Teaching the philosophical grounding of economics to economists: a 10 years' experience

Abstract

This brief contribution describes the author’s experience with teaching a course on philosophy of economics to students pursuing a master’s in economics. The main purpose of the course is to explore the philosophical assumptions underlying economic theories. I am a Visiting Professor at Universidad de Montevideo (Uruguay), where, every two years since 2011, I deliver a course on Philosophy of Economics in the master’s in economics Program (https://um.edu.uy/unidad-de-maestrias-ypostgrados-en-economia-umpe/oferta-academica/master/maestria-en-economia). Most students come from the undergraduate program at Universidad de la República (https://udelar.edu.uy/portal/2021/02/licenciatura-en-economia/) and at Universidad de Montevideo (https://um.edu.uy/facultad-de-cienciasempresariales-y-economia/oferta-academica/grado/economia). These programs feature a standard economics approach and have not fully incorporated new economic theory developments as behavioural economics, neuroeconomics, evolutionary economics, happiness economics, the capability approach, new institutional perspectives, among others. Peter Hammond defines the rationale underlying standard economics as preference maximizing by consumers and profit maximizing by firms (1997, p. 31). He adds, ‘there seems to be little evidence of rationality in actual behaviour. This is true even for special classes of experimental subjects like economics or business students, who are supposed to understand something of what it means to be rational’ (1997, pp. 32-33). I use the term ‘standard’ economics as Hammond does. The theories of rationality that standard economics adopts are the Rational Choice Theory Crespo F. Ricardo (2021), Teaching the philosophical grounding of economics to economists: a 10 years’ experience, The Journal of Philosophical Economics: Reflections on Economic and Social Issues, XIV (1-2), 218-226 The Journal of Philosophical Economics XIV (1-2) 2021 219 and the Expected Utility Theory, and both use the concept of instrumental rationality. Thus, they have a narrow view of the scope and potentials of economics, which translate into its failure to predict and prescribe. The new approaches mentioned above – especially behavioural economics as well as natural and lab experiments – have challenged the assumptions of standard economics. However, as Kevin Hoover has recently suggestively stated, Contemporary economics is pace Robbins and Mill favourable to empirical research and to the feedback from empirical results to economic theory. However, the Robbinsian first principles themselves are not the target for any revision within mainstream economics, but are held immutable as something like a Lakatosian hard core. Recalcitrant evidence may result in a revision of the details of the structure of constraints hypothesized in a problem, but is not allowed to weaken the commitment to the framework of constrained optimization (2021, p. S3322). In the same strain, Catherine Herfeld (2021, p. S3337) notes that ‘[d]espite recent developments in behavioural economics, either the general variant of the rationality principle or its special status is rarely questioned by economists,’ and she illustrates her point with examples from contemporary introductory textbooks of economics. Looking at the possibilities of the new currents mentioned above – behavioural economics, neuroeconomics, evolutionary economics, happiness economics, civil economy, and the capability approach – proves highly attractive for students. This is an effective way to introduce philosophy because it is easy to understand that these plural economic approaches are supported by philosophical underpinnings, different epistemological perspectives, and views on human nature and the social world. However, a deep analysis of these new fields (which I undertook in my 2017 book) reveals that not all of them ‘escape’ from the narrow outlook that characterizes current economics. As John Davis points out (2008, p. 365), economics, as other sciences, has regularly imported other science contents in the past, and having subsequently “domesticated” them, remade itself still as economics. In the current situation, for example, behavioral Crespo F. Ricardo (2021), Teaching the philosophical grounding of economics to economists: a 10 years’ experience, The Journal of Philosophical Economics: Reflections on Economic and Social Issues, XIV (1-2), 218-226 220 The Journal of Philosophical Economics XIV (1-2) 2021 economics – a research program in economics, not in psychology – employs imports from psychology but frames them in terms of economic concerns. Exploring the attitudes of economics towards these new possibilities – open or ‘colonialist’ – helps to differentiate them and to discover their philosophical roots. Thus, this analysis shows the influence of underlying philosophical notions on economic theories. The first part of the course reviews the philosophical positions underlying economic thinking, from Aristotle to nowadays – the ideas that underpin the work of classical economists: from Adam Smith to John Stuart Mill, as well as the Marginal Theory, Austrian economics, the Methodenstreit, neoclassical approaches, J. Maynard Keynes’ ideas, General Equilibrium theories, and contemporary new developments, like the ones mentioned earlier. This tour helps students realize that there are different takes on economic rationality and on the nature and aims of economics. It also shines a light on the failures of today’s standard economics and shows how to overcome them. For example: – For Aristotle, ‘the economic’ (oikonomiké) is the action of using what is necessary for the good life – a life of virtues, which entails a deep ethical connotation. He links this notion to another concept, chrematistiké or the technique used to provide the means required for oikonomiké. Aristotle distinguished two forms of chrematistics: a natural one – subordinated to oikonomiké and limited in its search of means – and an artificial one – unsubordinated and relentlessly pursuing money. For Aristotle, this second kind of chrematistics is ‘justly censured’ (Nicomachean Ethics 1258a 41). This notion instils deep ethical connotations into Aristotle’s economic thinking and separates it from today’s economics, which adopts the economic principle – i.e., maxU, a contemporary form of the censured chrematistics. – As Milonakis and Fine (2009, p 19) assert, Adam Smith’s theoretical edifice is ‘rich and multifaceted, encompassing philosophical, psychological, social, historical and economic elements.’ Both Smith’s relationship with David Hume and the closeness of Hume’s philosophical insights with Smith’s thinking show the influence of philosophy on political economy. Crespo F. Ricardo (2021), Teaching the philosophical grounding of economics to economists: a 10 years’ experience, The Journal of Philosophical Economics: Reflections on Economic and Social Issues, XIV (1-2), 218-226 The Journal of Philosophical Economics XIV (1-2) 2021 221 – John Stuart Mill, another philosopher, is aware that his description of political economy (concerned with ‘a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end’) involves a simplifying abstraction: ‘All these operations, though many of them are really the result of a plurality of motives, are considered by Political Economy as flowing solely from the desire of wealth [...] Not that any political economist was ever so absurd as to suppose that mankind is really thus constituted’ ([1844] 2006, p. 322). Therefore, he finally emphasizes the need to consider additional motives for these ‘operations’ in order to come to a correct explanation and prediction: So far as it is known, or may be presumed, that the conduct of mankind in the pursuit of wealth is under the collateral influence of any other of the properties of our nature than the desire of obtaining the greatest quantity of wealth with the least labour and self-denial, the conclusions of Political Economy will so far fail of being applicable to the explanation or prediction of real events, until they are modified by a correct allowance for the degree of influence exercised by the other causes ([1844] 2006, p. 323, see also pp. 326-327). – The consideration of a plurality of motives for economic actions constitutes a central characteristic of the German Historical School of Economics. Schumpeter (1954, pp. 177-78) remarks that this school characteristically recognizes that human actions, including economic actions, are not motivated by economic rewards only but are mostly guided by a ‘multiplicity of motives,’ while stressing the need to concentrate more on individual correlations than on the general nature of events. – Carl Menger distinguishes a ‘technical-economic’ (1923, p. 73) from an ‘economizing’ economy (1923, pp. 74 and 76). The former aims at providing the goods that we need, and the latter, when insufficiency of means prevails, aims at doing so by ‘economizing’ in the best possible way. We cannot identify, Menger states, the concept of ‘economy’ (Wirtschaft) with the notion of ‘economical’ (Wirtschaftlichkeit, 1923, p. 61). Thus, he argues, it is not paradoxical to speak of an ‘economic economy’ and of a ‘non-economic economy’ (1923, p. 61). For Menger, real economic acts are Crespo F. Ricardo (2021), Teaching the philosophical grounding of economics to economists: a 10 years’ experience, The Journal of Philosophical Economics: Reflections on Economic and Social Issues, XIV (1-2), 218-226 222 The Journal of Philosophical Economics XIV (1-2) 2021 not only based on purely economic reasons but also on ‘error, ignorance, and external compulsion’ ([1883] 1985, p. 64). The Aristotelian roots of Menger’s thinking suggested by many scholars are analysed. – Neville Keynes defines ‘economic activity’ as a human activity directed to the production and appropriation of exchangeable means