Last night my graduate course focused on discussing the contributions to economic theory of G. L. S. Shackle, and in particular the challenge his classic work Epistemics and Economics (1973) represents to the standard general equilibrium and partial equilibrium style of theorizing. We also read Alan Coddington's review of Shackle in British Journal of the Philosophy of Science and Ludwig Lachmann's Journal of Economic Literature appreciation of Shackle. I recommend all PhD students in economics to spend a few weeks in their education going through these writings as well, even if they are to reject in the end as too radical. I'd throw in their also Kenneth Boulding's Journal of Political Economy review essay on Paul Samuelson's Foundations from the late 1940s.
Why you might ask? Well, because of at least 2 reasons -- these writings attempt to answer 2 fundamental questions, namely: (1) what are we actually studying in economics?, and (2) what does it means to be intellectually sophisticated and rigorous?
Shackle argues that economics is primarily about thoughts and as such expectations take center stage in economic analysis, and all the problems that introduces concerning unknowledge, and notions of reason, time, etc. Shackle's distinction between analytical and constructive theories is vital to our understanding of our jobs as theoretical economists. And his point is that one can be sophisticated and intellectually rigorous in developing constructive theories even though they "must describe a process of groping experiment and gambling for knowledge, of being wrong many times in order to be ultimately right" while analytic theories provide a sort of false impression of "rigor" through a formal presentation that restricts itself to describing "what things will be like when, if ever, they have attained rightness." (p. 53) Analytical theories are epitomized by optimization and equilibrium, and the critical move is pre-reconciliation of plans prior to simultaneous solution. Constructive theories on the other hand focus our attention on the myriad steps or movements of transformation that prod us from one situation to another. We are groping or slouching toward the coordination of activities -- no pre-reconciliation, but instead the reconciling of divergent plans and an evolution toward a solution.
I had the great fortune to read Shackle early in my graduate career and to also be encourage to do so by not only Ludwig Lachmann, but also James Buchanan. After graduate school, I spent my assistant professor years at New York University, working with Israel Kirzner and Mario Rizzo. Both Kirzner and Rizzo also appreciated the challenge that Shackle represented to the dominate version of economics. But again, most critics of Shackle (and Lachmann) argue that his position results in analytical nihilism. But that is not the argument at all. In fact, the argument is better understood as arguing for a more sophisticated and intellectually rigorous economics --- one that adopts methods that are appropriate for the subject matter, and one that doesn't run away as a result from the problems that our humanity presents to the theorist.
Besides my Austrian colleagues at NYU, I learned a great deal from other faculty members there. I often attended Roy Radnar's micro seminar to learn how economic theorists talked to each other, and I often attend the Jeff Goodwin's seminar on States and Revolutions in the sociology department. In retrospect, I remember how impressed I was with how quick Jean-Pierre Benoit was in seminars and how productive Boyan Jovanovic was in terms of published research. I also remember how much I enjoyed conversations with Andrew Schotter, Jess Benhabib, and Roman Frydman about economics and political economy. It doesn't always show in my work, I know, but I tried to be a sponge around all these people and learn from that as much as I was capable of, and try to fit that into my own Austrian and Virginia School framework. Frydman, especially, seemed to me to be interesting in the same way that Shackle was, though more focused on trying to figure a way to translate the insights of constructive theory into the language of analytical theory.
Since leaving NYU, I have followed the writings of Frydman more than any of my other NYU influences outside of Kirzner and Rizzo. I have used his books in my classes and I have tried to get students to think about his imperfect knowledge economics. I think of various people within the Austrian circle who have spent time at NYU, perhaps only Roger Koppl and I share this fascination with the promise of what Frydman is doing for the sort of economic theory we would like to see widely adopted.* Anyway, this interview from INET is worth your time going through -- as the interviewer puts it:
Talking to Frydman is a bit like entering a fascinating meditation on the limits of knowledge and the nature of truth. Having lived through the failure of centralized planning in communist Poland, he is particularly sensitive to the hubris of believing that the future can be exactly mapped. Although the models that he has worked on are mathematical, Frydman’s approach to economics has drawn on the narrative insights of Friedrich Hayek, John Maynard Keynes, and Frank Knight.
That sounds right to me and fits with my experience. I think this line from the interview captures Roman's attitude perfectly however: "Economics is not mechanistic. It requires understanding of history, politics, and psychology. Some say that economics is an art, but NREH is actually rigorous economics. It simply recognizes that there’s a limit to what we can know." But what he means by rigorous is a mathematical model.
Shackle taught us, however, that such mathematical reasoning at best provides us with syntactic clarity, but may fall far short of the task because it doesn't ensure semantic clarity. And as Kenneth Boulding argued right at the start of this transformation of economic reasoning with Samuelson that the flawless precision of mathematical economics might prove fruitless in aiding us in addressing the critical questions that exist in the borderland between economics and sociology. And if it is in that borderland where we find the institutional infrastructure that enables (or prevents) learning among human actors on how to coordinate their plans one to another, styles of intellectual reasoning which crowd out those institutional frames that operate in fine details to distill the diffuse knowledge in an economy in ways that enable complex coordination must be rejected. It is a false rigor if it eliminates from study the very questions we must ask to answer the fundamental questions.
So for me, economics as a profession has a long way to go to catch up to what Buchanan suggested in "What Should Economists Do?" and what to escape from the intellectual indictment that Hayek charged the discipline with in his Nobel Prize lecture "The Pretense of Knowledge". In short, we have a lot of work to do if we want economics -- the inexact and imprecise science that it is -- to be philosophically sophisticated and intellectually rigorous. But it is important to realize that if we ever get there, works on imperfect knowledge economics will have been very critical in nudging us along the way.
*It is probably worth noting that I was a member of Michael Goldberg's dissertation committee where a lot of the applied work in imperfect knowledge economics was first worked out.