0415064333.Routledge.The.Principles.of.Economics.Some.Lies.My.Teacher.Told.Me.Jun.1992.pdf

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The principles of
economics
Some lies my teachers told me
Lawrence A. Boland, F.R.S.C.
Simon Fraser University
London and New York
350708732.001.png
To Irene
First published 1992
by Routledge
11 New Fetter Lane, London EC4P 4EE
Simultaneously published in the USA and Canada
by Routledge
29 West 35th Street, New York, NY 10001
ã
2002 Lawrence A. Boland
All rights reserved. No part of this book may be reprinted or
reproduced or utilized in any form or by any electronic,
mechanical, or other means, now known or hereafter
invented, including photcopying and recording, or in any
information storage or retrieval system, without permission in
writing from the copyright holder.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloguing in Publication Data
A catalogue record for this book is available from the Library of Congress
ISBN 0-415-06433-3 (hbk)
ISBN 0-415-13208-8 (pbk)
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LAWRENCE A. BOLAND
1992 Lawrence A. Boland
eBook version created at Simon Fraser University
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LAWRENCE A. BOLAND
Contents
Preface
xi
Acknowledgements
xv
Prologue: Understanding neoclassical economics
through criticism
1
Necessary vs sufficient reasons
2
Explaining vs explaining away
2
Internal vs external criticism of neoclassical economics
3
The dangers of criticizing critiques
5
Understanding and criticism: were my teachers lying to me?
6
Notes
8
Part I The essential elements
1 The neoclassical maximization hypothesis
11
Types of criticism and the maximization hypothesis
12
The logical basis for criticism
13
The importance of distinguishing between tautologies and
metaphysics
16
Notes
19
2 Marshall’s ‘Principles’ and the ‘element of Time’
21
The two explanatory ‘Principles’
22
The ‘element of Time’
23
Marshall’s strategy
27
Inadequacies of Marshall’s method vs problems created by
his followers
32
Some critical considerations
36
Notes
37
viii Principles of economics
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LAWRENCE A. BOLAND
Contents ix
3 Marshall’s ‘Principle of Continuity’
39
7 A naive theory of technology and change
105
Marshall’s Principle of Continuity and his biological
Non-autonomy of technology
107
perspective
40
Capital as embodied technology
108
Marshall’s Principle of Substitution as a research programme
Capital and change
109
42
Towards a theory of social change
109
Marshall’s rejection of mechanics and psychology
42
Notes
111
Comprehensive maximization models
44
Notes
47
8 Knowledge and institutions in economic theory
112
The neoclassical view of institutions
114
4 Axiomatic analysis of equilibrium states
48
A critique of neoclassical theories of institutional change
117
Analyzing the logical structures in economics
50
A simple theory of social institutions
119
Wald ’s axiomatic Walrasian model: a case study
52
Time, knowledge and successful institutions
124
Completeness and theoretical criticism
60
Notes
125
A theory of completeness
61
Notes
62
Part III Some missing elements
5 Axiomatic analysis of disequilibrium states
64
9 The foundations of Keynes’ methodology
131
Competition between the short and long runs
65
General vs special cases
132
The ‘perfect-competitor’ firm in the long run: a review
66
Generality from Keynes’ viewpoint
134
Profit maximization with constant returns to scale
68
Neoclassical methodology and psychologistic individualism
Linear homogeneity without perfect competition
70
134
Possible alternative models of the firm
71
Keynes’ macro-variables vs neoclassical individualism
136
Profit maximization
74
The Marshallian background of constrained-optimization
On building more ‘realistic’ models of the firm
75
methodology
136
Using models of disequilibrium
75
The Keynes–Hicks methodology of optimum ‘liquidity’
139
Uniformities in explanations of disequilibria
81
The consequences of ‘liquidity in general’
141
A general theory of disequilibria
84
On effective criticism
144
Notes
85
Notes
146
Part II Some neglected elements
10 Individualism without psychology
147
Individualism vs psychologism
147
6 Knowledge in neoclassical economic theory
91
Individualism and the legacy of eighteenth century
Maximization as ‘rationality’
93
rationalism
148
The methodological problem of knowledge
94
Unity vs diversity in methodological individualism
150
The epistemological problem of knowledge
98
Unnecessary psychologism
152
The interdependence of methodology and epistemology
100
Notes
152
Concluding remarks on the Lachmann–Shackle epistemology
101
11 Methodology and the individual decision-maker
153
Notes
104
Epistemics in Hayek’s economics
154
The methodology of decision-makers
158
Notes
161
x Principles of economics
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LAWRENCE A. BOLAND
Part IV Some technical questions
Preface
12 Lexicographicorderings
165
L-orderings
166
The discontinuity problem
167
Orderings and constrained maximization
169
Ad hoc vs arbitrary
171
Multiple criteria vs L-orderings in a choice process
171
The infinite regress vs counter-critical ‘ad hocery’
174
Utility functions vs L-orderings
175
Notes
176
Most students who approach neoclassical economics with a critical eye
13 Revealed Preference vs Ordinal Demand
177
usually begin by thinking that neoclassical theory is quite vulnerable.
Consumer theory and individualism
179
They think it will be a push-over. Unless they are lucky enough to
The logic of explanation
180
interact with a competent and clever believer in neoclassical economics,
Price–consumption curves
182
they are likely to advance rather hollow critiques which survive in their
Choice analysis with preference theory assumptions
186
own minds simply because they have never been critically examined.
Choice theory from Revealed Preference Analysis
188
Having just said this, some readers will say, ‘Oh, here we go again
Methodological epilogue
193
with another defense of neoclassical theory which, as every open-minded
Notes
194
person realizes, is obviously false.’ This book is not a defense of
neoclassical theory. It is an examination of the ways one can try to
14 Giffen goods vs market-determined prices
196
criticize neoclassical theory. In particular, it examines inherently
A rational reconstruction of neoclassical demand theory
198
unsuccessful ways as well as potentially successful ways.
Ad hocery vs testability
205
As with the question, ‘Is there sound in the forest when there is
Giffen goods and the testability of demand theory
207
nobody there to listen?’, there is equally a question of how one registers
Concluding remarks
210
criticisms. Who is listening? Who does one wish to convince? Is the
Notes
211
intended audience other people who will agree in advance with your
criticisms? Or people who have something to gain by considering them,
Epilogue: Learning economic theory through criticism
213
namely believers in the propositions you wish to criticize? If you write
for the wrong audience there may be nobody there to listen!
Bibliography
217
My view has always been that whenever I have a criticism I try to
Name index
225
convince a believer that he or she is wrong since only in this way will I
Subject index
227
be maximizing the possibilities for my learning. Usually when the
believer is competent I learn the most. Sometimes I learn that I was
simply wrong. Other times I learn what issues are really important and
thus I learn how to focus my critique to make it more telling. I rarely
learn anything by sharing my critiques with someone who already rejects
what I am criticizing. Unfortunately, it is easier to get a non-believer to
share your critique than to get a believer to listen. Nevertheless, this is
the important challenge.

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