Archive for Ricardo

Theoretical pedagogy: Contextualized in sociology vs. black-boxed in economics

Posted in Uncategorized with tags , , , , on April 1, 2008 by hybloch

Both sociology and economics usually require students to take two semesters of theory, however the contents of those theory courses are not at all parallel. In sociology the usual division is classical theory (e.g., Weber) and contemporary theory (e.g., Goffman) whereas in economics the conventional distinction is micro (e.g., price theory) and macro (e.g., gross domestic product). The contrast could not be more evident — in economics they learn decontextualized tools and concepts whereas in sociology we learn about a rich intellectual genealogy. In economics theories are black-boxed as mere causal relationships whereas in sociology we situate theory within the context of theorists and the social problems that interested them. Below I will articulate how this benefits sociology, impoverishes economics, and how an embrace of the sociological approach could reinvigorate the moribund state of economic theory.

Every sociology student, undergraduate or graduate, takes a semester in classical theory wherein they learn about Weber, Marx, Durkheim, and often a wildcard fourth founding father (nowadays usually Simmel and a generation ago usually Freud). Sociological theory comes alive to students as they see ideas in their original context as illustrated with vivid and accessible examples about quartermasters in the Prussian army, France under Napoleon III, and Australian aboriginal religion. This shared grounding in our core texts gives sociologists a common vocabulary and a common and cohesive understanding of what it means to practice sociology.

In contrast to the rich historical detail sociology students enjoy in reading a Marx or a Weber, economics indoctrinates students with stripped down “widgets” and “Robinson Crusoe economies,” completely depriving them of the opportunity to situate these concepts in such familiar contexts as the politics of Italian city-states of the Renaissance. While unfortunate for students, the deficits of economic education hobble even the “mature” economics PhD who has an impoverished professional vocabulary. Whereas sociologists can convey volumes with a few syllables like “Durkheimian,” an economist’s vocabulary tends to be made up of flaccid terms like “monopolistic competition.”

Ironically, it is not sociology but economics where the dominant paradigm is called “neoclassical” and yet the classical element is hard to see as it is disembodied from the classics. Occasionally “neoclassical” economists will toss out a reference to the Cliff Notes version of the Wealth of Nations, but that is about the extent of it, largely because economics graduate education leaves economists incapable of intelligently discussing any work predating the Austrians and most young economists can’t even really remember the recent past of Keynes (aside from salacious, albeit cryptic, gossip).

The shame of the matter is that economics has a rich history of founders upon which to draw. Imagine the possibilities of economics were it to base its first semester not on substitution, supply, and demand, but on Smith, Malthus, and Ricardo. Economists trained in such a curriculum would routinely revisit the classics and situate most new work in that context. Economics would be much enriched by a research that was not a vaguely neo-classical synthesis but based in semi-autonomous discrete streams of neo-Smithian, neo-Malthusian, and neo-Ricardian work in dialectical conversation with one another. Gregory Clark’s study of how differential fertility and mortality by social class bred a superior race of the English has recently kickstarted an exciting field of neo-Malthusian economics, but that is only one of the economic founding generation.

Economics could profit just as much from the development of a neo-Ricardian school. It is true that Ricardo’s ideas are not directly compatible with recent economic research which is why I call for a neo-Ricardian school as compared to vulgar Ricardo-ism. In such a school one would not apply Ricardo’s ideas slavishly, but find ways to argue that more sophisticated and contemporary ideas can be built up from a basis of Ricardo. For instance, Ricardo held that in the long-run the natural price of an input was its cost of production and most contemporary economists recognize this insight as applied to manufactured commodities. However they lack Ricardo’s insight that this extends also to labor — specifically in the case of a long-run prevailing wage of subsistence.

The contemporary economist educated in the traditional disembodied version of “theory” might argue that Ricardo was simply wrong as living standards in industrialized countries are several orders of magnitude greater than those enjoyed in the late 18th century. Such a “refutation” not only shows a lack of respect for their ancestor, but a poverty of imagination about the meaning of “subsistence,” as can be seen by synthesizing several recent findings in economics. Sociologically minded economists like Robert Franks have recently noted the importance of relative deprivation where we assess our prosperity not absolutely but relative to the consumption of our peers. This includes not only obvious Veblen goods like $5000 watches and $200,000 cars, but also such things as housing and can potentially be extended to include nearly all goods. This line of research shows that even if we have an ever increasing level of goods, we still have a flat level of utility and it is bunkum to say that we have achieved a standard of living exceeding subsistence. This is reflected in “Baumol’s disease” or the tendency of so-called “real” wages to continue to rise even in industries with stagnating productivity — a phenomenon best explained by the need to provide subsistence level wages to labor along with a changing “real” definition of subsistence. Furthermore, an ever increasing proportion of American total compensation is devoted to health care, which quite literally is the cost of keeping labor in production. Viewed in this light a neo-Ricardian approach to economics can prove that in terms of utility, if not in terms of goods and services purchasing parity, wages have in fact tended to subsistence in the long run. This is only an example of the kind of devastating insight that economists could reach if they would only approach problems by viewing findings through the lens of foundational theory. While economists are able to measure things like rising health care costs and relative deprivation, their ahistorical vulgar empiricism prevents them from understanding what they mean. In contrast thanks to our educations in classical theory, sociologists can see the big picture by situating any finding within a Durkheimian, Weberian, or Marxist paradigm.

My advice to a really ambitious young economics grad student is to leapfrog the field by going past the classical economists of the Scottish enlightenment altogether and read the true founder of the field, the Athenian philosopher Xenophon. It is no accident that the field of economics is named after his Oikonomikos. While many economists probably suspect that their founder was a mercenary, it may surprise them to learn that his founding work was titled “estate management” not “of markets” (which would be Agoranomikos). Thus in Xenophon we have the insight that markets are ultimately comprised of command units, an insight that predates Coase’s Nobel-winning theory of the firm by twenty-three hundred years. (Perhaps if the rules allowed for posthumous awards the Bank of Sweden would have allocated credit correctly). Likewise, in Book II, Chapter 9 of Memorabilia, Xenophon describes embedded ties with a parable about Crito engaging the services of Archedemus to defend him against lawsuits not on a spot market basis of fee for service but through gift exchange to build trust and loyalty, a mechanism largely neglected by recent economics but which Xenophon demonstrates to be at the core of exchange in professional services. For the more conventionally-minded economist, Anabasis (Book 2 Chapter 6) also documents the birth of rational choice theory through Xenophon’s obituary for the original homo economicus, Menon the Thessalian, who “sought insatiably after wealth” and “natural affection he clearly entertained for nobody.” These are the kind of insights that economics loses by treating theory as though it consisted of black-boxed theories rather than following sociology’s model of treating theory as intellectual history.