I appreciate the notice that Veblen introduced the term neoclassical. I always thought that the neoclassical school arose with Alfred Marshall’s effort to synthesize the utility and cost of production theories of value based on time. In the very short run, demand determines value. In the very long run, it is cost of production; in the short run, it is both supply and demand (expressed in Marshall’s scissors metaphor). According to Alon Kadish, a controversy had emerged between the University of Cambridge headed by Marshall and the University of Oxford. The issue dividing them was the nature and method of economics. Marshall and his followers sought to achieve a consensus for the purpose of establishing economics as an independent disciple. “All were concerned with finding a workable formula which would ensure unity, or rather, prevent one school of thought from subjecting the rest” (Alon Kadish, The Oxford Economists in the Late Nineteenth Century Oxford Historical Monographs. Oxford. New York: Clarendon Press; Oxford University Press 1982.)
The economic problem was redefined as the study of the allocation of scare resources, which all of Marshall’s followers accepted. As Joan Robinson notes, one of Keynes’ many contributions was to resurrect the classical emphasis on growth and distribution, in the context of effective demand. The bastard Keynesians, as I understand Robinson, cast Keynes’s theory in terms of the allocation of scarce of resources and, with it, the classical idea that, assuming prices flexible, the market will self-adjust.
Anyway, thank you for an enlightening discussion.
If Tony Lawson’s article on neoclassical economics were confined to Veblen’s usage and meaning, then it would be fine, but it is not. Veblen coined the term (I pointed this out to Tony and he did not believe me at first). But Veblen did not use it very often. It was Samuelson in the 1940s that propelled the term to widespread usage, giving it his own meaning. Tony’s article jumps over this. He assumes that what Veblen wrote over 100 years ago is a suitable guide to calibrate usage of the term today. This is unconvincing.
Anyway, I am currently more interested in what Randy and John H mean by the term “neoclassical”, as in “neoclassical bastards”. Based in part on John H’s reading of the history of economic thought, they seem to want to give the term “neoclassical economics” a strong political meaning. They are not entirely clear, and I ask them to correct me if I am wrong, but what they seem to be saying is that “neoclassical” economics is basically pro-capitalist economics.
These are some prominent economists who ultimately defended a capitalist system (while in some cases arguing for strong ameliorative measures, such as a welfare state):
John R Commons
John Maynard Keynes
Wesley C Mitchell
John Maurice Clark (another prominent institutional economist)
Arthur Burns (another prominent institutional economist)
Morris Copeland (another prominent institutional economist).
Are these economists neoclassical, by Randy and John’s definition?
All: Geoff finds Tony Lawson’s article on Veblen’s coinage of the term neoclassical “arcane” and John Henry says that neoclassical economics should more properly be called “anticlassical.” Lest members of this list be deterred from reading Tony Lawson’s article, let me note that it is an article that should be of particular interest to institutional/evolutionary economists precisely because it takes Veblen and his notion that economics should become an evolutionary science, one in tune with the times, very seriously. Lawson argues, very cogently and persuasively in my view, that Veblen used the term “neo” because he regarded some of the economists of his day, most notably Marshall and John Neville Keynes, as moving away from the taxonomy of classical economics and toward an evolutionary approach. But they are “stuck” in between because of a commitment to taxonomy, to classification in respect of deviation from an essentially unchanging “normal” or “natural” state. Classical economists, as Lawson describes the “school” thus encompasses several schools (Marxist, Smithian, Ricardian, and on through J.S. Mill, and etc.) that remained wedded to the notion that there were fixed relationships among essentially fixed components of any economy. Crucially, this taxonomic approach was amenable, Lawson argues, to mathematical modelling, and more specifically to the kind of mathematical modelling made possible by 20th century changes in mathematics itself. I am not able to thoroughly evaluate this part of his argument but I do think there is evidence, which I have borrowed from others and offered in my article in the Morgan book cited earlier, that there was a clear allegiance taken in the 1930s to the notion of inviolable principles as central to economics and these principles were the fixed components and relationships that characterized all of the classical economists whatever their views of capitalism and its merits or of its driving forces. From this it follows that what are deemed satisfactory explanations for deviation from what is taken to be normal can be deduced. Or, to restate in terms of the examples of explanations offered by neoclassical economists of suicide and water usage, the inviolable assumption is of individuals behaving according to a rationality as defined in terms of commercial calculation.
I find Lawson’s reading of Veblen to be particularly useful in thinking about several things. Among, them is the essentially neoclassical nature of what is sometimes called evolutionary economics. It is also useful in thinking about the structure of a good many articles that are published in orthodox journals. Good information about tax incidence or avoidance or firm behavior or hiring practices or ….. is presented and then “tamed” by mathematics to be consistent with the principles to which all true economists must pledge allegiance. It is also useful in thinking about why various modern forms of Marxist economics has been more acceptable to the mainstream than Institutionalism. And so on. I do encourage you to read Tony Lawson’s article for a very serious and I think excellent exploration of the term “neoclassical” and for understanding of why that term remains highly relevant. I would also hope that some of you would find and read the article that I wrote as a follow up.
Let me add that what Tony has to say about Veblen and his term “neoclassical” does not in any way obviate the explanation of some forms of late 19th century classical thought (as Veblen used the term) as an effort to prove Marx wrong. There are various good and consistent accounts of the evolution of 19th and early 20th century economic thought that emphasize the importance of this effort. My own favorite remains Wesley Mitchell’s lecture notes but John Henry also provides a good account. Where Lawson’s account diverges is in finding (following Veblen) a consistency in the thought prior to the break caused by an evolutionary approach.
Happy Friday everyone.
Just one point in response to John. Lange did not propose the competitive pricing arrangements of a (hypothetical) capitalist order. Capitalism involves private ownership. Lange did not propose private ownership. Instead he (wrongly) suggested that pricing would be possible if a central planning authority simulated the operations of a hypothetical Walrasian market.
Just one response to Anne. Randy used the term “neoclassical”. He did not define it. I’m asking (again) what he means by the term. BTW, I like much of Tony Lawson’s work, but IMHO his “neoclassical” article is arcane and fails to look at post Samuelson usage of the term.
My main point is that I do not think it is appropriate to call neoclassical (however defined) colleagues “bastards”. It has been rightly pointed out that some people deserve that appellation, but that has little to do with the analytical position that they adopt.
As I've been brought into this discussion, perhaps an elaboration of my position is needed. Geoff writes: “On page xv of his book John explained that his volume tries to show: "why the neoclassical perspective, resting on a utility theory of value, became increasingly prominent, then dominant, in the nineteenth century. The argument rests on the underlying economic change undergone by capitalist society during the period". Not only does this extract highlight the concept of utility, but it also shows that John's argument is more deep and subtle than Randy suggests.”
I'm not sure that the above reference indicates greater subtlety or depth than that offered by Randy (well, Randy is rarely subtle!), but I don't want to be misunderstood. The UTOV was selected for a couple of reasons. The main reason was that, following Adam Smith, we have two choices to follow in theorizing about a commodity-producing economy--that is, capitalism as we call it. Use value and exchange value. Smith, Ricardo, James Steuart, Petty, et al. chose exchange value. This represents the "classical political economy" approach--correctly so in my estimation. To counter this approach, the "neoclassicals" went the utility route, which they identified--incorrectly--with use value. (As an aside, I think Veblen was wrong to label such economists as NEOclassical. He should have labelled them ANTIclassical.) Jean Baptiste Say, the "father" of neoclassicism starts his Treatise by attacking Smith and the labor theory of value. The attack on the LTOV and emphasis on exchange value continues and culminates in the work of Jevons, Walras, Menger, and, in the next generation, Marshall, Clark, et al. We're off to the races. My position is that there's no better authority in all this than Walras, a notable chap who is sometimes labelled a socialist. Ha! He's no more a socialist than my departed mother. All one has to do is read the first chapter of his Elements. He begins with an examination of "economics" that can be seen as favorable to institutionalists. Society is there, history is there, culture is there, etc. He then proceeds to whittle his definition down to what he terms "pure" economics. And this is utility maximization, equilibrium, etc. but--MORE NOTABLY--the preeminence of a competitive, free exchange, profit-seeking structure. That is, capitalism, though in an idealized, hypothetical form. And this is what matters.
Classical theory began as an attempt to understand capitalism--and, yes, I accept the "ism." Capitalism is not of a feudal, nor a slave, nor a primitive communist organization. (Speaking of which, these were still hanging around when capitalism was a new-fangled order, and there were those who wanted to revert to such an arrangement--the Diggers during the English civil war.) Early "economists" (as this grouping was something new as well) sought understanding; by the time of Ricardo, such understanding became criticism. We can see the beginning of such criticism in Smith. And then we get the onslaught--Sismondi, St. Simon, Proudhon, and, in particular, Owen. (On all this, see Claeys, Machinery, Money, and the Millennium.) The reaction, and that's what it was, was directed toward the saving of capitalism from its critics. If one reads the proto-neoclassical writers from Say through the post-Ricardian period, one will find overt statements to this effect. If you want quotes, see my book referenced. (And don't get me started on John Stuart Mill!) To "save" capitalism, one needed an alternate theory to that posed by the Classicals. This was based on a UTOV (in the main), but that was merely a theoretical subterfuge. The whole campaign was to move the dominant discourse away from the Classical perspective (which, of course, by the late 19th C had become dominated by a fellow named Marx, who was essentially ignored, though Marshall took a couple of potshots at the old geezer.) But, in this anti-classical discourse, one could not ignore, bypass, whatever, the nature of the commodity--a use value produced for exchange. So, should use value or exchange value dominate? We're back to Smith. For anti-classicals, it's use value, transformed into a generalized UTOV, courtesy of Jevons, Walras, Pareto, et. al (but based on their anti-classical predecessors). But, why dominance in the last third of the 19th C? This is the period of oligopolization when corporate forms of organization were able to "sabotage" (a la Veblen) the production of use values (in the classical sense). It's also the period when the theory of competition, equilibrium, optimality, etc. was formalized and became increasingly the standard. NOTE WELL: neoclassical theory becomes dominant by erecting a hypothetical economic order just as the real economic order displays characteristics that are the very opposite of the theory supposedly explaining it. Neoclassicism is political and is associated with the defense of capitalism. It has been so since its inception (Say, et al.), and remains so throughout its history. Its main function is to conceal the very nature of a capitalist social order. I'm in fundamental agreement with Randy, though I probably wouldn't have expressed my position so candidly: they're all S.O.B.s! (As a P.S., we’re all political. Ideology or political orientation can’t be eliminated from our theoretical arguments. We’re only human in this regard. Myrdal spoke to this in his The Political Element in the Development of Economic Theory. Heck, this even influences workers in the natural sciences. The various debates on Darwin should be enough to convince, but even physics is not immune.)
Now, if someone wants to take up the issue of Lange, et al., I'll be happy to oblige. Just one thing: in his 1930's article, Lange argued--essentially against Mises--that a socialist order could maintain itself IF it replicated the competitive pricing arrangements of a (hypothetical) capitalist order. This, when capitalism was not only non-competitive, but doing quite badly, and the Soviet Union was actually doing pretty well. So, what, for Lange, et al., did/does socialism mean?
Sorry to take up so much space,