The Lost Art of Economics: Essays on Economics and the Economics Profession

Published by EH.NET (February 2003)

David Colander, The Lost Art of Economics: Essays on Economics and the

Economics Profession. Cheltenham, UK and Northampton, MA: Edward Elgar,

2001. x + 203 pp. $80 (hardcover), ISBN: 1-84064-694-2.

Reviewed for EH.NET by Lall B. Ramrattan, Department of Economics, University

of California – Davis.

Although the author of this book expresses an artistic partiality for

economics, his message is to call a spade a spade, namely “not to present

scientific economic arguments for more than what they are” (p. 11). The

methodology of the book is presented in almost syllogistic form on page 10,

built on a functional foundation, and mapped onto the domain of “how economists

actually go about their work, and where they get their directions from.”

Art is defined as “using one’s intuition to gain insight, and imagination in

expressing the insights one has gained through the best means possible.

Purposeful people are naturally artists” (p. 10). As economizing behavior is

purposeful, science will have a limiting role. Within the author’s framework,

science is limited to the role of gaining and storing insights. Standard

science stores insights in efficient mathematical form, and conveys insights to

others. It fails in some areas that do not lend themselves easily to empirical

verifications; particularly, in the areas of complex systems such as economics

and the social sciences.

As a first examination of the author’s theses, we may note, from an ontological

point of view, that economists are not all artistically inclined. Economists

are inclined to take a position anywhere between belief and science. The

Austrian school, for instance, are “Human Action” or “praxeologically”

inclined, a methodology Friedman set about to attack with his brand of positive

economics. A second problem from a common sense or pragmatic position is that

knowledge may be a limiting case of belief: what we believe in we can come to

know. However, superiority over our ancestors in science and culture does not

guarantee us being more artistic. A third problem is that from a research or

epistemological point of view, science may create art. For example, a recent

CBS 60 minutes report showed that the invention of the mirror is largely

responsible for the enhancement of art. A fourth problem from a mystical point

of view is that art might be an experience good for the economist, with no

guarantee that the intuition necessary for better economic policies will

develop. Because the author’s position is not clear from the definition he

offers of art, we shall try to further understand it from a more logical

viewpoint.

A distinguishing feature of Colander’s methodological position is his implicit

insistence that normative and positive are contrary rather than contradictory

terms. According to P. F. Strawson, when one can add an inconsistent statement

(art) to two statements that are inconsistent with each other (normative and

positive), then the statements are contrary (Strawson, 1952, 16). Colander’s

system is analogous to the analysis of day and night but not without twilight,

and appears to be the way its framer, J.N. Keynes, laid out its initial

architecture for Political Economy. He is clear about the position of art as

“establishing a buffer between positive economics and normative judgments” (p.

60).

Colander argues for keeping the three-part system of Keynes, but for adjusting

it towards a more realistic balance favoring art. Metaphorically speaking, if

the three party system can be laid out on the three corners of the Jacob

Marschak preference triangle as modified by Machina (1987), then the way modern

economists have unfolded their methodological preferences has resulted in the

collapse of the side that represents art. However, it is not clear whether such

a situation represents a degeneration of the Keynesian methodology, which the

author seeks to make more progressive. One must not forget that the father of

positivism, Auguste Comte, thought of progress in a positive sense as a

movement from childhood to manhood, from religion through metaphysics to

science, and that Friedman might just be following that hunch. In terms of the

metaphor, the three vertices can degenerate, and the suppression of the third

vertex, representing art, can attempt to make the Keynesian program

progressive.

Another approach to understanding Colander’s methodology is to contrast it with

others. The author makes important contrasts with the methodology of Thomas

Mayer (pp. 51-53). We are told that Mayer emphasizes, “empirical science

economics,” while the author emphasizes “applied policy economics.” Mayer

laments “the notion of an intellectual hierarchy with formal theory on top”

(Mayer, p. ix), while the author “sees such abstract work as necessary to

refine theoretical insights” (p. 52). Mayer’s approach is akin to “fingertip

economics,” embedded in a “single semi-formal methodology” in which the art and

positive economics are intertwined, whereas Colander’s methodology drives a

wedge, creating a separating plane between art and positive economics. But like

practitioners of the same paradigm, the two views are dominated with more

agreements over disagreement.

It is tempting to contrast the text with the paradigmatic and research program

methodologies of Kuhn and Lakatos, respectively. Briefly, art as used by the

author in the tripartite system has often been taken as equivalent to the words

“practical,” “precepts,” or “instrumental” (Machlup, pp. 489, 506). If those

words can be used interchangeably, then it would be incorrect to state that the

use of instrumentalism is absent in modern policy economics. Policy models,

such as advocated by Tinbergen and others will embody the tripartite

distinction with significant weight given to each. This point can be further

elucidated with a few ninth-grade algebraic terminologies. Consider these two

system equations:

Target = d I + eE +f S (1) Trend = a I + bE + c S (2)

where I, E, and S are instruments to achieve a target return, and some trend.

Given appropriate values for the parameters, we can state that national trends

should be arrested by about x-percent to attain over the long-term a target

y-percent growth. From the art point of view, the two equations with three

instruments (I, E, and S) are overdetermined. For joint policy effects, we can

take one variable as given. But that still would not help. Assuming we take the

effects of S as fixed, then another problem surfaces, viz., db – ea = 0, since

the coefficients for I and E in the two policy equations are collinear, using

the coefficients from our model. Similar problems arise if I or E, instead of

S, is fixed. Therefore, no simultaneous policy effects in line with the two

equations are allowed.

The use of the term “instrumental” instead of “art” may not warrant the severe

charges the author has leveled against Friedman. Friedman would legislate rules

to act as instruments in the case of regulating the money supply, an area in

which he is more influential than scientific. In other cases, he would use

trivial instrumental examples such as the dumping of money in a community by a

helicopter (Friedman, 1969, p. 4). Colander should take into account that

Friedman was standing on the shoulder of giants such as David Hume. In a recent

good text on methodology, Kevin Hoover reminded us of such a foundation set by

the many Humean statements such as “Were all the gold in ENGLAND annihilated at

once,” or if “every man in GREAT BRITAIN should have five pounds slipt into his

pocket in one night,” or suppose that “four-fifths of all the money in GREAT

BRITAIN to be annihilated in one night”(Hume, 1974, pp. 296-311 cited in Hoover

2001, p. 5). In the hard sciences, such experiments were maintained and

popularized in science by Albert Einstein himself under the name

Gedankenexperiment. We should also state that Friedman is very abstract

and scientific as can be his work on the permanent income hypothesis.

Therefore, it is difficult to appreciate Colander’s point of view that

“Friedman’s methodology involves … a lack of interest in doing abstract

theory” (p. 34).

The five axioms Colander offers are in a budding state. They are not parallel

to the axioms of Savage or Von Neumann. In the author’s own words, they are

“methodological rules” not intended to be “binding constraints.” It is up to

the methodologists whether to nip these rules in the bud, or nurture them for a

while. J.M. Keynes gave us a tri-part system that is still alive and well

today. Colander’s restatement of them is likely to contribute to their

progressive lives. This book is a must reading for serious students of economic

thought.

References:

Hume, David, Essays: Moral, Political, and Literary, edited by Eugene F.

Miller (Indianapolis: Liberty Classics, 1954, edited 1985).

Friedman, Milton, The Optimum Quantity of Money and Other Essays

(Chicago: Aldine Publishing Company, 1969).

Hoover, Kevin D., Causality in Macroeconomics (New York: Cambridge

University Press, 2001)

Machina, Mark, J., “Choice under Uncertainty: Problems Solved and Unsolved,”

Journal of Economic Perspectives, Vol. 1, No. 1, Summer 1987, 121-154.

Machlup, Fritz, Methodology of Economics and Other Social Sciences (New

York: Academic Press, 1978)

Mayer, Thomas, Truth versus Precision in Economics (Northampton, MA:

Edward Elgar, 1993)

Strawson, P. F., Introduction to Logical Theory (London: Methuen, & Co.,

1952).

Lall Ramrattan is the co-author of “The European Monetary Union vs. U.S.A.,

Cooperation and Competition: An Examination of Welfare Benefits,” (with Michael

Szenberg and Cathyann Tully) in J. Jay Choi and Jeff Wrase, editors,

European Monetary Union and Capital Markets, Volume 2 of the

International Finance Review (Holland: Elsevier: JAI Press, 2001). He

has published in many fields of economics in a variety of journals. He is a

lecturer at the Department of Economics at UC-Davis.