I have recently written a paper that I am quite excited about — in a sense it says nothing new, only providing the internal skeleton on which Polanyi;s analysis of capitalism rests. At the same time it i new and exciting in the sense that the methodology implicit in Polany’s analysis is light years away from any of the existing conventional methodologies for social science, and gives us a new, integrated way for looking at and analyzing the world unfolding around us.

Abstract: Polanyi’s book on The Great Transformation provides an analysis of the emergence and significance of capitalist economic structures which differs radically from those currently universally taught in economic textbooks. This analysis is based on a methodological approach which is also radically different from existing methodologies for doing economics, and more generally social science. This methodology is used by Polanyi without explicit articulation. Our goal in this article is to articulate the methodology used in this book to bring out the several dimensions on which it differs from current approaches to social science. Among the key differences, Polanyi provides substantial scope for human agency and capabilities to change the course of history. He also shows that the social, political and economic spheres of human existence are deeply interlinked and cannot be analyzed in isolation, as current approaches assume.

The paper itself can be downloaded from the following link:


I have provided a summary of the main points made in the paper on the RWER blog — please see my post:  Polanyi’s Methodology in the Great Transformation.

The concept of capital has been a controversial issue at the heart of Economics Education since the conceptualization of capital enhances deep implications on the apprehension of the economic, social and political dimensions of reality.

Thomas Piketty’s book has been worldwide discussed on behalf of his data sets and explanation for increasing disparities in wealth and income in the context of neoliberalism. Among critical readers of Piketty’s analysis to explain growing inequality, David’s Harvey concern pointed out that his argument relies on a mistaken definition of capital. In short, although there is much that is valuable in Piketty’s data sets, his explanation seems to be founded on a neoclassical theoretical background where capital is mainly a factor of production.  Indeed,  Piketty defines capital as the stock of all assets held by private individuals, corporations and governments that can be traded in the market (no matter whether these assets are being used or not).

Under Harvey’s approach, the definition of capital as a stock of assets excludes the idea of capital as a social process where money is used to make more money often, but not exclusively, through the exploitation of labor power.

Following Harvey’s concern, we need to highlight that the nexus between the current global scenario and inequality encloses inner tensions between the hypertrophy of finance and the expectations of society about citizenship, labor and income. In the current historical context, labor markets have become a key variable in macroeconomic and business adjustments.  In truth, capital mobility has favored the regulation of social relations based on growing flexibility. In contemporary capitalism, the global institutional architecture has favored capital mobility and short term investment decisions – increasingly subordinated to rules of portfolio risk management. While recent changes in productive organization have been based on competitiveness and corporate governance criteria, job instability and fragile conditions of social protection have forced the reorganization of survival strategies. Thus, workers must redefine their skills or become informal entrepreneurs. Given the decreasing power of workers in recent decades, it is not surprising that both the globalization process and its outcomes have favored  the concentration of wealth and changes in social behavior.

While money is an end in itself, social behavior has been overwhelmed by the “profit motive”, as Karl Polanyi warned in his masterpiece The Great Transformation. Consequently, in the last decades, groups of particular interests have spread and social cohesion has diminished. Growing social violence and civil wars, as Eric Hobsbawm clearly said, are some of the outcomes of the  current relations between national states, the free markets and societies in the global order. Indeed, the conflicts between solidarity and particular interests have revealed the current inner tensions to reshape ethical societies.  The current  challenges to reshape the Economics Curirculum need to be thought in this scenario.


Economics departments — turning out generation after generation of idiot savants.

from Lars Syll  — reposted from RWER blog. 

Paul Samuelson once claimed that the ergodic hypothesis is essential for advancing economics from the realm of history to the realm of science.

That view on what constitutes economics doesn’t please neither yours truly nor Nassim Taleb, who writes (emphasis added):

However, if you believe in free will you can’t truly believe in social sci­ence and economic projection. You cannot predict how people will act. Except, of course, if there is a trick, and that trick is the cord on which neoclassical economics is suspended. You simply assume that individuals will be rational in the future and thus act predictably. There is a strong link between rationality, predictability, and mathematical tractability …

In orthodox economics, rationality became a straitjacket … This led to mathematical techniques such as “maximization,” or “optimization,” on which Paul Samuelson built much of his work … This optimization set back social science by reducing it from the intellectual and reflective discipline that it was becoming to an attempt at an “exact science.” By “exact science,” I mean a second-rate engineering problem for those who want to pretend that they are in the physics department— so-called physics envy. In other words, an intellectual fraud

The tragedy is that Paul Samuelson, a quick mind, is said to be one of the most intelligent scholars of his generation. This was clearly a case of very badly invested intelli­gence. Characteristically, Samuelson intimidated those who questioned his techniques with the statement “Those who can, do science, others do methodology.” If you knew math, you could “do science” … Alas, it turns out that it was Samuelson and most of his followers who did not know much math, or did not know how to use what math they knew, how to apply it to reality. They only knew enough math to be blinded by it.

Tragically, before the proliferation of empirically blind idiot savants, interesting work had been begun by true thinkers, the likes of J . M . Keynes, Friedrich Hayek, and the great Benoît Mandelbrot, all of whom were displaced because they moved economics away from the precision of second-rate physics. Very sad.


This may sound harsh, but in fact already back in 1991, Journal of Economic Literaturepublished a study by the Commission on Graduate Education in Economics (COGEE) of the American Economic Association (AEA) — chaired by Anne Krueger and including people like Kenneth Arrow, Edward Leamer, Robert Lucas, Joseph Stiglitz, and Lawrence Summers — focusing on “the extent to which graduate education in economics may have become too removed from real economic problems.” The COGEE members reported from own experience “that it is an underemphasis on the ‘linkages’ between tools, both theory and econometrics, and ‘real world problems’ that is the weakness of graduate education in economics,”  and that both students and faculty sensed “the absence of facts, institutional information, data, real-world issues, applications, and policy problems.” And in conclusion they wrote (emphasis added):

The commission’s fear is that graduate programs may be turning out a generation with too many idiot savants skilled in technique but innocent of real economic issues.

Sorry to say, not much is different today. Economics education is still in dire need of a remake!


Traditional epistemological theories have fostered an endless debate on dichotomies characterized by forms of objectivism, on the one hand, and forms of relativism/skepticism on the other. Currently, among the deep global social and cultural challenges, the crisis in epistemology is characterized by a radical questioning of the whole matrix within which such dichotomies have been drawn.

Taking into account the evolution of  economic science, the need for a  profound epistemological change turns out to be founded on the lasting intellectual failings of economics over the XX century: positivism,  methodological individualism, deductivism and mathematical modelling.

Considering this background, the contribution of classical pragmatism could be settled within  the revision of the epistemological foundations of scientific knowledge. Indeed, Charles Sanders Peirce rejected the Cartesian foundationalist approaches to ontology and epistemology and foster the revision of the ontology of human behavior and nature. Besides,  a  deeper reflection on the ‘fixation of belief’ turned out to shape the epistemological framework defended by him. Indeed, his contribution to epistemology clearly favors a fallibilist standpoint compatible with realism.

In other words, classical pragmatism rejects the theorization of knowledge under some anthropocentric foundational model of rationality, complete order and truth. Indeed, classical pragmatism places the focus on the idea of change. Peirce also addressed that values, truth, and knowledge are always being reconstructed because of the changing surrounding reality. Under his approach, the most important thing in the process of knowledge is “how to question what we know and how to reconstruct what we know to match the changing world”.

We wonder whether  classical pragamatism could contribute to substantive epistemological insights in order to face the contemporary methodological challenges in economic discourse. Indeed, we need to think about:

  • an ontology that is rooted in actual human experience and overwhelmed by the concept of reality and change,
  • the role of logic and mathematics in scientific knowledge,
  • the coexistence of laws and change in an evolutionary approach to reality,
  • the links between uncertainty and epistemological fallibilism.

Since  the need to improve the current economics curriculum is outstanding, thi attempt would certainly be fruitful.

This post reproduced from a post on PCES webpage, since it is highly relevant to Pedagogy:

RELEARNING ECONOMICS: The Post-Crash Economics Society (PCES) have produced a compelling analysis of the failings in economics education and set out a road map for reform.

Download full report here:

The Report

“It is time to rethink some of the basic building blocks of economics”. These are the words of Andrew Haldane, Executive Director for Financial Stability at the Bank of England, in his foreword to this report. Economics is in crisis. The profession is under attack from the media, employers and the general public. The economists we are producing are not performing the tasks society demands from them. The Financial Crisis is the obvious example of the current problem but by no means the only one. Worries about climate change are escalating to crisis levels. Massive wealth inequality is creating a backlash from think tanks, journalists and academics alike. Unemployment in Europe and beyond is motivating ordinary people to demand answers from the powers-that-be; the powers-that-be then continually defer to economists to provide these answers.

Read More

What is really strange is the contrast between the strength of the arguments against conventional economics, and difficulties involved in teaching common sense. It is like someone who has been convinced that day is night, and great effort is involved in pointing out the sun to him. I sometimes give the following example.

Look at that old lady purchasing tomatoes. You know what she is doing? She is differentiating a multivariate utility function and setting up a simultaneous equations system of first order conditions. Now she is solving the nonlinear system. Fantastic, she just solved it to find the utility maximizing purchase under budget constraints is exactly 12.8 oz of tomatoes. Alas, she cannot slice them with such precision, and does not know the integer programming techniques required to solve the more complex optimization problems. OOPS, she miscounted the money she paid, and did not notice the change in the budget constraint when the greengrocer shortchanged her.

While this is usually good for a few laughs, especially from deeply indoctrinated students, because we are poking fun at the sacred principle of utility maximization, there is a serious point involved. Our personal experience, observations of others behavior, and general knowledge of how markets and shopping works, provide overwhelming evidence against microeconomic theory of consumer behavior. Yet we set it all aside when we read Samuelson. If a Nobel prize winner said so, it must be right. My sruvey which provides a summary of this evidence is linked below:
The Empirical Evidence Against Neoclassical Utility Theory: A Review of the Literature” [with Mehmet Karacuka] International Journal for Pluralism and Economics Education Vol. 3 (4) 2012, p 366-414

As a group, why are we such complete failures at persuading the public of something which is plain as the sun? I have the following hypotheses

  1. There is no consensus on an alternative — every dissenter has his own private views on how to do things right. As Kuhn noted, paradigms do not change because they are contradicted by facts; they change when a better alternative emerges.
  2. Lukewarm heterodoxy — that is, majority of dissenters believe that small amount of tinkering with core will fix the problems. In fact, if we take a collective view of all the problems, then it becomes clear that the entire structure needs to be replaced.  But like the blind men and the elephant, everyone sees only one small part of the problem, and does not have the big picture. Tinkering only strengthens orthodoxy, because it proves that it is flexible enough to assimilate a lot of contrary views.
  3. Internal disagreements — different small groups have different ideas about what is wrong with economics and how it can be fixed. More time is spent on fighting each other, than on the main front.

I am not sure if this accounts for it, or if there are other important relevant factors that I have missed. In order to overcome these problems, we need to build a rainbow coalition (as in the Battle for Seattle) which bridges differences across diverse groups to work together for a common goal.  I propose the following goal, as starting points:

  • Economics is about improving human lives, especially those of the bottom billion.

We must realize that we have the potential to change things — a scientific deterministic view militates against this idea. Wrong theories cause a huge amount of damage, leading to famines, and death by interest payments on loans by the poorest countries. Correct theories and actions guided by these theories can help feed the hungry, and bring hope and happiness to thousands if not millions or billions. Given that this is possible (which most people do not realize) we cannot choose to be bystanders. We must learn how to act together in ways that will help change things for the better.

I edit a journal with the title International Econometric Review, which was launched in 2009.

The first issue has an Editor’s Introduction which is reproduced below. Basically, it is plea to contributors to try to do meaningful research. I think this is an essential component of good pedagogy. It so happened that David Freedman had died recently — so  the article mentions him and is framed in the context of his work and contribution. I also wrote an obituary about him which can be accessed from this link: http://www.era.org.tr/april2009.htm 

Editor’s Introduction:

Welcome to this first issue of International Econometrics Review. We aim to make this journal unique in many different ways, and hope to fill the many gaps between real world applications and theoretical econometrics that continue to exist and widen. Of course,
achieving high goals depends on readers and contributors and we encourage the participation of all in this project.

We would like to dedicate this issue to the memory of David Freedman, an outstanding  statistician whose legacy is closely related to the goals we would like to pursue in this journal. One element of this legacy is the importance of undergraduate teaching; attempts to do justice to this transformed the thinking and research of David. Increasing fragmentation of knowledge has led to a situation where specialists have no idea of how their patch of expertise relates to other portions of econometrics, how the whole body of econometrics ties into economics, and how this body of knowledge relates to achieving broader human goals such as eliminating oppression, injustice, poverty and misery, and bringing happiness, joy, wonder and enlightenment into our lives. Teaching undergraduates is a useful antidote to this fragmentation. When we ask them to invest time and effort in learning difficult materials, we must justify this claim by showing them why it is useful in the context of real world examples. When we attempt to do this we will discover that, contrary to the impression created by our specialized education, no one has been there before us. That is, everyone in the
knowledge field is a specialist and no one has a broad overview ranging from details of the theory to how these theories are applied in the context of serious real world applications which make a difference to the lives of people.

In his pathbreaking undergraduate text Statistics, David documented the disastrous consequences of this disconnect via many real world examples. A little exploration reveals how often bad theory with faulty assumptions using wrong types of data is used to guide
policy. As a consequence, people who acquire the all round knowledge required to bridge the gap between theoretical knowledge and real world applications can make a big difference in changing the world for the better. David’s involvement in consulting and litigation testifies to his deep concern with using his knowledge to improve the lives of people. His more recent textbook Statistical Models explores how models work in the context of real world applications. Richard Berk, one of the commentators on David Freedman’s article in this issue, has provided a similar examination of regression models in his text: Regression Analysis: A Constructive Critique.

We would like to close with some advice to readers and contributors. John Hey summed up his experience of ten years of editorship of the Economic Journal as follows: “Many of the submissions do not appear to be written in order to further economic knowledge. … few economists ask themselves what are the crucial economic problems facing society. If they did so, they might well produce more relevant material.”

Our brief moments on this earth are too precious to waste on pursuit of meaningless publications to add to our vitas. It will add meaning to our lives, depth to our knowledge, and create innovative and pathbreaking research, if we make a serious attempt to serve humanity by solving the numerous real economic problems facing us globally.


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