What is Neoclassical Economics? And Are Many Heterodox Economists Actually Neoclassical?


After my recent post on a paper by Tony Lawson I was corresponding with the author and he suggested that I might want to take a look at a paper he has written that will be coming out in the September issue of the Cambridge Journal of Economics. The paper, which is entitled What is this ‘School’ Called Neoclassical?, can be downloaded from the advance access page of the CJE — just scroll down to June 20th.

In the previous post on Lawson I wrote the following:

I should say that while agree with Lawson’s arguments against the ideology crowd, which I shall lay out shortly, I do not agree that the term “neoclassical” does not denote a tendency in economics that has fed into the very formalism that, as we shall see, Lawson despises. I think that a great deal of the problems with modern economics is its marginalist and, ultimately as I have shown before, teleological tendencies. These are hallmarks of the neoclassical approach and it is these tendencies that accommodate to the problems that Lawson identifies.

The present paper can be seen, in some sense, as a response to that comment. Of course, Lawson was not actually responding to me directly but it seems that others have made similar comments and this is what Lawson is dealing with in the present paper.

Lawson starts by making the point that, as is at least somewhat well-known, the term “neoclassical economics” was coined by Thorstein Veblen in a 1900 paper entitled The Preconceptions of Economic Science. The paper deals, interestingly enough, with the metaphysical preconceptions of economics — something that I deal with quite often on this blog (many can be found here) and in other writing (see here, for example). Lawson highlights that Veblen’s target is much like that which is found in his own work except that what Veblen calls “metaphysics” Lawson generally refers to as “ontology”.

This, as we shall see, is extremely important because Veblen, in coining the term “neoclassical”, is not actually taking aim at the marginalists — if we may call them that — because of anything to do directly with utility theory or perfect markets or anything like that; more important for Veblen is their underlying metaphysics. Veblen sees this as being caught between two different paradigms: what he calls the “taxonomic” and the “evolutionary”.

Veblen is contrasting this contradictory stance of what he calls the neoclassicals with that of the classicals. In the classicals Veblen finds an animistic, teleological metaphysics in its most crude form which he then contrasts with the newer neoclassical view. He writes:

The earlier, more archaic metaphysics of the science, which saw in the orderly correlation and sequence of events a constraining guidance of an extra-causal, teleological kind, in this way becomes a metaphysics of normality which asserts no extra-causal constraint over events, but contents itself with establishing correlations, equivalencies, homologies, and theories concerning the conditions of an economic equilibrium. (Veblen, 1900, Pp255)

What Veblen is referring to as the “orderly correlation and sequence of events a constraining guidance of an extra-causal, teleological kind” is basically Adam Smith’s “hidden hand” which exerts a teleological pull on the direction of economic development. Veblen recognised in the hidden hand the teleological pull of God’s Will; something which I have noted elsewhere before.

In the newer neoclassical tradition, however, Veblen noted that much of this “archaic” religious or animistic metaphysics becomes instead a “metaphysics of normality” that tries to ground itself without any reference to an “extra-causal, teleological” force. The reason Veblen notes this is because he finds in the work of certain British neoclassical authors a recognition of what he calls the “evolutionary” approach — something Post-Keynesians may more readily understand if we say that this is an approach that recognises the presence of historical rather than logical time. Lawson summarises:

In identifying this specific strain (which shows unmistakable adaptation to the historical or evolutionary approach) Veblen proceeds merely by illustrating it with reference to two of its developers. One is the philosopher of science John Neville Keynes (the father of John Maynard Keynes), the other is the economist (and Keynes family friend) Alfred Marshall. (Lawson, 2013, Pp21)

In this approach Veblen finds the modern neoclassicals to be gradually moving away from the archaic, animistic tradition of the classicals and toward something more fruitful. Lawson again summarises:

It is precisely this tension, which is first illustrated using the contributions of [John Neville] Keynes and Marshall that I  take to be the essence of neoclassical economics, according to Veblen. In other words, the defining feature of all neoclassical economics is basically an inconsistent blend of the old and the new; it is in effect an awareness of the newer metaphysics of processual cumulative or unfolding causation, combined with a failure break away from methods of the older taxonomic view of science that are in tension with this modern ontology. Neoclassical economists are classical in their acceptance of a taxonomic orientation to science that does not rely on the design of God, albeit a taxonomic stance now primarily revealed at the level of method. But at that level of explicit ontological or metaphysical preconception, neoclassical economists reveal unmistakable adaptation the viewpoints of the evolutionary sciences, warranting the qualifier ‘neo’. (Lawson, 2013, Pp23)

This is the underlying tension apparent in what Veblen calls the neoclassical school. It has little to do with clearing markets, an automatic tendency to full employment or anything else — indeed, these are to be properly seen as mere symptoms of a more fundamental sickness — rather it is the fact that these neoclassicals do recognise that they are dealing with “processual” historical time while nevertheless retaining methods that are only suited to the study of logical time. In more familiar lexicon this is usually identified as the Marshallian partial equilibrium approach which was recognised by such economists as Joan Robinson as having moved away somewhat from the ahistorical Walrasian approach but which nevertheless retained problems of its own.

At the time Veblen thought that such a contradiction would prove short-lived and it was only a matter of time before the neoclassicals adopt the correct “evolutionary” ontological position in their study of the economy. Lawson points out, of course, that the exact opposite has been the case. He argues that this was in large part due to changes that were taking place in the field of mathematics at the time. Here I will quote Lawson at length as it is a very important argument and draws on previous work:

However, in the early part of the twentieth century changes occurred in the interpretation of the very nature of mathematics, changes that caused the classical reductionist programme itself to fall into disarray. With the development of relativity theory and especially quantum theory, the image of nature as continuous came to be re-examined in particular, and the role of infinitesimal calculus, which had previously been regarded as having almost ubiquitous relevance within physics, came to be re-examined even within that domain. The outcome, in effect, was a switch away from the long-standing emphasis on mathematics as an attempt to apply the physics model, and specifically the mechanics metaphor, to an emphasis on mathematics for its own sake. Mathematics, especially through the work of David Hilbert, became increasingly viewed as a discipline properly concerned with providing a pool of frameworks for possible realities. No longer was mathematics seen as the language of (non-social) nature, abstracted from the study of the latter. Rather, it was conceived as a practice concerned with formulating systems comprising sets of axioms and their deductive consequences, with these systems in effect taking on a life of their own. The task of finding applications was henceforth regarded as being of secondary importance at best, and not of immediate concern…

This emergence of the axiomatic method removed at a stroke various hitherto insurmountable constraints facing those who would mathematise the discipline of economics. Researchers involved with mathematical projects in economics could, for the time being at least, postpone the day of interpreting their preferred axioms and assumptions. There was no longer any need to seek the blessing of mathematicians and physicists or of other economists who might insist that the relevance of metaphors and analogies be established at the outset. In particular it was no longer regarded as necessary, or even relevant, to economic model construction to consider the nature of social reality, at least for the time being. Nor, it seemed, was it possible for anyone to insist with any legitimacy that the formulations of economists conform to any specific model already found to be successful elsewhere (such as the mechanics model in physics). Indeed, the very idea of fixed metaphors or even interpretations, came to be rejected by some economic ‘modellers’ (albeit never in any really plausible manner)…

The result was that in due course deductivism in economics, through morphing into mathematical deductivism on the back of developments within the discipline of mathematics, came to acquire a new lease of life, with practitioners (once more) potentially oblivious to any inconsistency between the ontological presuppositions of adopting a mathematical modelling emphasis and the nature of social reality. The consequent rise of mathematical deductivism has culminated in the situation we find today. (Lawson, 2013, Pp27-28 — My Emphasis)

This, of course, will strike many of us as familiar; especially those who have read recent criticisms of the mathematical method as applied to economics that I have published on this blog (here and here). Indeed, on this view it would appear that if we wish to stick to the proper use of the term we must reserve “neoclassical” for those who exhibit a tendency to at once recognise that economics is the domain of historical time and thus largely not conducive to mathematical modelling and at the same time use said mathematical modelling as a tool to understand the economy. Lawson summarises this conclusion nicely:

Somewhat ironically, then, albeit particularly advantageously, if the suggested interpretation of the term ‘neoclassical’ is accepted, usage of the category would serve to draw attention to precisely that inconsistency (of preconceptions of certain modelling practices with otherwise revealed ontological commitments) which the manner of its current usage helps obfuscate. The effect, in short, would be to reverse the term’s current role in the discipline; its usage would contribute to identifying, revealing and/or signalling the tension in question, rather than, as at present, serving to mask or otherwise divert attention from it. (Lawson, 2013, Pp28-29)

The implications of this, of course, are enormous, as anyone familiar with the heterodox community and their use of the term “neoclassical” will realise. It means that any heterodox economist who admits that economic processes take place in historical rather than logical time but who nevertheless utilise improper mathematical modelling methods should be identified as “neoclassical” because this is precisely the group that the term was coined for.

So, is this really Lawson’s goal? Does he really want to tag those in the heterodox community that use mathematical modelling extensively and unreflectively as neoclassicals? Yes and no. Here I will again quote Lawson to allow him to make his own case.

To return to a question already posed but not really answered, am I seriously suggesting that we employ the term ‘neoclassical’ to refer to the third of the identified groups of economists, which will clearly include many who self-identify as heterodox? I repeat that I am certainly suggesting that to use the term ‘neoclassical’ in this fashion is the most appropriate, and a coherent, use of the category for the reasons already given; although a better categorisation might be non-dogmatic taxonomists or non-dogmatic deductivists, in contrast with the dogmatic (mathematical) taxonomists/deductivists that are the mainstream… All things considered, however, in the end I do not really think it reasonable to distinguish or identify any group on the grounds of a shared fundamental inconsistency. My aim here, in reporting my findings, is, in the end partly rhetorical, namely, to point out that if coherence in use is required, then according to the seemingly most sustainable conception, many of those who use the term ‘neoclassical’ as an ill-defined term of abuse can be viewed ultimately as engaged in unwitting self-critique. But I am hoping, more fundamentally, that it is enough in this manner to communicate (in a yet furtherway) that in modern economics there prevails largely unrecognised a basic tension between ontology and method, one that hinders serious attempts to overcoming the real problems of the discipline. (Lawson, 2013, Pp33)

The implications of this are nothing short of enormous. If one agrees to stick to a clear and well-defined meaning of words then Lawson is wholly correct in his use of the term “neoclassical”. (That said, I think for other reasons there is good reason to hold discussions about the shortcomings of the marginalist approach). So, today if we want to be consistent we must use the term neoclassical to refer to a group of economists who at once recognise that economic processes take place in historical time but nevertheless use inappropriate mathematical modelling tools to try to capture this.

Given the recent trends toward econometric research a good deal of working heterodox economists fall under that heading; not to mention anyone using extensive mathematical modelling techniques. Food for thought, at the very least.


About pilkingtonphil

Philip Pilkington is a macroeconomist and investment professional. Writing about all things macro and investment. Views my own.You can follow him on Twitter at @philippilk.
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8 Responses to What is Neoclassical Economics? And Are Many Heterodox Economists Actually Neoclassical?

  1. Bastien says:

    A very interesting definition. However, I’m suspicious about its ability to “catch” neoclassical economics definitely.
    As Arnsperger and Varoufakis stated :

    “There is nothing more frustrating for critics of neoclassical economics than the argument that neoclassical economics is a figment of their imagination”

    and I would add that there is nothing more frustrating than the ability of neoclassical economics to “absorb” their critics by betraying them and building a completely inconsistent framework (impossible to do otherwise when one tries to merge Keynes, Walras, Schumpeter,…). This is the reason why I share the point of view of Arnsperger and Varoufakis :

    “Thus, as long as critics’ slings and arrows are directed against features of neoclassical economics that the latter can shed strategically, like a threatened lizard ‘loses’ its tail, they shall miss their target.”

    I really want the lizard, not its tail. Unfortunately, I’m afraid that Lawson’s definition is too focused on features and tools instead of underlying and fundamental structures. Maybe I’m wrong, and need to revise my judgement.

    And concerning the definition per se, I agree with the use of inappropriate mathematical modelling, but not with the fact that neoclassical economists recognise that economic processes take place in historical time. For the latter, I agree more with, for example, Erik Reinert where neoclassical economics is context-free, history-free. But I must admit that some of them (neoclassical economists) are completely schizophrenic about that and fit perfectly well in Lawson’s definition. At the same time, others seem entirely satisfied with a pure blackboard economics, without context, without history,… Without reality.

    All in all, neoclassical economics may be difficult to define properly because of its “assumption-juggling” ability (Erik Reinert again). (Note that this ability is also one of the reason why this paradigm is degenerative, armful, irrelevant, etc.) But this characteristic requires to define neoclassical economics with something (or things) fundamental their members cannot deny.

  2. Hayo Siemsen says:

    Veblen was of course following Ernst Mach in his take on metaphysics and method. Ontology is the Kantian a priori, which then was updated by Mach. Due to the world wars, this knowledge has become “lost”.

    What you write about maths and the continuum is not correct. The discussion is actually about the intuitive (and therefore experiential) basis of mathematics. It was what was called the “foundational debate” in mathematics. It has more influence on economics, especially through Wald, von Neumann/Morgenstern and game theory. Like Mach said, it was of course fruitful to ask the question “if pure mathematics is possible”, but it was detrimental to wed it with the a priori assumption that “it is a priori”. Of course there is no pure mathematics and therefore the assumption is simply false. The clear distinction between metaphysics and empiry is of course still helpful and necessary.

    By the way, the distinction to call those who do not make this distinction properly “neoclassical” (I know, this is not exactly Veblen’s take) is not very helpful as many heterodox economists are also in that camp. My argument for a while has been that first we should start with some seminars for economists on “How to make our ideas clear” and how to distinguish between the empirical meanings of concepts and their metaphysical part. Then many ideas would become much easier and many problems would disappear. In Russia they have implemented this on a larger scale in the circle around Shschedrovitzky (student/colleague of Vygotsky, Luria, Zeigarnik, etc.), but we are also doing it on a regular basis for different people.

    I am now writing a paper for the society of gestalt psychology on the concept of atom as well as the origin of the gestalt concept by Mach. It is not only the mathematics, it is also the psychology that is important here.

  3. Dan says:

    I’ve always been dubious about the term neoclassical, partly because so many conventional economists don’t classify themselves as neoclassical, partly because it has a specific meaning within mainstream macroeconomics as a means of distinguishing it from new Keynesian and other approaches, and partly because defining it has proven so slippery, as you suggest above. We can probably debate it ’til the cows come home, but with only limited worth.

    The term ‘mainstream’ is sometimes better although it has its problems — above all that it can be misused as a catch-all to describe everything you don’t like. The term that comes closest to describing the approach that I find most harmful is probably McCloskey’s ‘post-Samuelsonian’.

    I’m troubled by Lawson’s relentless anti-maths stance. It’s not maths that’s the main problem. Some mathematicians can be realists. Maths and logic are just a part of reasoning and language. Formality of method doesn’t capture the wholesale inadequacy of economics, especially in recent years. For me there are much deeper problems in the discipline to do with uncritical positivism, universalism and essentialism, not to mention the use and manipulation of economics as ideology.

    Trying to be as optimistic as possible, i do wonder whether the broadening of what constitutes economics in the last decade or so — including behavioural and experimental economics etc. — presents an opportunity. Economics as a coherent packaged whole increasingly looks silly, and the general public routinely questions the discipline in the wake of the crisis. Seeing economics as a set of connected but distinct fields of study of which neoclassical economics is only one, and which are more or less useful and ideological, may go some way to eroding the pernicious grip the discipline has held on academia and policy in recent decades. More on the recent shifts in economics here:


    • Well, I think that Lawson has come up with a coherent and correct definition and until I see someone refute it by returning to the Veblen papers and showing that Lawson has misrepresented them, I think I’ll be using it. Of course this may be due to a slight bias on my part as I think that the formal methods used in economics are probably the main problem.

      • Dan says:

        Sure, Lawson has presumably represented Veblen’s view accurately and Veblen is important, interesting and worth paying close attention to, as I learnt from your interesting posts. But I think it’s at least worth considering the possibility that the term neoclassical might have been shaped and defined by others both before and since Veblen. As with a lot of such terms, the way they’re used and the context in which they exist comes to shape their meaning; not just the way their original interpreters defined them.

        Some of my objections to economic methods beyond its mere formalism are here: http://www.ingentaconnect.com/content/routledg/rjec/2007/00000014/00000001/art00006

        and here: http://www.paecon.net/PAEReview/issue19/Gay19.htm

        Not to mention here: http://emergenteconomics.com/book/

      • As I argue here I think that Lawson’s use of the term is not mere rhetoric. It provides an interesting taxonomy to study ideas based on their metaphysical presuppositions:


        I read your PAECON article and I really think that most of your objections are rooted in formalism. For example, you write:

        But if political theorists are idle gesticulators, then mainstream economists are invisible hand-wavers. Their version of economics is, in fact, unrigorous because it leaves out so many possibilities. It is not thorough because it mostly analyses only things it can measure.

        This is precisely one of the reasons why formal modelling doesn’t work. It leaves out effects that cannot be, in some way, measured. Or this:

        But what it fails to recognise is that the real world is dynamic and elusive, and that understanding it requires an ever-changing and nuanced approach. A variety of human activities that can be described as economic cannot be understood by strictly analytical tools.

        Again, this is largely due to the formalistic/deductive metaphysics underlying the discipline. Naturally you won’t find what you’re looking for in a Solow Growth Model but neither will you find it in a Minsky FIH Model. The models preclude them due to the underlying metaphysical/ontological presuppositions. This is Lawson’s point and I think that he is correct.

        This is not to say that all maths is useless. I think simple algebraic maths can elucidate a lot and can be applied to real historical material. The Keynesian multiplier, the GDP identity and the Kalecki profit equation are good examples of this. Even the Cambridge growth model, provided it is understood intuitively as Robsinson intended, can provide insights.

  4. Jane says:


    I do think you do an injustice to Lawson. He is usually careful to spell out that (as a trained mathematician) his is not an anti-mathematics position but an anti-the-abuse-of-mathematics position. The problem with misrepresenting him in this way is that it becomes all too easy to ignore what he is actually arguing (which of course is why some people do it.) You yourself in dismissing him as anti-maths, have failed to notice that in the paper being discussed Lawson addresses and provides a coherent account of all the subsequent and prima facie competing conceptions.

    Lawson often writes explicitly on this misunderstanding/misrepresentation of his position. Read for example what he says in Edward Fullbrook’s (2009) book on Ontology and Economics: Tony Lawson and his critics on page 196-7, (the chapter being downloadable from: http://www.econ.cam.ac.uk/faculty/lawson/PDFS/ReplytoHodgson.pdf).

    Lawson writes

    As I have repeatedly stressed, my objective in my critical assessments of the state of modern economics, is to understand why certain research methods have generally failed or occasionally (seemingly) proven successful. Whatever else my project may entail, it has nothing to do with seeking to narrow down the range of research practices on offer. Ultimately, indeed, as I have argued earlier, my findings in fact support just the opposite stance, of expanding the options available and recognised as viable.

    Previous Statements

    Perhaps the reader unfamiliar to my contributions will suspect that there is no smoke without fire, that the overall or basic position I am here accepting is so far from that seemingly attributed to me by Hodgson, that I must myself be saying things now that are inconsistent with the broad message of previous contributions. In case this is so, I hope I can be permitted to reproduce here a few (of the very many) relevant passages. In Reorienting Economics I write:
    “Let me elaborate a little on my orientation to formal modelling. Although parts of this book, and most specifically chapter 1, are critical of the way formal modelling methods are taken up in modern economics, I hope by now the highly conditional nature of my criticism is apparent. It is not, and has never been, my intention to oppose the use of formalistic methods in themselves. My primary opposition, rather, is to the manner in which they are everywhere imposed, to the insistence on their being almost universally wielded, irrespective of, and prior to, considerations of explanatory relevance, and in the face of repeated failures” (Lawson, 2003, p. xix).
    Elsewhere in a paper in the Journal of Economic Methodology I am just as explicit. Here I write (in response to comments by Julian Reiss): “My argument is not at all an anti-mathematics one; and it never has been. I have only ever criticised the way (certain) mathematical methods tend to be used in modern economics”12 (Lawson, 2004, p. 337; emphasis in the original).
    After a lengthy discussion of my views on the use of mathematics in economics I summarise my position as follows:
    “In short, I do not denigrate the use of mathematics. I do, though, believe that the sorts of mathematical-deductivist methods mainstream economists mostly use presuppose an implicit worldview that is not especially typical of social reality. I also suggest that many of the widely acknowledged failures of the discipline arise just because these methods are being applied in conditions for which they are not especially appropriate. In consequence, in Reorienting Economics I argue for a more pluralistic orientation to social theorising, and spend time demonstrating that alternatives methods of relevance do exist. In this I do not suggest that formalistic methods be excluded for the methodological options on offer. But I do insist that methods of mathematical-deductivist reasoning (like any other tools) have limits to their usefulness, and that this be recognised and respected. However, I see this as a pro-, rather than an anti-, mathematics position” (Lawson, 2004, pp. 337-339).
    I hope I have said things with sufficient clarity, not to mention repetition, to dispel any worry that I am somehow opposed to the use of mathematical formalism as an a priori disposition.

    • Dan says:

      Jane, thanks. I had written a reasonably lengthy reply to Philip but the Internet seems to have claimed it. Whilst i’m hugely sympathitic to critical realism I do find Tony’s public and written statements sometimes at variance. At times i’ve heard him speak as if he’s anti-maths. I’ve often read him otherwise, as you say here. I do think that the problem is deeper: universalism, essentialism, teleology, positivism and ideology. These problems are connected with formalism. As i say i’d elaborated a bit but lost the reply.

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