Heterodox economic thought in the 20th century

• Heterodox versus orthodox (mainstream) approaches in modern economics

• Modern mainstream economics (both micro- and macroeconomics) itself divided into several schools

• But the division between mainstream and heterodox economics is definitively more distinct than the division inside the mainstream

• Unique feature, which characterizes diverse mainstream approaches is modeling approach –starting with abstract model and further testing it

• Heterodox economists rarely use models – rather engage in more descriptive analyses

Main heterodox approaches in economics in the last 50 years

• Radical political economy

• Post-Keynesian school

• Feminist economics

• Modern Institutionalism

• Austrian School of Economics

• Public Choice approach

Radical economics

• Origins in Marx’s economics, but extended it and moved beyond it

• Initially Marx had few followers among Western economists, but later a few Marxian economists have achieved some status in the economic profession:

– Joan Robinson (1903-1983), The accumulation of capital, 1956

– Paul Sweezy (1910-2004)

– Paul Baran (1910-1964)

• Sweezy & Baran, 1966, Monopoly Capital

Radical economics: Joan Robinson

• Joan Robinson (1903-1983)

• British economist, most prominent woman-economist

• Developed theories of imperfect competition also followed some of Keynes’s ideas in macrotheory

• The accumulation of capital, 1956: main work; rejected neoclassical theory of capital and introduced a new one

• 1973: published a textbook along radical lines, but it was not a commercial success

• Later, Robinson’s work concentrated mostly on methodological and philosophical problems in economics (notably, stressing her dissatisfaction with „equilibrium”concept of mainstream economics.)

Radical economics: Paul Baran and Paul Sweezy

• Sweezy was a devoted Marxian, tried to adapt Marxian economics to the 20th century demands

• 1939: Sweezy popularized kinked demand curve model of oligopoly introduced by J. Robinson

• Baran: born in Russia, came to US in 1930s, professor of economics at Stanford University – the only Marxian thinker who has been given professorship at a major centre of graduate education in the US

• Sweezy & Baran, 1966, Monopoly Capital - called the most stimulating and provocative work in Radical economics movement

Sweezy & Baran, 1966, Monopoly Capital

• Introduced monopolistic competition and oligopoly theoryto Marxian economics

• Dropped Marx’s labour theory of value – updated Marxism

• Agreed with Marx’s prediction about growing concentration of capital

• Disagreed with his prediction about the falling rate of profit

• Argued that profits will rise over time with the increasing concentration of capital.

• In the end, all capital will be concentrated in monopolies –hence the name of the book, monopoly capital.

Sweezy & Baran, 1966, Monopoly Capital

• Also claimed that in the future capitalism will create wasteful consumption, and in general insufficient aggregate consumption, and thus the excessive supply of commodities.

• This will cause periodic depressions in capitalism, and in reaction to them, capitalists will tend to create ever larger firms, paving the way to monopolies.

• The book created a modern version of Marxian economics – you could be radical (and claim that capitalism will destroy itself finally) without accepting some invalidated Marxian arguments – like labour theory of value or prediction of falling rate of profit.

Radical economics in 1960s and after

• Union for Radical Political Economics (founded in 1968) –unites various brands of Marxian inspired radical economists from all over the world

• Radicals criticize:

– mainstream economics (abstractness, unrealisticness, irrelevance etc.)

– pro-market, liberal economic policies

• Propose radical reconstruction of Western societies and economies – introduce socialism to get rid of poverty, racism, discrimination, environmental problems, unequaldistribution of wealth among countries, underdevelopment etc.

• Do not use models or econometrics; v. limited influence

Post-Keynesianism (from 1950s on)

• Inspired by J.M.Keynes, Michal Kalecki (1899-1970), Joan Robinson and others.

• Essential features:

– rate of investment explains growth and distribution of incomes both in short and long run

– a view of the economy as constantly in motion, changing; insistence on uncertainty (nihilistic implications for modelling)

– fundamental role of financial institutions in the economic system (money matters)

– theory concerned with actual, rather than hypothetical, economic systems (less abstract)

Post-Keynesianism (from 1950s on)

• Rejects GE modelling

• Capitalism has no automatic tendency toward full employment

• Fiscal policy should be used in supporting aggregate demand and employment

• Focusing on macroeconomics

• Do not use advanced modelling

• Little influence on the mainstream

Feminist Economics

• Feminist movement in science originates from the mid-1960s

• Challenges social sciences’ treatment of issues relatedto women and gender

• Feminist economics started in 1970s – no impact untillate 1980s

• Since mid-1990s numerous feminist economists; many feminist works published

• Feminist Economics – founded in 1995

• Research output growths rapidly, affects mainstream, but still treated as heterodox; moderate impact

• We limit our discussion to the Western world (mainlyUS)

Feminist EconomicsStatus of women in economics profession: women received only 6% of Ph.D.’s in 1970s in the US

But, about 14% in 1980 and 20% i 1990. Now?

Feminist economics

• Up to 1980s economics had little to say about gender

• Contribution of women to household production was ignored, for example

• Gender inequality in consumption, production, unexamined

• Gender was analyzed by labour economists and Gary Becker (new home economics), who dealt withhousehold production, marriage, divorce, fertility etc.

• For Becker, women had comparative advantage inchildbearing and housework, while men – in market work(partially rooted in biology acccording to Becker)

• Perceivied as anti-feminist

Feminist economics – early contributions

• Feminist economists argued that Becker’s work explained and justified economic role differentiation by sex (gender discrimination)

• Mainstream economics (ME) is adnrocentric – assumes that male point of view is a proper one (better)

• Examples:

– ME assumes that behaviour on markets (dominated by men) is guided by self-interest, while in households (dominated by women) is guided by altruism (hard to analyse by methods of economics)

– Homo economicus resembles men’s lives, its very unlike most women’s lives.

– ME does not analyse preferences, power relations ect.

Feminist economics now – some research areas

• Women’s work in industrialized countries – investigates women’s labour-supply decisions, size of discrimination in labour market etc.

• Status of women in developing countries; does modernization create equal opportunities for women and men?

• Gender and property. In many societies gender gap in property is the most critical contributor of the gender gap in poverty, well-being, social status etc.

• De-uniting household into decisions of particular members. Analysis of conflict, distribution of income in the household etc. Sometimes uses game theory

Feminist economics now – some research areas

• Analysing caring labour – work of taking care of others (childre, the sick, the elderly etc.). Consequences for caring labour of increased women’s participation in labour market. (Men do not increase their household work, so what to do? Restrict women’s labour market opportunities?)

• How macroeconomic events (e.g. globalization) affect women and gender relations? Impact of different trade regimes and structures of government budgets on gender status (men and women do different work, so some changes benefit sexes differently)

Modern institutionalism

• Influenced by Old Institutional Economics (OIE) of Thorstein Veblen (late 19th century – 1930s)

• Three subfields:

– Followers of OIE (only a few members today)

– Quasi-institutionalists (similar in many respects to OIE, but also different)

– Neo-institutionalists (advocates of New Institutional Economics) – accept mainstream methodology, but focus on institutions

Modern institutionalism 2: Quasi-institutionalists

• Gunnar Myrdal (1898-1987),

• Swedish economist, Nobel Prize winner in economics, has contributed to monetary economics, development economics and other fields

• The political element in the development of economic theory, 1930, 1955.

• Criticized mainstream economics (ME):

– ME is not positive, but normative (e.g. concept of equilibrium

– ME is to narrowly defined (what about growth, development, planning?)

– ME is biased toward laissez-faire policy

Modern institutionalism 2: Quasi-institutionalists

• For Myrdal, there should be national (and international) planning of macroeconomic goals of the economy.

• Economics has to build a theory which unifies economic, sociological, political and psychological factors that govern economic development.

• Such theory would study history, politics, ideologies, institutions, economic structures, population developments, health and education sectors and so on, in their mutual relationship.

• In this respect, he was the closest to the ideas of Veblen, who also cried for such a unified social theory, which would explain society in all its dimensions.

John Kenneth Galbraith (1908-2006)

• American Capitalism, 1952

• Criticized ME for inadequate explanation of the working of American economy

• Why the economy operates well even in presence of oligopolies and monopolies?

• Because the so-called countervailing powers appeared in the economy to prevent bad consequences of increasing powers of large corporations.

• Examples: labour unions, government policy etc.

• Countervailing powers keep the economy in balance and allow it to produce welfare for members of society.

John Kenneth Galbraith (1908-2006)

• The affluent society, 1958

• Fundamental misallocation of resources in the economy

• Demand for commodities is limitless, because consumers’ wants are created (and manipulated) by producers in a wealthy society.

• Implications:

• Mainstream consumers’ theory should be rejected

• The provision of public goods is too low (preferences for them are not created by producers)

John Kenneth Galbraith (1908-2006)

• The new industrial state, 1967

• Criticized mainstream account of the theory of firm and supply

• Growth of technology → Large corporations → Separation of ownership and control → Survival (not maximization of profits) is the aim of corporations → Corporations aim at controlling the market through manipulation of consumers’ preferences and shaping the attitudes of other agents (government, labour unions etc.)

Neoinstitutionalism or New Institutional Economics (NIE)

• Accept mainstream economic methodology, but argue that institutions must be far better integrated into practice of economic science, than it is currently done

• NIE is interdisciplinary, but primary language is economic

• Started as a school of economics in 1970s

• Accepts methodological individualism (MI), rejects methodological holism of Old Institutional Economics (of T.Veblen)

• MI: scientific explanation should be conducted only in terms of the goals, plans and actions of individuals

Neoinstitutionalism or New Institutional Economics (NIE)

• Aims at explaining what institutions are, how they arise, what purposes they serve, how they change and how – if at all – they should be reformed.

• Institutions in NIE are defined as rules, norms, habits that shape economic agents’ actions.

• One of the main founders: Douglass North (b. 1920)

• Formal institutions (constitutions, written laws, regulations) and informal institutions (conventions, norms of behaviour, moral rules)

New Institutional Economics (NIE)

• Institutions serve a number of important economic functions:

– handling situations with missing or asymmetrical information

– facilitating and enforcing market and non-market transactions,

– substituting for missing markets,

– coordinating the formation of expectations,

– encouraging cooperation and collective action and

– reducing transaction costs

• And still, institutions are exogenous (left unexplained) in mainstream economics

• NIE tries to endogenise institutions