Economic theory

Economics After the Crisis

Irene van Staveren

Irene bookA year after the fall of Lehman Brothers, The Economist's headline proclaimed the end of modern economics. What has happened since? Well... almost nothing.

Mainstream and near-mainstream economic textbooks still sell like before. And INET has supported some initiatives that eliminate the rough sides of neoclassical thought and neoliberal policy advice. Very laudable initiatives, with, for example, Wendy Carlin's work on developing a new undergraduate curriculum CORE. But students of economics are not satisfied with these minor changes, so many years after the start of the financial crisis. Their Rethink Economics petition demands more fundamental changes to textbooks.

As a supporter of every single petition, pamphlet, op-ed, and plea for pluralism in economics before and after the crisis, I decided three years ago that I should practice what I preach. The result is Economics after the Crisis, a pluralist introductory textbook published by Routledge in January 2015. It offers a tool to understand the basics of economics from four theoretical perspectives either for use in the classroom or for self-study alongside a standard course book. The theories are presented in every chapter, micro and macro. And from interdisciplinary and close to real-world experiences to mathematically in an idealized world of perfect markets and agents following the single ethical guide of utility maximization. The book presents social economics, institutional economics, post Keynesian economics, and neoclassical economics and thereby shows that almost no economic concept or tool is theory-neutral. If only this message gets across, the book will have accomplished already more than I could hope for.

The window of opportunity to reform economic teaching is almost shut. Banks pass stress tests in Europe and the US while still being too big to fail. Nobel Prizes are awarded to economists who show no effort at all in rethinking economics. And economic policies ignore the danger of continuously increasing private and public debt, while shifting the consequences of such myopia on disadvantaged groups and whole populations.

If it is not now, we may have to wait for the next crisis to change economic thinking and teaching. I truly hope that the combined efforts of critical economists, activist students, and courageous teachers will help to make the change. We cannot afford to standby any longer.

Jonathan Wight's 2014 Presidential Address to the Association for Social Economics

Mark D. White

WightBecause he's too bashful to tell you, I'll tell you that Jonathan Wight's 2014 Presidential Address for the Association for Social Economics, delivered at January's ASSA meetings, has just been published in the Review of Social Economy, and the link has been posted to the ASE blog.

The title is "Economics within a Pluralist Ethical Tradition":

Ethical pluralism is the recognition that multiple ethical frameworks operate in social settings to solve problems of moral hazard. In particular, non-consequentialist considerations of duty and virtue operate to restrain self-interest and lower transaction costs in exchange, such as when asymmetric information exists. Positive economics has tended to rely exclusively on a behavioral model that assumes utility maximization, but this approach fails to give credit to the neglected foundations of duty and virtue. Consequences, duties, and virtues all play a role in sustaining businesses, for example, and in promoting the search for truth within the economic research community. Normative welfare economics can also benefit from understanding vertical and horizontal pluralism.

Does economics need religion?

Mark D. White

Thanks to my globetrotting co-blogger Jonathan Wight, who emailed me about this: a symposium in Econ Journal Watch titled "Does Economics Need an Infusion of Religious or Quasi-Religious Formulations?", anchored by Robin Klay's article "Where Do Economists of Faith Hang Out? Their Journals and Associations, plus Luminaries Among Them" and featuring seventeen short responses from people such as Ross Emmett, Dan Finn, David George, Mary Hirschfeld, Eric Rasmusen, and Andrew Yuengert. Bless tham all.

Call for abstracts: Conference, "Economics and Psychology in Historical Perspective"

Mark D. White

Conference call for contributions

Economics and psychology in historical perspective

(from 18th century to the present)

Paris, December 17th - December 19th 2014

Organized by Mikaël Cozic (UPEC, IUF & IHPST, France) and Jean-Sébastien Lenfant (U. Lille 1, France)



Notification of interest: June 10th 2014

Deadline for abstract:  July 10th 2014

Notification of acceptance: August 31th 2014

Full paper: December 1st 2014



Erik Angner (George Mason university, USA), Richard Arena (Université de Nice Sophia-Antipolis), Laurie Bréban (Université Paris 8, France), Luigino Bruni (Università Lumsa a Roma, Italy), Annie L. Cot (Université Paris 1, France), Agnès Festré (Université de Picardie Jules Verne, France), Till Grüne Yanoff (Royal Institute of Technology, KTH, Sweden), Alessandro Innocenti (Università di Siena, Italy), Ivan Moscati (Insubria University, Italy), Annika Wallin (Lunds Universitet, Sweden).


Philippe MONGIN (CNRS & HEC Paris, France), Floris HEUKELOM (U. Nijmegen, Netherdlands), Robert SUGDEN (University of East Anglia, United Kingdom).


“Psychology is evidently at the basis of political economy and, in general, of all the social sciences. A day will come when we will be able to deduce the laws of the social science from the principles of psychology” (Pareto, Manual of Political Economy, 1909, II, §1)

Neoclassical economics was built upon a theory of rational behavior that pretended to be independent from psychological foundations. Actually, Pareto, who has been instrumental in laying the foundations of modern utility and rational choice theory, uphold that economics and psychology needed to develop separately and that the hopes for reconciling psychology, economics and sociology in the social sciences “still remain some way off”.

Over thirty years or so, an important part of economics has been oriented towards realizing Pareto’s prophecy that a day would come when economics and psychology would benefit from reconciling each others, opening the way for a better understanding of individual and collective behaviors. This reconciliation comes after a period of time during which economics has developed its tools and principles away from psychology (or so the standard narrative argues), on the mere assumption that rational behavior could be described satisfactorily with a well-behaved utility function. For many economists, the offspring of this collective effort is called “behavioral economics”, and it is sometimes viewed a new paradigm in economics, providing tools and principles that may be applied to different fields of economic inquiry (finance, development economics, game theory, etc.).

Basics of behavioral economics are now part of any curricula in economics. The advent of behavioral economics has often been associated with a story-telling argument about its early development in the 1970s and its establishment, focusing on three main points: 1) the legitimization of experimental methods in economics; 2) the usefulness of concepts and ideas borrowed from psychology to increase the explanatory or predictive power of the theory of rational behavior; 3) the advent of a renewed view of human behavior and hence of new ideas in normative economics.

Actually, Pareto’s opening quotation reminds us also that psychology (in different guises) has been a fundamental issue for economists even since 18th century, if only because economists have usually grounded their own theory of economics on some ideas about human nature, and especially on human desires and beliefs.

In recent years, historians of economic thought and theoreticians have shown an interest in understanding the ins and outs of the behavioral turn in economics, and more broadly, on the introduction of psychological elements in economic explanations. Some have focused on recent history, enhancing the different trends of behavioral economics. Others have dealt with the nascent of behavioral economics and the early collaboration between economists and psychologists in the 1950s. Still some others have tried to understand how the marginalist school of thought had relied on the experimental psychology of its time—namely psychophysics—and how it had progressively been expelled out of the realm of economics, at least temporarily, with Pareto and Fisher. However, those contributions have not been coordinated and we are far from having a comprehensive overview of the complex history of the relationships between economics and psychology.

The aim of this conference is to gather contributions from historians of economics and historians of psychology (including cognitive sciences), and also from historically-oriented researchers and philosophers of these disciplines. The overall ambition is to understand the way economics has dealt with psychological arguments, methods and concepts throughout history and to highlight the main debates between economists and psychologists that have fostered and are still fostering behavioral economics. It is hoped that these will pave the way for an overall vision of the history of the relationships between economics and psychology and of the methodological transformations of economics as a discipline.

The organizers wish to limit the number of contributions so that most of the conference will take place in plenary sessions. Interested contributors are asked to indicate their interest in participating to the conference to A COMPLETER. The deadline for submitting an abstract is July 10th 2014. It is hoped that the contributions to the conference will in turn lead to the publication of a comprehensive reference book with short versions of papers and to thematic issues in journals.

Below is a non-exhaustive list of topics, authors and schools of thought:

  • Psychology in economics before the marginalist revolution (Hume, Smith, Condillac, Quesnay)
  • Psychophysics, psychology and the (pre)marginalists (Gossen, Jevons, Walras, Marshall, Edgeworth, Pareto and Fisher, psychology in the Austrian tradition)
  • Psychologists, economists, and the birth and development of experimental psychology (1850-1950)
  • Psychology in the institutionalist and Keynesian schools of thought (Veblen, Mitchell, J.M Clark, Keynes, Duesenberry, Post-Keynesian school).
  • How psychologists came to study decision and choice after World War II (Edwards, Davidson, Luce, Suppes, Siegel, etc).
  • The role and importance of ‘mathematical psychology’ and of the ‘representational theory of measurement’
  • Allais’s paradox and other decision paradoxes from the point of view of economics and psychology.
  • National traditions in the development of “economic psychology” (in relation with social psychology) and early behavioral economics in the USA (Katona, Simon), France, Germany, England, Italy, etc.
  • How psychologists have been involved in the development of behavioral economics and alternative paradigms to study economic behavior (e.g. Kahneman, Tversky, Slovic, Gigerenzer)?
  • Did economics borrow concepts and laws from psychology or did they rather borrow methods?
  • What has been the influence of behavioral sciences, marketing and business studies on the development of behavioral economics?
  • What have been the effects of behavioral economics on public policy? Which role played public policy in the development of behavioral economics?
  • What have been the after effects of behavioral economics on the representation of utility and welfare? (Pigou, Boulding, Scitovsky, Easterlin, Happiness economics)
  • How has behavioral economics come into different fields of economics (finance, development economics, health economics, social choice, public economics, normative economics)?
  • The historical development of neuroeconomics and its links with psychology.
  • The role of normative considerations in the development of behavioral economics, and the links between normative and behavioral economics.

If you are interested in participating in this conference, please send a notification of interest mentioning the theme of your contribution by June 10th 2014 and an abstract of approximately 1000 words prepared for blind review by July 10th 2014. Send your abstract by email at  with the following information:

Name and surname


Title of your contribution


Agency, Policy and the Future of Macroeconomics: A Summer School in Economics and Philosophy

Mark D. White

INEM/CHESS Summer School in Philosophy and Economics

“Agency, Policy and the Future of Macroeconomics:

A Summer School in Economics and Philosophy”

University of the Basque Country UPV/EHU

Donostia-San Sebastian, Spain

21-23 July 2014

The International Network for Economic Method (INEM) and Centre for Humanities Engaging Science and Society (CHESS, Durham) will be holding an International Summer School in Economics and Philosophy for graduate students and researchers.

The Summer School is part of the UPV/EHU XXXII Summer Courses and XXV European Courses and continues the series initiated by the Urrutia Elejalde Foundation (UEF).


Alan Kirman, University of Aix-Marseille, France

Till Grüne-Yanoff, Royal Institute of Technology, Stockholm, Sweden

Natalie Gold, King’s College London, UK


Julian Reiss, Durham University, UK

Conrad Heilmann, Erasmus University Rotterdam, Netherlands

Anna de Bruyckere, Durham University, UK (Grad Student Assistant)

The recent financial crisis has shattered the economics discipline like an earthquake. Whilst many economists are striving to rebuild and strengthen the structures that were hit others are taking the opportunity to open their horizons. Economists are often being blamed for having contributed to the crisis, even by prominent members of the profession: ‘the economics profession went astray because economists... mistook beauty... for truth’ (Krugman 2009); economists ‘killed America’s economy’ because of unrealistic models (Stiglitz 2009), and that the Crisis has made clear a ‘systemic failure of the economics profession’ as it had systematically disregarded key factors responsible for outcomes such as the Crisis (Colander et al. 2009).

At the same time, many economists have become at lot more open towards neighbouring disciplines. Some now regularly collaborate with psychologists to investigate to provide the behavioural foundations for choice theory. Even mainstream economists such as Greg Mankiw now urge the importance of political philosophy for their discipline. Modellers look to alternative approaches from complexity theory and agent-based modelling.

The aim of the Summer School in Economics and Philosophy is to present a variety of new insights from this exciting new work from the fringes of economics. It will bring together graduate students with scholars from economics, philosophy and neighbouring disciplines in order to exchange ideas, build a community and strengthen ‘economics and philosophy’ as an independent and diverse research field. This year’s main focus is on complex systems approaches in macroeconomics, the modelling of agency and behavioural policies.


The Summer School is open to Masters/PhD students and other researchers at various stages of progress on their dissertation project or academic careers.

To register please send us, by June 15 at the latest, 2014, a short CV and motivation statement to Anna de Bruyckere (email: We will accept applications as they come in, so to be guaranteed a place let us know as soon as possible.

Registration Fee and Bursaries:

Participation in the Summer School is free of charge. There is, however, charge a small registration fee of under €50 (with a small increase if you register after May 31) to be spent on food and beverage during the event. There will also be a bursary to help with accommodation expenses in San Sebastian. If you are interested in applying for a bursary, please let us know in your registration letter.

We would like to draw your attention to national sponsorship institutions like the DAAD (German Academic Exchange Service) in the case of Germany, who offer training course scholarships for students. Please contact your university’s international office for further information on scholarships available in your country.

We gratefully acknowledge the financial support from the International Network for Economic Method (INEM) and the University of the Basque Country (UPV).

Further information:

My personal debt to Gary Becker (RIP)

Mark D. White

BeckerI was very sad to hear of Professor Gary Becker's passing. Although I never met him, and heard him speak only once, he had a tremendous impact on my life and career.

As an undergraduate economics major in college, I was focusing on monetary economics and anticipating a career with the Federal Reserve -- I wasn't even thinking of graduate school at that point. And like many an economics geek, I would confuse amaze my friends by applying reasoning based on marginal benefit and cost to everything in their lives, advising them (for instance) to ignore the sunk costs of "everything they'd put into a relationship" and focus on whether they were likely to derive positive net benefit from it going forward.

Oh how they mocked me.

But then two things happened. One was the publication of Richard Posner's book Sex and Reason, which applied basic economic reasoning to a variety of sexual topics. The other was Gary Becker's being awarded the Nobel Prize and my subsequent introduction to his work on crime, discrimination, and the family.

Validation at last! Here were two brilliant scholars, at the top of their fields, applying economic reasoning to topics other than the traditional subject matter of undergraduate economics: interest rates, GDP, and widgets. I loved the internal logic of economics since my sixth-grade teacher Mr. Dalton drew a supply-and-demand diagram on the chalkboard, but I was bored by the topics to which it was normally applied in my college classes. And here were Becker and Posner, doing interesting things with economics -- dare I say, sexy things -- and being heralded for it!

Furthermore, they showed me that I could have an academic career studying these things using economics. So I forgot about Alan Greenspan's job and instead applied to graduate schools (which I would have had to do anyway, but I hadn't thought that far ahead yet). My eventual graduate program didn't focus on "Becker topics," so instead I took the full range of microeconomics courses to get the basic modeling techniques under my fingers. And while I wasn't working on marriage or crime as I progressed toward my PhD, I did always have them in the back of my mind -- and I would include these topics in the introductory economics courses I taught in graduate school and beyond.

By the time I addressed topics like marriage and the family in writing, it was as part of a critique of the ethical foundations of mainstream economics. The same topics that fascinated me and drew me into academic economics as an undergraduate later frustrated me because of the difficulty mainstream economics had dealing with their inherent normativity. People don't help their family members and obey the law simply because the expected payoff exceeds the expected cost -- there's often more to it than that, ethical factors that are not easily reducible to raw utility. Economics has a valuable perspective to offer on these issues, although it is neither complete nor dispositive.

But, I repeat, it is valuable. And for that value, anyone who studied topics such as crime, discrimination, and the family -- or economics in general -- owes Professor Becker a tremendous debt of gratitude. My personal debts go much deeper, of course: I thank him for showing me a new avenue for my curiosity and, indirectly, for inspiring my shift to philosophy to supplement the economic approach he helped to teach me. Rest in peace, sir.

New book: Ricardo Crespo's A Re-Assessment of Aristotle’s Economic Thought

Mark D. White

CrespoI'm happy to report that my friend Ricardo Crespo has published a new book with Routledge titled A Re-Assessment of Aristotle's Economic Thought. In conjunction with the book's publication, Routledge has posted an interview with Crespo, beginning with the following poignant question:

Why a re-assessment of Aristotle's economic thought today?

This is an interesting, exciting time for economics. On the one hand, standard economics has become increasingly sophisticated –current micro and macroeconomics bear little resemblance to their 1970s counterparts. Asymmetrical information; industrial organization; new developments in game theory, econometrics and uncertainty management; rational expectations, and dynamic stochastic general equilibrium are all revamping economics.

On the other hand, valuable inputs from other sciences are enriching economic approaches, like the contributions from psychology that have led to behavioral and happiness economics, or the influence of experimental sciences on experimental economics and of neurology on neuroeconomics, as well as the sociological and anthropological notions on identity, reciprocity, gift and institutions used in economic theory developments or the borrowings from ethics that paved the way for capability approaches. New ideas are booming, and it is very hard to anticipate what economics will look like in 20 years.

As new scenarios unfold, we urgently need to rely on philosophy, as its role resembles that of an orchestra director, coordinating all the instruments to produce a harmonious melody. In fact, the greatest economists all started off as philosophers. Adam Smith was a professor of moral philosophy at the University of Glasgow, and his close friend and colleague, philosopher David Hume, also wrote interesting essays on economics. The list of other outstanding ‘economist-philosophers’ notably includes John Stuart Mill, Karl Marx, Carl Menger, Frank Knight, Ludwig von Mises, John Maynard Keynes, Friedrich von Hayek, Joseph Schumpeter, Herbert Simon, Albert Hirschman, and Amartya Sen. These names are associated with very different positions, but we need a neutral, more panoramic philosophical view. My candidate to provide it is Aristotle.

Read the entire interview here, and if you read the book, please feel free to comment on it below.

The Nobel Quandary

Jonathan B. Wight

My co-blogger Mark White questions the need for economics to be considered a science. 

Along similar grounds I will ask whether there are enough outstanding discoveries in economics to warrant a Nobel Prize every year?

The first Nobel in economics was awarded in 1968, technically today called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred NobelNobel

Given that only living people can win the Nobel (which seems a crying shame), the first ten or twenty years had plenty of 20th century breathing giants to celebrate—Samuelson, Friedman, Hayek, Arrow and others. 

I’m not saying we are now scraping the barrel.  Eugene Fama, Robert Shiller, and Lars Peter Hansen who won this year made great contributions.  But the contradictions between Fama and Shiller demonstrate how uncertain those contributions might be. 

John Kay notes that:

“Copernicus [Shiller] was right and Ptolemy [Fama] was wrong. There are not, and will not be, equivalent certainties in economics, and if such certainty is the hallmark of science – I do not think it is – then economics is not a science. The resulting insecurity seems to lead the Nobel committee to claim more for the subject of economics than it has achieved.”

I am waiting for the time the Nobel Committee announces that no one has won that year, out of respect for truth and humility for what we think we really know.  

Call for papers: Special issue of Œconomia on externalities

Mark D. White

I'd like to bring to your attention a fascinating call for papers from the journal Œconomia, a relatively new journal examining the history, philosophy, and methodology of economics:


Externalities in economic thought and beyond

Editors of the special issue : Steven G. Medema and Samuel Ferey

Expression of interest: November 15th, 2013

Deadline for submission: September 1st, 2014

Planed publication of the issue: 2015


Over the last sixty years, the concept of externality has become prominent within economics. It is common knowledge that the concept was first discussed by Marshall and then given an analytical content by Pigou (1920) in The Economics of Welfare, in which he analyzed the divergence between marginal private interest and marginal social interest in case of a negative externality and proposed to implement a tax system on polluting activities. Since Meade's (1952) now classic presentation of the effect of an externality through the fable of the apple grower and the beekeeper, the concept of externality has gained visibility in mainstream economic analysis. It has fostered a vast literature and many debates between economists intent on refining the definition and the actual scope of the concept. [Read More]

"The Paranoid Style in Economics"

Jonathan B. Wight

Raghuram Rajan looks back at the exchange between Paul Krugman and Carmen Reinhart and Kenneth Rogoff.  He wonders:

"Why do high-profile economic tussles turn so quickly to ad hominem attacks?"

Part of the answer is in the unsatisfactory results from empirical work, especially in macroeconomics. It is hard to say much with certainty.

Pundits won’t get many readers with wishy-washy conclusions, so the natural tendency is to fudge—by professing more certainty than the data would warrant.

Another aspect has to do with the verbal attacks (and physical threats) on Krugman, which have made him more than a little defensive. The old joke goes, “Just because you’re paranoid, doesn’t mean they’re not out to get you….”

We all say things in the heat of the moment that best not have been said.  Hard to remember, but virtue ethics asks us to be humble, to be temperate, and to forgive.  Where are these attributes in the economics research manual?