D. K.

Foley

Ideology and Methodology Notes on Ideology and Methodology Duncan K. Foley

1989 page 1

1.

The hegemony of "mainstream" economics Current U.S. economics offers a good example of what Gramsci calls hegemony. The battles of the early twentieth century between neoclassical economics and Institutionalism and of the middle twentieth century between neoclassical economics and Keynesianism have produced a modern "mainstream" which has established its dominance in the economics departments of U.S. universities, and in our economic journals and professional organizations. Those who disagree with major premisses of the mainstream research paradigm face an uphill battle in gaining and keeping teaching posts, publishing their work, and funding their research. This mainstream is a complicated phenomenon. It inherits from the marginalist, neoclassical tradition the method of analyzing economic phenomena from an individualist point of view, seeking to explain social phenomena as the outcome of individual decisions. It has adopted a modified version of a positivist philosophy of knowledge, emphasizing, at least in principle, the need for theory and observation to develop in tandem, accepting the positivist criteria of falsifiability along with its empiricist bias. It has developed a clear research program, which takes general equilibrium theory as the paradigm of theoretical work, and seeks to explain all economic phenomena within the general equilibrium framework. This program challenges the theoretical investigator to explain economic phenomena as the general equilibrium of a model with well-specified rules of market or bargaining interaction, in which specific assumptions about tastes, resource availability, technology and information determine observable outcomes. A peculiarity of the mainstream school is its unwillingness to consider hypotheses or explanatory insights except when they are

D. K. Foley Ideology and Methodology 1989 page 2 couched in this form. On the other hand, the mainstream offers at least a pro forma hearing to almost any hypothesis, no matter how implausible, expressed in general equilibrium terms. The mainstream research program challenges the empirical investigator to make these general equilibrium models operational so that implications of the models can be tested in terms of their agreement with actual experience. A dissident thinking from a socialist, or even Ricardian perspective might note some negative characteristics of the mainstream. The mainstream consensus is reluctant to entertain or even grasp theories that concern emergent social phenomena, especially class. The Classical concepts of a social surplus product, of the control of the social surplus product seem unintelligible to the mainstream, and Marx's notion of exploitation appears only in an unrecognizably distorted form in this discourse. The modern mainstream claims to have overcome the neoclassical school's stubborn attachment to laissez-faire ideas, and to consider methods of social allocation neutrally taking into account the informational failures of markets and the pervasiveness of externalities, but, like a reformed philanderer, the mainstream is still tempted by the comforts of the old laissez-faire dogmas. Perhaps the most serious intellectual failing of the mainstream is its tendency to judge problems by the elegance of the solutions available within its research program rather than by their inherent importance. The mainstream dialectically produces its own negation, dissidents who will not for one reason or another join in enthusiastically in the building of the general equilibrium city on a hill. It is my aim in these remarks to address such dissidents, or the dissident side of some diligent citybuilders. The dissident whom I am addressing is uncomfortable with the modern mainstream for some or all of the following reasons: because it fails to address problems of power and conflict in terms of class; because it overemphazes the problem of resource allocation to the

D. K. Foley Ideology and Methodology 1989 page 3 detriment of our understanding of accumulation and the sources of economic growth in relation to resource allocation; because it makes no serious critique of capitalist economic institutions; because it has produced little insight into the problems of inequality and poverty; because of the intellectual narrowness of the mainstream research program itself. 2. A strategy for dissidents I suggest that the positive task of dissidence is to create or at least lay the foundations for an alternative economic discourse that would overcome these defects. I would go further and argue that we need to construct an economics that can contribute to the construction of an alternative socialist system of organization of production. Economic discourse can accomplish this through maintaining a balanced and persuasive critique of capitalist institutions and their performance and by generating credible alternative proposals for the organization of production and the management of social resources. In pursuing this goal, we need to learn several things from the mainstream consensus. First, we ought without prejudice or pride to take whatever is useful and correct in the methods, data, theories, and conclusions of mainstream work. Second, I believe that the edifice of mainstream economics is an important model for the construction of an alternative. An alternative economics must function, as does the mainstream, at every level of abstraction, and at every articulation of the reproduction of scientific knowledge. It must aim at maintaining, as the mainstream consensus now does, vigorous and focussed work on philosophy, method, basic theory, mathematical modelling, econometrics, econometric method, applied problems, policy evaluation, history, and the history of economic thought. Thus in particular we cannot afford the luxury of spurning any area of scientific work as too abstract or too complex, or too concrete. In imitation

D. K. Foley Ideology and Methodology 1989 page 4 of the mainstream we ought to strive to maintain our discourse at every level of expression, from textbooks and popularization to monographs and specialized research reports in journals. The point is that all these activities, even those that may seem hopelessly removed from political and historical reality, contribute to the maintenance of the hegemony I described above, and it will be impossible to challenge that hegemony except by challenging at every one of these points. 3. The critique of method I will now try briefly to suggest an approach to understanding the relationship between methodology and ideology. Methods per se are simply ways of trying to answer questions. Methods in themselves cannot determine questions or answers. Thus I do not believe there can be a critique of a method in the abstract. The critique of method must consist of one or several of the following claims: 1) The method is not being used correctly, so that it is leading to a wrong result. The proper critique in this case is to show the correct use of the method and the correct result. An example of this critique is the Cambridge critique of the neoclassical attempt to argue that profits are a reflection of absolute scarcities of capital through the production function. The method of equilibrium modelling was being used incorrectly by neoclassical economists who insisted that the equality between the marginal product of capital and the profit rate meant that the profit rate was determined by the marginal product of capital rather than the other way around. 2) The wrong method is being used to answer a question, giving misleading or ambiguous results, when a more powerful method is available which gives sharper and more accurate results. The proper critique in this case is to rework the problem with the superior method and establish the correct

D. K. Foley Ideology and Methodology 1989 page 5 conclusion. An example of this situation was the attempt by Patinkin and Samuelson to treat money symmetrically with other commodities in a general equilibrium model. Another example is the attempt to explain economic growth without a coherent theory of the capitalist firm as a locus of endogenous technical change. 3) The wrong question is being asked, or the question is being put in a misleading way. The proper critique in this case is to frame the question sharply and then apply the appropriate method to resolve it. An example is the assumption by mainstream economists that what has to be explained in the theory of unemployment is why real wages do not vary to maintain full employment, whereas the more interesting and relevant question is why capitalist economies produce substantial fluctuations in the demand for labor. Another example is the tendency of mainstream economists to explain income inequality in terms of the personal characteristics of individuals rather than in terms of the structural features of capitalist society that reproduce inequality and poverty. The mainstream economist asks "why are these particular people poor?" whereas the relevant question is "what systematically reproduces poverty?" Ideology resides in the questions a theoretical discourse puts forward as central to its development, the implicit assumptions it accepts in answering these questions, and the issues it systematically ignores. Ideology influences method, to be sure, because methods are developed to answer questions of a particular theoretical discourse. But there is an inevitable mismatch between methods developed and their intended uses. On the one hand, a method developed to support a reactionary or apologetic position may, properly deployed, demonstrate the inadequacy of current arrangements or the need for decisive change. On the other hand, dissidents working on their own problems may widen their market because their methods may be useful to the mainstream.

D. K. Foley Ideology and Methodology 1989 page 6 4. Constructing an alternative economics The project of constructing an alternative economics involves developing a set of linked questions at all levels of abstraction that call into question the performance of capitalist economic institutions and search out feasible alternatives. Existing methods can sometimes make substantial progress in addressing these questions. A determined and sophisticated attack on them will surely lead to the development of new methods. The construction of an alternative economics on these lines is a formidable task. In pursuing it, I suggest that we pay particular attention to the following points: 1) We need to be resolutely and honestly self-critical. There is a tendency among dissidents to let up intellectually when we consider our own work or the work of people we can identify with. This is a mistake, because it reproduces the backwardness of alternative work. The criticism of mainstream economists often causes pain to dissidents. Sometimes this criticism is unfair and ideologically motivated, in which case it need only be considered coolly and taken for its real value. But often mainstream economists are simply giving us what they give each other, namely a tough-minded and logical evaluation of work on its own premisses. Until we can find ways to hear and give each other that level of criticism our work will not achieve its own potential. 2) We need to be methodologically expedient and catholic in our tastes. By this I mean that we can not afford to avoid methods on account of our distaste for the way the method has been used in the past. If the assumption of rational expectations allows us to make a key point about the stability or social rationality of macroeconomic equilibrium, by all means let us adopt it in that context, even if its roots are in apologetic and idealistic models. The dissident has the luxury of a certain distance from the methodological scrimmage that is life and death to the

D. K. Foley Ideology and Methodology 1989 page 7 mainstream economist. We can become connoisseurs of method and have the fun of mixing insights from very different schools of thought. 3) We need to be methodologically aggressive. For every hour dissidents can give to a problem, the mainstream can deploy thousands of hours of better-paid, bettersupported, and at least equally well-trained intellectual labor. The only chance we have to reverse the unevenness of development in economics is to leap over the mainstream. The history of science testifies to the possibility of this kind of leap; it is associated with the aggressive adoption of new methods of observation, data analysis, and theoretical development. There is no point, of course, in using a cannon to kill a fly, or to deploying a deep and powerful method to make a point that can be grasped through an appeal to ordinary common sense. But dissidents must be on the lookout for methodological breakthroughs. An example is the problem of the analysis of the long-run sectoral competitiveness of the U.S. economy. Up until a few years ago Stigler's and Brozen's work on this problem represented the orthodox opinion, but it was based on limited data sets and primitive econometrics. This opened the door to a more systematic attack on the problem by Mark Glick, Hans Ehrbar and others starting from the Classical point of view of equalization of profit rates using more sophisticated econometrics and uniform, comprehensive data sets. Bowles, Gintis, Gordon, Schor and others were able similarly to open up a systematic theory of power relations within the firm that widened the set of questions theory addressed while mainstream economists remained content with macroeconomic studies of the Solow residual. 4) We need to be explicit and exact in formulating our questions and in establishing a consistent framework of relationships among these questions. Our critique of mainstream economics ought to be consistent with this framework. In this respect certain aspects of Marx's work

D. K. Foley Ideology and Methodology 1989 page 8 are invaluable. In his development of the circuit of capital as an image of the capitalist economy Marx provides a way of thinking of economic relations as a whole which can provide the same kind of guide to alternative theory as general equilibrium does for the mainstream. The circuit of capital has several methodological advantages over finite-horizon Walrasian models, among them its explicit dynamic character, the incorporation of money and monetary relationships in the foundation of the theory, and its explicit connection to the theory of class and exploitation. Following this principle is hard, because it means giving up the freedom to criticize everything about mainstream economics from whatever point of view one chooses, but it is necessary to achieve the positive project. And finally, 5) We need to survive. I think there should be no apology about this. Dissidents have the same life drives as mainstream economists. We need incomes, jobs, security, audiences, professional recognition, the psychic satisfaction of constant learning and the thrill of entering the unknown and discovering things no one has suspected before. We need to find more effective strategies for achieving these ends and satisfactions, even in the difficult war of position (to use another of Gramsci's phrases) we have had the ill or good fortune to confront. 5. Surviving mainstream hegemony Everyone has to fight her or his own battle, and the lessons of experience are only rarely applicable to the next war. Despite these caveats, I would like to offer some advice on the problem of personal survival as a dissident. 1) The idea of disguising one's true beliefs until one achieves a certain degree of security is attractive but hardly ever works out. It is difficult even for the truest believers among the mainstream economists to succeed in doing something worthwhile in scholarship, and much harder for

D. K. Foley Ideology and Methodology 1989 page 9 someone who is masquerading. Find a problem and approach that you believe in and work it through. Very few scholars shift their method or problem area successfully after they reach the Ph.D. 2) Accept the unfair burdens that come with a dissident stance. You will be judged by different standards; you will be undervalued; you will be asked to do work an order of magnitude better than the work you are criticizing before you even get a hearing; and even then you will be ignored unless you insist on attention. So what? 3) Aim for strength, and be ambitious. Don't expect very much from the existing anti-hegemonic structures of patronage and support. Publishing exclusively in dissident journals is an attempt to get a free ride on a bus that is already barely moving. Take the struggle as much as possible to mainstream ground. 4) Accept the practical need to be a marketable commodity. Academics are free-lance adventurers in historical origin and contemporary academic life still reflects this. Choose interesting, important questions to work on, even as you insist on raising uncomfortable issues. Exploit the faddishness of academics where it is possible. Exploit methodological fetishism where it helps. Don't be shy about getting a job because you have a good degree and a skill that commands rents in the market. Academic ideology in economics is policed effectively but loosely. 6. Weaknesses and trends in mainstream economics I believe that we are in a period of considerable fluidity, if not crisis, in mainstream economics, and that a careful look at its development is particularly worthwhile for dissidents now. 1) Milton Friedman's negation of Paul Samuelson's neoclassical synthesis, the combination of dogmatic laissezfaire in microeconomics and dogmatic monetarism in macroeconomics, has failed to consolidate itself as the

D. K. Foley Ideology and Methodology 1989 page 10 center of mainstream thinking. This is surprising because Friedman's system offered a more coherent and consistent apology for conservative political economy than the neoclassical synthesis did for liberalism. Connected to this is a decline in the influence of Walrasianism as the basis for price theory. The emphasis on prices as carriers of information about costs in contemporary price theory, rather than as clearers of markets, actually brings contemporary theory closer to the cost theories of price that are the heart of Ricardian and Marxian economics. This development also opens up connections to theory of socialist economic organization, since wealth holders are viewed in modern theory primarily as performing a social function in allocating social resources, and therefore as a kind of system of social management of resources. The high road of Marxian theory is to analyze the ways capitalism solves the problem of organizing social production as a guide to the tasks of socialism. 2) Within mainstream economics there is a re-emergence of explicitly Classical and even Marxist economic themes and problems. The work of Paul Romer on endogenous technical change raises classic questions of the sources of productivity growth and the wealth of nations. In addition, this point of view suggests that there is a zero-order externality (one that affects not just the level, but the rate of growth of output) inherent in capitalist production. We are seeing the development of what might be called Chicago materialism, in which general equilibrium ideas are marched out to confront such questions as the importance of a middle class in broadening the market in capitalist development, and the correspondence between technological development and the sophistication of contracts and capital markets. Anyone who has read much in the Marxist tradition will not find these questions, or even the general shape of the proposed answers very surprising.

D. K. Foley Ideology and Methodology 1989 page 11 3) The failure of neoclassical economics to achieve a coherent theory of the capitalist firm has now been recognized by the mainstream as a key anomaly. The emergence of the new institutional economics at Berkeley among other places is one attempt to address this problem. Again in this area there is an opportunity to exploit the insights of Marxian and Classical economics, which puts accumulation in the center of the stage, and conceives of the capitalist firm as the locus of technical development as well as surplus appropriation. 4) Econometrics is becoming more sophisticated and more rational. Twenty years ago feeble and methodologically flawed procedures were routinely accepted as offering support for the mainstream orthodoxy of the day. Econometrics is better; as a result it claims to prove less and disprove more, and has produced a lot of evidence for the irrelevance of simple-minded Walrasianism as a source of explanatory propositions. One of the criticisms frequently made of dissident economists is that they don't couch their ideas in very complete models, but talk about vague concepts such as the gravitation of prices or profit rates, or structural rather than behavioral determinations of income and wealth distribution. But modern econometrics is becoming much more congenial to exactly this kind of measurement without theory. 5) The problem of the determination of the profit rate in capitalist economies, which lies at the heart of Marxist economics and the neoclassical attack on Marx of Bohm-Bawerk, has raised its head again in the new guise of the indeterminacy of equilibrium prices in infinite horizon economies. In each of these areas, and probably others that I know less about, I see the possibility of an alternative economic point of view based on Classical and Marxian traditions and self-consciously critical of capitalist economic institutions making influential and even decisive contributions.