Should the Term “Neoclassical” Die?

26 May 2006 at 11:12 am Nicolai Foss Leave a comment

| Nicolai Foss |

In a characteristically well written paper, "The Death of Neoclassical Economics," David Colander claims that the "neoclassical classification should die." Others, notably Mark Blaug, have also argued that the term is rather meaningless.

Colander's argument begins with a list of necessary criteria of what it means for a theory to be "neoclassical." He then argues that most modern economics do not conform to these criteria. The relevant criteria are: 1) focus on atemporal resource allocation, 2) acceptance of some kind of utilitarianism, 3) focus on marginal tradeoffs, 4) assumption of farsighted rationality, 5) methodological individualism, 6) general equilibrium.

For each one of these points, Colander exemplifies how various modern economics contributions make a break with them. For example, with respect to point 2), he says that "few modern economists today accept utilitarianism" (p.135) and with respect to 5) he invokes new institutitonal economists as engaged in work that is explicitly at variance with methodological individualism. This exercise results in the Solowian conclusion that the only thing that really unites modern economists is the modeling approach to social explanation.

While it is indeed hard to precisely define "neoclassical" economics, I think Colander (and Solow) goes much too far.

To some extent, it seems based on a misreading on neoclassical economics. For example, intertemporal resource allocation (i.e., contra 1)) was a major concern in the work of the Austrian capital theorists, Irving Fisher's work, etc. Hayek did important work on intertemporal equilibrium in 1928. Hicks developed temporary equilibrium. The theoretical treatment of expectations was a big issue in the 1930s.

Colander also jumps too easily to the conclusion that points 1) – 6) have been largely left in modern economics. For example, contrary to what Colander says, methodological individualism has not been seriously questioned in economics, and certainly not abandoned (and most certainly not by new institutional economists).

Also, I would certainly think of most economists as accepting being connsequentionalists, and while some may argue that Paretianism is not utilitarianism, it is certainly closer than to ideas on rights. In any case, all practical welfare assessments in economics are fundamentally utilitarian. The distinction between "welfarism" and "utilitarianism," while theoretically meaningful, breaks down under the impact of reality.

Economists have relaxed much of the central core, but that is different from breaking with core propositions. However, given time economists may relax so much of the core (e.g., along these lines) that something results. However, I don't believe we are there yet.