A First Look at Economics
8. Economics as a discipline

Economics first became a firmly established university subject in the late nineteenth century---Marshall was only the second professor of economics at Cambridge, though less traditional institutions, and Scotland, had had such people for a century. Its enrollments have grown pretty much steadily since, partly because students persist in believing that it is more practical than the study of Latin or of history. The economic way of reasoning, with its emphasis on scarcity and choice, has in the past few decades been adopted by some historians, lawyers, sociologists, and anthropologists and a great many political scientists. Recently the economic way of reasoning, though by a broader definition than just "scarcity and choice," has entered even the discussions of literary criticism and culture studies. In 1969 the Swedish Academy and the Bank of Sweden founded the Nobel Memorial Prize for Economic Science. It's not literally a "Nobel Prize," because it was not in Alfred Nobel's original will. It's likely in fact that Nobel (1833-1896), who was a proud Swedish chemist and businessman, and an amateur poet, would have been annoyed to have his name associated with economics.

Some economists are very good at communicating with the public. You may have heard of Paul Krugman, Milton Friedman, the late John Kenneth Galbraith, or Robert Kuttner, among the best. Or you may have heard of Steve Leavitt, a co-author (with the journalist Stephen Dubner) of the best-selling Freakonomics. Yet the public presentation of economic knowledge, even by economists, tends to be misleading about the private conversation of economists. What you hear on TV and read in popular magazines and books is different from what you hear when you wander around at the annual convention of economists. There you will hear economists talk in specialized jargon with phrases such as "t-statistics," "equilibrium solutions," and "rational expectations." The alternative to thinking about economics scientifically is folksong economics, the economics of the man or woman in the street. Such economics may seem to be based on good common sense, but after a little probing it collapses.

Examples of folksong economics

  • To account for inflation (a rise in the overall cost of living) the man in the street often points an accusing finger at labor unions. "Unions keep asking for higher wages," he says, "and that forces businesses to raise their prices." Or he points to the oil companies. "The oil companies raise the price of oil, and that forces businesses to raise their prices." The argument is not completely wrong---some economists believe a version of it. But most are unpersuaded. You might suspect something is fishy when the same man does not want to give credit to the unions or the oil companies when inflation comes down!
  • You'll hear a TV reporter say that inflation hurts everyone. But economics will persuade you to the contrary. Of course, inflation hurts those who have to pay the higher prices in stores. But what about the storekeepers and the people who supply the storekeepers, or the wage earners who get the income from the higher prices? They surely do better. It turns out that on average, because of the accounting, inflation does not hurt in the way that folksong economics says.
  • The woman on the street may say, "The country needs to grow; people need to save more so that there is more money available to build factories and buy computers." Again, this statement is not hopelessly wrong, just out of focus. Savings are needed to finance growth. But the economist will note that if everyone saves more, overall spending may go down. More saving may then lead to fewer jobs and lower incomes for all. That's a "Keynesian" argument. And all economists agree that in a global world low savings by Americans doesn't necessarily mean low investment in American office buildings or airports. The savings can---and does, on a big scale---come from abroad.
Heterodox Box: What's Heterodox Economics?
"Heterodox economics" has been heard increasingly in the media, from Le Monde and The Guardian to Adbusters and The Chronicle of Higher Education. In the Sixties any econ major with a heart was out in the streets walking with workers and civil rights activists. These were yesterday's heterodox. But what is heterodox economics and where are its soldiers today? Hetero-anything is linguistically speaking of Greek origin. When used as a prefix, "hetero" means "different" or "other," as in heterosexual. Dox, also from the Greek, means "opinion" or "belief". So a heterodox economist is a person with different or alternative beliefs about economics and the economy. Different from what? Different from the orthodoxy, the so-called "mainstream, neoclassical economists" who populate most American and British and Dutch departments of economics. Within heterodox and mainstream economics one finds the variation we mentioned, including significant overlaps. At heterodox conferences you will find libertarian, feminist, Marxist, Catholic, institutionalist, post-autistic, Post Keynesian, and other schools or divisions of economists. And within each of these divisions you will find further sub-divisions. For example, the postmodern Marxist theorists do not much speak with the empirically-oriented, model-testing Marxists.

Heterodox economists are unified by their opposition to the idea that neoclassical economics-the allegedly value-free, individually-based profit-maximization stuff that is central to Chapters 2 through 16-is the one and only way of thinking about the economy. We agree with heterodox economists that an open discussion about heterodox versus mainstream economics is an important part of the economic conversation. Many neoclassical journals, textbooks, and departments of economics claim that no major disagreements exist. But if you learn anything in this course it should be the old saying, "Don't believe everything you read." Heterodox economics can be explored on the web at: