Towards A More Realistic Science of Economics
In retrospect, the Walrasian model, with its canonical assumptions—complete contracting and the conventional preferences of Homo economicus—was an intellectually exciting detour whose glamour hid the fact that it cast little light on the time-honored questions of economic institutions, policy, and the wealth of nations. Many economists believe that the canonical Walrasian assumptions are the unavoidable price to be paid for clarity and rigor in more abstract reasoning, while accepting that more empirically grounded assumptions should inform practical investigations in particular applied topics. Others recognize that the time may have come to reconsider the Walrasian approach and its assumptions, but regard it not as a detour but as having provided essential foundations for our current knowledge. We disagree with both views. We need different (but not necessarily fewer) abstractions, and we need not have taken the circuitous Walrasian route to the present....Most neoclassical economists in the postwar period were actively hostile to broader models of human behavior and to introducing strategic interaction into economic theory....After decades of Walrasian respite, complex institutions and multifaceted people again intrude on our thinking, forcing a retreat from the elegant but misleading abstractions that once monopolized economic theory.
I have long thought that an essential element of economists' eagerness to embrace the Walrasian paradigm was their desire that their discipline be seen as a science. Assuming strong axioms allowed them to use powerful mathematical tools to build up a grand edifice of theory. Extensive use of mathematics made economics superficially similar to physics, whose status as science no one could call into question. But science is defined by the use of the scientific method, not by the absence or presence of mathematics. How much weight we can place on axioms, and the conclusions drawn from them, rightfully depends on the degree to which they accord with experience, not the degree to which they allow abstract analysis. Furthermore, the needs of physics fructified in the growth of various branches of mathematics, and there is no reason why the needs of economics should not do the same, if economists replace their unhealthy veneration of mathematics with the respectful demands a craftsman makes of his tools. As Bowles continues in the Prologue: It would be salutary for economists to focus more on answering [empirical] questions and less on demonstrating the use of our increasingly sophisticated tools. But it seems that a more problem-driven and less tool-driven approach will require yet more sophisticated tools. The mathematical demands of the theoretical framework I am proposing will be greater, not less, than [those] of the Walrasian paradigm.