
power is beneficial for neoclassical economists (this is self
evident). The second [see (2)] is that neoclassical economists are
innocent of the charge that they are keeping quite on the three
meta-axioms intentionally, so as to enhance their method's discursive
power (we accept, therefore, their own denials that they would have
conceivably done such a thing). The third piece of the jigsaw [see
(3)] is the crucial one: we must now demonstrate that "phenomenon Y,
which is caused by X, reinforces X through a feedback mechanism
involving, unintentionally, members of group Z".

In other words, it must be argued convincingly that the enhancement
of neoclassicism's discursive power, which is largely due to the
hidden nature of its three meta-axioms, makes it even less likely that
neoclassical economists will be open to a pluralist debate on their
meta-axioms. Anyone who has worked in an Economics Department has
surely experienced such a feedback mechanism. Research funding in
economics is vast compared to the trickle that finds its way to the
'other' social sciences. It would not be forthcoming if economists
regularly experienced philosophical angst regarding the axiomatic
foundations of their wares. Naturally, the bulk of the profession's
funding goes to practitioners who do not indulge in methodological
debates; who simply 'get on with the job'. No one wants to keep quite
on the meta-axioms. They are just too busy building magnificent
edifices on top of them, and being magnificently rewarded for it.

Nobel laureate Vernon Smith almost apologised, in a recent article
(see Smith, 2002), for entering into a methodological discussion of
the work he devoted an extremely productive life to. This is typical
of the fear of methodological discussion instilled in the best and
even the most liberal minds in the economics profession. By whom? By
no one is the honest answer. The death of pluralism in economics is a
crime without a criminal. It died long ago as a result of a particular
dynamic within the profession which, operating behind the backs of
even neoclassical economists, encourages them to produce all sorts of
models (even of altruism and revolution, see Roemer, 1985) but
surreptitiously penalises any deviation from, or even explicit
discussion of, the three meta-axioms.

Of course, the pressing question is: Why are public and private funds
so uncritically lavished upon what turns out to be no more than a
religion with equations? Alas, this is a question that the present
chapter cannot answer within a purely methodological context. For such
an explanation we need to venture into political economy (see
Arnsperger and Varoufakis, 2005, for an attempt).


Neoclassical economics, despite its incessant metamorphoses, is well
defined in terms of the same three meta-axioms on which all
neoclassical analyses have been founded since the second quarter of
the 19th Century. Moreover, its status within the social sciences, and
its capacity to draw research funding and institutional prominence, is
explained largely by its success in keeping these three meta-axioms
well hidden. The radical lack of pluralism in mainstream economics is,
on this account, not to be blamed on illiberally minded practitioners.
Rather, it is to be explained in evolutionary terms, as the result of
practices which reinforce the profession's considerable success
through diverting attention from the models' axiomatic foundations to
their technical complexity and diverse predictions. A pluralist
economics will remain impossible as long as the social economy rewards
economists in proportion to their success in keeping their models'
foundations opaque.


Arnsperger, C. and Y. Varoufakis (2005). 'A Most Peculiar Failure: How
neoclassical economics turns theoretical failure into academic and
political power', Erkenntnis, 59, 157-188.

Aspromourgos, T. (1986). 'On the Origins of the Term Neoclassical',
Cambridge Journal of Economics, 10:3, 265-70.

Bowles, S. (1998). 'Endogenous Preferences: The cultural consequences
of markets and other economic institutions', Journal of Economic
Literature, 36, 75-111.

Cournot, A.A. (1960). Researches in the Mathematical Principles of the
Theory of Wealth, New York: Macmillan, pp. 79-89 (originally published
in French in 1838 under the title Recherches sue les principes
mathématiques de la théorie des richesses, Paris: Hachette).

Dasgupta, P. (2002). 'Modern Economics and its Critics', in U. Mäki
(ed.) Fact and Fiction in Economics: Models, Realism and Social
Construction, Cambridge: Cambridge University Press.

Elster, J. (1982). `Marxism, Functionalism and Game Theory'. Theory
and Society, 11, 453-82.

Fehr, E. and S. Gächter (2000). 'Fairness and Retaliation: The
economics of reciprocity', Journal of Economic Perspectives, 14,

Hargreaves-Heap, S. and Y. Varoufakis (2004). Game Theory: A critical
text, London and New York: Routledge.

Hume, D. (1739/40,1888). A Treatise of Human Nature: being an attempt
to introduce the experimental method of reasoning into moral subjects,
(1888 edition edited by L.A. Selby-Bigge). Oxford: Oxford University

Mantel R., (1974). 'On the Characterization of Aggregate Excess
Demand', Journal of Economic Theory, 7, 348-353.

Rabin, M (1993). 'Incorporating Fairness into Economics and Game
Theory.' American Economic Review, 83, 1281-302.

Roemer, J. (1985). 'Rationalising Revolutionary Ideology',
Econometrica, 53, 85-108.

Smith, V. (2002). 'Method in Experiment: Rhetoric and Reality',
Experimental Economics, 5, 91-110.

Sonnenschein, H. (1973). 'Do Walras' Identity and Continuity
Characterize the Class of Community Excess Demand Functions?', Journal
of Economic Theory, 6, 345-354.

Sonnenschein, H. (1974), 'Market Excess Demand Functions',
Econometrica, 40, 549-563.

Varoufakis, Y. (1998). Foundations of Economics: A beginner's
companion, London and New York: Routledge.

[View the list]

InternetBoard v1.0
Copyright (c) 1998, Joongpil Cho