25

RECONSTRUCTING THE CORE OF ECONOMICS

by Oleg Zinam The major contention of this study is that the conventional neo-classical paradigm suffers from several deficiencies which hinder the economics profession in performing its most important functions: description of socio-economic system, reasonably good predictions about its performance and some control over its structures, functions and operations. Economists who "pride themselves onlbelonging to the most 'scientific' of the social scientists," have developed a highly sophisticated economic theory which uses "mathematical tools in theoretical analysis and the development of sophisticated mathematical and statistical techniques in empirical work, ''~ yet suffers from narrowness of scope and other methodological shortcomings which reduce its relevance in interpreting socio-economic reality. Since in the real sciences "the criterion of 'truth' is, whether or not the proposition corresponds to reality,"3 this deficiency not only reduces effectiveness of economic theory to serve as a sound basis for economic policy but also imposes a substantial social cost on an economic system.& In addition to imposing harmful limitations on the efforts to build models reflecting social reality more adequately, the accepted neo-classical doctrine has contributed to "multiple schizophrenia" in economics. Among the major splits in economic theory are: (I) the division of economics into macro and micro parts; (2) a theoretical gulf between analytical (deductive) and empirical (inductive) methods of analysis; and (3) a deep gap between economic statics and emerging economic dynamics. Such fragmentation, overspecialization and narrowing of economic science is the result of a long historical development. Brief Historical Review The scope of Adam Smith's political economy, delineated in his celebrated Wealth of Nations, was very broad. For him economic theory has to deal with the performance of the sociopolltico-economic system as a whole as well as with the explanation of the behavior of its component parts - individuals, households, firms, industries, government and so on - though the government was assigned a limited role as the defender against external enemies and guarantor of domestic order needed for the safe performance of the economic functions of production, exchange and distribution.

26

Marshallian synthesis incorporated marginalism into the mainstream of classical thought. The neo-classical school, which emerged from this fusion, divorced itself from political economy and started a new science of economics. Much of the theorizing since Marshall has been devoted to predominantly micro-economic problems. Despite the development of general equilibrium analysis, which presumably should be capable of explaining the operations of an economic system as a whole, the scope of economics remained narrow. The major macro-economic problem of full employment was set aside by the acceptance in principle of Say's law which negates the possibility of a less than full employment equilibrium in a perfectly competitive economy. The Great Depression caught neo-classical economists completely unprepared to deal with world-wide unemployment, It took the Keynesian revolution to save the orthodox paradigm from sinking into oblivion due to its complete irrelevance. What followed was the "Neo-Classical Synthesis," a term used by Samuelson to depict the absorption of Keynesian thought by the neo-classical paradigm. 5 Despite some broadening of scope by the marginalist and Keynesian revolutions, there exists a strong strain of "specialism" in the field of economics, so that one still can speak of a general tendency of classical and neo-classical schools to move away from the "magnificent" economics of Adam Smith and from the broad sweeping generalizations covering the whole socio-politicoeconomic system of Marx, Schmoller, Sombart and Max Weber, to name only e few. "Modern economics," says Prybyla, "like its neo-classical predecessor, seems to have abandoned 'the lofty mountains of economy' (Hansen), the broad sweep of great issues, in o~der to descend to the lower ground and seek out, with the help of increasingly refine4 tools, minor cracks in a vast, unfinished superstructure~ ''0 Such an "abandonement of the holistic goal has meant the deliberate constriction of economic theory from a discipline that aspired to the t o w e r ~ g stature of a social science to the much more modest status of a science that explicates interactions of economic elements within a social sxstem without regard for political or social ramLfications."~ It is paradoxical that as society grew increasingly more complex, more interdependent, and as the rate of social change accelerated, economic theory moved away from an over-all effort to understand this social reality and constricted the field of its operation by an unduly narrow paradigm. It is also ironical that all of this happened in the time of unprecedented improvement in terms of resources and capabilities at the disposal of the

27

economics profession, availability of data, improvement in research techniques, advances in statistics and econometrics and so on. In technicsl terms, as the opportunity function of economists grew, their preference function shrank. This is, of course, true only for the main core of the profession adhering to the neo-classical paradigm. A sizeable number of economists work on special problems which are outside the confines of traditional theory. They use advanced tools and techniques in the no man's land enclaves created by the rigid separation of social sciences. These economists, sometimes reluctantly, construct their own interdisciplinary models to deal with complex problems which cannot be adequately handled by purely economic theorizing. The historical development of the neo-classical school has rendered its paradigm impotent to adequately interpret such crucially important phenomena as "stagflation," the critical shortages of energy and other resources, exhaustion and pollution of our habitat and so on. Moreover, by sacrificing "too much relevance in its insistent pursuit of ever increasing rigor" and "by prying too little attention to the changing institutional erlviro~ment that conditions economic behavior," the economics profession seemingly avoids "the big questions about how and why the institutional structure is changing - and where it is taking us."8 Finally, narrowness of scope reinforced by overspecialization and a resistance to make the neo-classical paradigm more relevant and globally applicable might do considerable harm to the economics profession. According to "the law of evolutionary potential," formulated by Service, "the more specialized and adapted a form -in a given evolutionary stage, the smaller is its potential for passing into the next stage."9 If this principle is applicable to the development of economic science, overspecialization and resistance to broadening the scope of the major paradigm might lead to its ossification, obsolescence and inevitable decay. Within this broad historical and theoretical background, the present study is focusing its attention on the three basic splits in accepted economic theory which might be called "triple schizophrenia" - the micro-macro dichotomy, analytical-empirical gap, and the lack of integration between statics and dynamics. The attempt is made to describe them, explain reasons for their existence, the implications for economic paradigm and its relevance, and to suggest several potential remedies. The Micro-Macro Dichotomy At the heart of the conventional economics of the postKeynesian neo-classical type are the traditional micro and macro theories. This article is not an argument against the use of

28 micro and macro approaches to economics. They are both useful and indispensable tools of analysis. What is negated, however, is the claim that micro and macro, added together, represent the core of economic science and are completely adequate for e~ribing and explaining the structures, functions and operations of an economic system, and that they are all there is to the core of economic theory. The presently accepted "core" of economics does not provide a unified theoretical model of behavior for a socio-economic system and its component parts. The genuine bridge between the realms covered by macro and micro economics is still missing. Far from being resolved is the central issue of how innumerable micro-decisions are to be "added up" or integrated through different levels of analysis to derive the over-all effect on the economy as a whole. The general equilibrium model has failed to provide this bridge while Keynesian theory has never made a serious attempt to integrate micro and macro models. Similar difficulties are encountered in dealing with the Teverse problem of deriving the effects of macro-changes on individual decision-making units within the system. Both micro and macro economics, in their present state, are tools of a limited analytical power since they represent only fr~ctions of socio-economic reality, neither complete in themselves nor adequately integrated in a meaningful model representing a socio-economic system. Heilbroner once stated that the "absence of a unified theoretical framework capable of explaining both m• and macro behavior" is one of the dominan~ reasons for "the failure of present-day analyt~c~l techniques or conceptual schemes to present a consistent model of the economic system in the terms in "which that system is usually perceived. ''I0 The problems of "stagflation," energy shortages, potential world-wide shortages of food and raw materials and even the lurking danger of complete dislocation of economic activity in Western economies, cannot be handled successfully by a theory confined to the rigid boundaries of traditional paradigm. Neither macro, nor micro economics in their present state can explain these phenomena adequately. Their full meaning can be derived only from a more inclusive and at the same time more global view of social reality as a complex unitary interdependent system in which political, social and economic aspects of organization, power, interests and ideologies are intrinsically interwined in theory and inseparable in practice. "The gulf between micro and macro economics," wrote Heilbroner, "arises in large part from the different kinds of problems that each isolates, and there seems to be no intrinsic

29 reason, rooted in the nature of economic reality, why a more unitary mode of reasoning should not eventually emerge.,,11 Since most challenging and difficult economic problems cannot be handled either by macro or micro instruments alone, the need for more realistic aggregation and disaggregation is rapidly increasing. In Heller's terms, "The m a c r o - s t a l a c t i t ~ have to reach toward the micro-stalagmltes, and vice versa. '''~ Since most of the crucial economic problems fall into domains of both macro and micro, there will be an increasing pressure for the integration of these two realms. About half a century ago, physics dealt with molecules, while chemistry was studying atoms. The emergence of atomic physics and physical chemistry are examples of such interpenetration in natural sciences. At the present time there exists "no neat taxonomy as to what falls into the domain of microeconomics and what falls elsewhere." The question "at what level does a mic~$economic model become a macroeconomic model, or vice versa?"'9 remains frequently not answered. The Gap between Analytical and Empirical Approaches As the neo-classical school narrowed its scope by a set of assumptions which excluded important socio-political factors such as organization, power, ideologies, preferences, effective freedom, and so on, their model of an economic system become, to a great extent, irrelevant for understanding how real economies operate in the complex, interdependent and dynamic world of today. Some of their assumptions were a close approximation to nineteenth century England, i.e. to "laissezfaire" economy. In Schumpeter's words, "the classics reasoned in terms of a particular historical situation which they uncritically ~ e a l i z e d and from which they uncritically generalized. '''* Adam Smith attempted to use as much empirical and historical evidence as possible to support his theoretical contentions. His followers, Ricardo, Senior, Say, John Stuart Mill and others increasingly stressed logical reasoning from basic postulates intuitively derived from experience and observation but not confirmed by statistical data. Classical economics drifted toward becoming almost a formal or logical science in which logical consistency was the supreme criterion of truth, while correspondence of the models with the reality they depicted was neglected. But, as R.A. Gordon stressed in his presidential address, "if .economics is to be a science, it must not only develop analytical tools but must also apply them to a world that is now observable through improved methods of observation and measurement."15

30

However, the need for empirical verification of models and theories does not diminish the importance of developing adequate analytical models. The quality of data selected by a researcher greatly depends on how well the hypothesis is formulated and on how realistic its basic assumptions are. If a priori theories yield ambiguous predictions, "the problem lies in the naivit$ of these theories, not in theorizing per se." "The predictions are ambiguous," wrote Scherer,"because significant variables have been excluded from the model. By introducing a much richer complement of independent variables, we should be able to predict conduct from structure and performance from conduct with greater precision and confidence. ''Ib A major weakness of conventional analytical models is that they are built on static, narrow, and unrealistic assumptions about individual and social behavior. The analytical approach of the nee-classical school takes the economic system and its component parts for granted. They are "givens" of the system and relegated to the role of parameters. An economic model based on such assumptions as economic man behavior, atomistic society, "laissez faire" economic order, the "invisible hand" of market forces and so on, might be adequate for the study of a very narrow range of phenomena but it might become almost irrelevant when applied to the functioning of an evolving dynamic modern economy. It must utterly fail to explain the complex operations of an economy dominated by powerful organizations with frequently conflicting preference functions. It has little to offer in situations in which competition, cooperation and conflict are flowing into each other by imperceptible degrees and in which economic and political power are inextricably intertwined. A narrow paradigm which focuses on wrong variables and relegates to the status of parameters variables strategic to understanding socio-economic reality "lacks relevance to the problems of our times .serves neither to depict accurately the structure or the tendencies of modern eco~gmic society, nor to guide reliably efforts to improve it. '''r Moreover, preoccupation with the formulation of analytical models for their own sake leads to "a continuous modification of variations and equations in areas of rapidly diminishing returns from the standpoint of knowledge as well as meaning. ''18 If carried to extreme, such a preoc9~pation might reduce our science to a "Ptolemaic economics. '''~ Much of economic theorizing produced under the tyranny of a ruling paradigm might become completely "esoteric. ''20 The Gap Between Statics and Dynamics In addition to the micro-macro and analytical-empirical gaps, the accepted nee-classical paradigm suffers from the

31

lack of a bridge between static analysis based on the concept of equilibrium and the emerging dynamics of socio-economic change. The mainstream of contemporary economics ignores "the general movement of society," and "confining itself to the more and more elaborate study of the mechanisms governing the functioning of a hypothetical economy, . . . misses the dynamics of the evolution of contemporary societies."21 It is ironical that mainstream economists seem to be reluctant to develop theoretical "tools required for a comprehensive and evolutionary theory of behavior that would take aDpropriate account of the main lines of institutional change, ''22 precisely at the time when the pace of socio-economic change is rapidly accelerating while conventional economic theory fails to comprehend the major socio-economic problems of today. In narrowing the scope of economics to predominantly static analysis, the neo-classical school moved away from the "magnificent dynamics" of its classical predecessors who were interested in "the development of the whole economy over long periods,"23 to short-run equilibrium analysis in a basically static economic framework. In Gruchy's words: "The static framework of analysis of the neo-classicists was united with a static rationalistic psychology which pictured individuals as contemplative, calculating beings living and working in what Marshall described as the 'stationary state. '''24 Adherents of the accepted orthodox paradigm are very reluctant to engage in constructing theories "of a magnificent cast, ambitiously attempting to analyze the growth and development of entire economies over relatively long periods of time - decades or even centuries."25 Historical evidence refuted the predictions based on the "mngnlficent" theorizing of classicists as well as the prophecies of Karl Marx as to the dismal future of capitalism. There is no sign yet of capitalism approaching "the stationary state" nor are we witnessing the collapse of market economies due to longrun decline in profitability of capital and the ensuing class struggle between the proletariat and bourgeoisie. It seems that, "if American capitalism is destined to go to th~ dogs, it will have to be propelled there by something else. "2~ The shortcomings of "magnificent dynamics" are now well known. One may list among others such factors as one-sidedness of an analysis, erroneous assumptions concerning the operations of economic systems and the behavior of decision makers within them, and, perhaps, the use of inadequate methods. Yet, efforts were pointing in the right direction. Economists must be concerned with the question of the future of unplanned advanced industrial economies, which seemingly "reveal no tendency toward any kind of overall long-run equilibrium."27 What is needed

32

badly in economic theorizing is a "change from the conception of equilibrium to the conception of history. ''28 While attempting to build new, and hopefully better, dynamic models, economists should learn from the errors of "magnificent dynamics." A step in the right direction was taken by the instltutionalisi school which, following the tradition of the historical school, attempted to broaden economics and put it into a new conceptual scheme. Institutionalists are viewing the economy "as a going system or process rather than a stable mechanism," and as "a structually interdependent whole whose many parts are functionally interdependent."29 They broadened the outlook of economic science, yet they did not develop a general theory of socio-economic dynamics. The task is still ahead and it is urgent. The first step toward building the foundation of future dynamics is recognizing the basic shortcomings of the accepted theory and their implications for economics and the economics profession. Toward Integration:

A Broader

Paradigm for Economics The lack of integration plaguing the orthodox neo-classic;al paradigm and causing what is called in this paper "multiple schizophrenia" in economics is due to a set of basic deficiencies. Among them are: (I) misunderstanding of the major purpose of economics; (2) narrowing the scope of economics by the exclusion of variables strategic to understanding social reality; and (3) excessive use of an abstract analytical method at the expense of functional structural, operational and historical methods of enquiry. All these shortcomings greatly reduce the relevance of the accepted paradigm and its potential usefulness as a basic for economic policies. The major aim of economic science is not the endless proliferation of abstract and esoteric models expressed in mathematical terms, not the attainment of virtuosity in the application of statistical and econometric tools of analysis for its own sake, but to describe, as adequately as possible, a socio-economic system, to make correct predictions about its performance and to convey upon policy makers some capacity to control, or at least influence its structures, functions and operations. In several recently written articles the present writer proposed a broader paradigm for economic science.30 The acceptance of this proposed "master paradigm" would represent the first step toward: (1) re-establishing the purpose of economics as a means for understanding how an economic system is organized how it performs its basic functions and how it operates; (21 broadening the scope of economics by inclusion of strategic variables necessary for understanding economic performance; (3) integrating historical, analytical, and functional-structural-operatlonal methods; and (&) regaining relevance of economic theory.

33

The proposed "master paradigm" consists of four mutually interrelated "quadrants" each representing an important subsystem of the total theoretical model (See Figure I, page 24). Quadrant I represents the concept of economic science, as seen by a given economic school, including its nature, purpose, scope, methods and significance. Quadrant 2 covers basic assumptions of economists concerning the universe they study. Quadrant 3 contains the most advanced view of real, objective components of an economic system, while quadrant 4 encompasses the organization and power structure within the economics profession. Oundrants I and 2 represent the realm of theoretical constructs, i.e. economic theory proper and all basic assumptions about the real economic system, whereas quadrants 4 and 3 are views or models of real conditions within the profession and the relative position of the profession within a real economic system respectively. The contents of each quadrant are selected in accordance with the method of "specialized holism,"31 that is, viewing the whole system while concentrating on its strategic variables and the relationship among ~hem. The variables selected are crucial to the theory of socio-economic change based on necessary and sufficient conditions32 at the heart of which are concepts of power and will and the theory of discontent. 33 Within this e ~ e t i c a ~ - - ~ a m e w o r k , economic changes and changes in economic theory are becoming special cases of the more general theory of socio-economic change. In the proposed framework, crucial variables such as organization, power, idea-systems, preferences and effective freedom are assigned the role of strategic variables. The neo-classical paradigm, which assigns to these variables the status of parameters, can be considered a special case of the proposed "master paradigm." Modern socio-economic organization is extremely complex and involves mutual interrelations among numerous decislon-maklng units operating within a highly organized social order. This socio-political order is extremely dynamic in modern industrially advanced countries like the U.S.A. Yet, to be adequate, such a model must contain certain strategic variables necessary for decision-making processes associated with socio-economic change. Social change caused by human decisions and actions requires a coincidence of power and will, or the determination to use it as a sufficient condition. Will and power, e~ch taken alone, represents a necessary condition for change. D4 This proposed model of socio-economic change is presented schematically in Figure II, page 25. It is limited to man-made changes resulting from decislon-making processes. It postulates that power flows primarily from organization and sets the

34

limits to the possible attainments of the decision-making units. The opportunity function of any decision unit sets the limits to what is and what is possible. Control of power which sets these lim--[ts is a necessary condition for change caused by human decisions. The other necessary condition is will or determination to use this power to attain a given o0 ~ t i v e . Determination is a product of preference function which formulates what is desirable. Preference function is greatly influenced by idea systems" or Weltanschauung or the decision making units. The necessary conditions for will to be activated are the recognition of the gap between--~e level of aspiration and the level of attainment, cathection of this gap called eiscontent ~re and the volition to close it by the use of availab&e power. ference becomes effective when the coincidence of power and will is attained. In a complex and highly interdependent society the problem of resolving the conflicting preference functions of decision making units is of paramount importance. Whose preference will become effective and who, in a society, will enjoy effective freedom depends largely on its organizational and power structure. The question of who has effective freedom to decide what, how and for whom is a question of ultimate control and is one o--f-the central problems of economic science. In the long run, the most important task facing a society is to choose the economic system itself. "This is the foremost task," says Nutter, "to which all others are quite s u b s e r v i e n t . . . The fundamental problem is not one of making rules to guide social activities, but rather one of making rules for making rules."35 The construction of such a ~ynamlc, po]itico-economlc ana institutionally oriented model,"3b will considerably broaden presently accepted paradigm, remove the deep rifts in the body of the presently accepted "core" of economic theory and contribute to its greater relevancy. The syndromes of "multiple schizophrenia" will be removed, not by a careful patching of cracks and features in the orthodox theory, but by a recognition of their fundamental common cause and a drastic reconstruction of economic paradigm. Speaking of the new emerging theory, Shubik states that the "underlying theory and methodology will be more abstract and general than the theory we teach now." The task will be enormously difficult since "the concern for detail, different variables and the explicit treatment of institutional details will be greater than it is now."37 The proposed paradigm will essentially imply a change of definition of economics from "the study of the disposal of scarce commodities"38 within a fixed socio-political framework and with fixed tastes, preferences and wants, to "the study of the allocation of scarce resources within the evolving sociocultural framework,"39 which contains such matters as changes in technology, population changes, the role of ideology in economic

35

affairs, formation of tastes and preferences and so on. It will be essentially a dynamic functional-structural-operational model of economic system concerned primarily with the study of decislon-maklng processes and the actions of economic units on all levels of a socio-economic system. Opportunity and preference functions of decision makers and the resolution of conflicting preference functions on different orgsnizatlonal levels will play a pivotal role in such a dynamic model. This cannot be done without the inclusion of a systematic study of alternative economic systems in the core of economics. And this would, in turn, require the inclusion of such strategic variables as organization, power, idea-systems, ideologies, effective preferences and effective freedoms.40 If such a functional-structural-operational model of economic system is included in the core of economic theory and the functional-structural method integrated with analytical and empirical methods presently used in economic analysis, the micro-macro gap will be substantially reduced. If analytical models of orthodox economists would include variables and the relations between them strategic to the understanding of structures, functions and operations of economic system, these models would become more realistic. The gap between such improved analytical models and their empirical counterpart in the real world would then be considerably narrowed. Finally, to reduce the static-dynamic gap, the focus of theorizing would have to be shifted away from the preoccupation with equilibria toward the study of disequilibria. For instance, the static principle of maximization could be treated as a special case of the theory of discontent, a broad principle of behavior based on cybernetics. This would open the door for the development of a broad theory of socio-economic change, the first step toward an emerging economic dynamics. In the past, several illustrous political economists were aware of the undesirable implications of narrowing the field of economic enquiry. The historical, institutionalist and Marxist school of thought were critical of this artifical truncation of economists' vision of their science. Moreover, much of the criticism came from those scholars who considered themselves neo-classicists but, in their attempt to make their studies relevant, found the orthodox paradigm wanting. The strongest pressure for change might come from this group of economists. Failing to solve numerous problems within the narrow conceptual confines of the accepted theory, they are forced to construct their own models--usually of an intermediate range type--by incorporating into them "non-economic" variables presently excluded by the ruling paradigm. In Heller's words, "we are becoming interdisciplinary in spite of ourselves."41

36

And we are not becoming interdisciplinary because someone thought that economics should chnnge in this direction as a matter of principle, but because numerous concrete research problems&~rose on the borderline of economics and other related sciences. ~ According to W.C. Mitchell, a complete reconstruction of the orthodox economic paradigm will be a collective intellectual task of many scholars No one individual can complete She enormously complex ta~k of reconstruction of economics.43 This does not mean, however, that individual economists should not make strong efforts to contribute to the building of the new paradigm. Broadening of the accepted paradigm is both necessary and possible. It is necessary because adherence to the present paradigm would lead to obsolescence and irrelevance to economic theory. It is possible, because the major strength of the main trunk of the classical and later neo-classical school was always in their ability to develop powerful theoretical frameworks which they used to absorb several contending schools in the past. This happened, for example, to both the marginaiist and Keynesian schools. This might also happen to theories presently critical of the neo-classical paradigm. Yet, the first step toward making the orthodox paradigm more relevant is to set the development of economic theories in historical perspective, to recognize the gap between the existing theory and a desirable one, to work on a broader paradigm which will permit not only the formulation of more effective policies for meeting current crises, but also will provide a basis for the eventual convergence of presently conflicting theories within a broader, more inclusive theoretical framework. The tendency of the neo-classical school to move toward "rigor regardless of relevance" must be recognized and remedied by reconstructing its paradigm and rebuilding the "core" of its theory which presently suffers from the syndromes of "triple schizophrenia." In performing this arduous task, economists must be g u ~ e d by a credo: "relevance with as much rigor as possible. " ~

37

Figure I Proposed "Master Paradigm": Four-Quadrant Scheme for the Study of Paradigms

Quqdrant 2

!

uadrant I

Basic assumptions of economists about the Concept of economic science as seen universe they study. by economists. Endogenous, Intrinsic or Immanent ~ , extrinsic, direct factors: factors, internal dyrL~mics inherent Totality of cultural environment. in the nature of economic science. Basic Assumptions: View of economic science: i. Humo.u being and his characteristics; i. Nature; 2. Woltanschauung, idea-systems; 2. Purpose; 3. Preference functions and methods of 3. Scope; resolving conflicting ones; 4. Methods; 4. Social organization; 5. Relevance-significance. 5. Political organization; 6. Content, internal structure and 6. Economic organization; organization 7. Distribution and flow of power: ("core" and peripheral fields; social, polltical, economic; curriculum structure; positive, 8. Science and technology; normative, applied, etc.). 9. Structure of existing capital; i0. Population; ii. Basic resources; 12. Totality of geographic and physico-ecological environment. II

i

|

l, i H

Note:

Jl

i

~uadrant 1 and ~ a d r a n t

represent economic paradigm proper. quadrant 4

Real, objective conditions of the socio- Organization and power structure of economic profession economic system Exogenous, extrinsic, indirect factors Exogenous, extrinsic, direc t factors Economic Pro fession Economic S.7stem 1. Nature of profession (branch of ini . Totality of ecological habitat; dustry of knowledge) and its rela2. Resources; tive position and power within society; 3. Demographic factors: population; 2. Organizational structure of profession; 4. Science and technology; 3. Power flowing from this organization5. Structure of existing capital; al structure; 6. Organization: social, political, 4. Value systems or Weltanschauung of legal, economic, etc. ; the scientific community and its 7. Distribution and flow of power within leaders; the socio-eeonomic system; 5. Preference functions of the leaders, 8. Nature of man, his Weltanschauung, followers and dissenters. idea-systems; 6. Resolution of conflicting preference 9. Systems of individual preferences; function within the profession; lO. Method of resolution of conflicting 7. Effective freedom. Who has the ultipreference functions within organimate power and control over scientizational and power structure; fic activities and who decides what ll. Degree of effective freedom emanating is scientific "truth". from the resolution of conflicting preferences on several organizational 8. Supply of and demand for economic knowledge. levels of society (who possesses it and to what extent; who is in control r9. Cost inflicted on society by deficiencies in theory and benefits flowing of what? % / from its adequacy. Note: Quadrant 3 and Quadrant 4 are underlying objective conditions within which economic paradigms are developed.

38

Flgure II Schematic Outline of the Model of Change Man lnhablts EcoloMical (noumenal)

realms of being:

~Eiconlq

(phenomenal) . . . . . . . . . .

Z-Level Organization Source of Power

--

I

i

V-Level "Idea-Systems Weltsnschauung i Source of Preference & Will I

I

I. . . . . . .

P-Level Power:

two

economic political social

The opportunity function I. ~[hat is 2. What is possible Power available for the a - ~ n m e n t of goals

I I-Level Preferences

,I'~]

Preference function -~esirable i

Necessary conditions for the I decision to act - will: 1. Recognition of the gap betweeu ideal and actual 2 . Cathectlon of this gap (discontent) 3. Volition to act to close the gap. (Determination to use adequate power)

Effective Preference Colncldenc~ of power and'wlll (Sufficient condition for action leading to social change) ,d,

F-Level Effective Freedom of the--decision making agents .....Problem of reconciliation (resolution) of conflicting preference functions on 1. Individual 2. Organizational 3. National 4. International levels. - ~

....

I Degree of effective freedom emanatlng fr'0m the-resolutlon o-Ir--conflicting preferences on several organizational levels depends on the organizational and power structure, idea-systems and preferences of.those in control of power (who possesses i~ . and to wh~t extent, who is in ultimate control of what?~

39

Footnotes 1R.A. Gordon, "Rigor and Relevance in a Chan6ing Institutional Setting," The Americ.anEconomi9 Review, March 1976, Vol. 66, No. 1, p. 1.

2Ib_.b..:~., p . lo 3j. Kornal, Antl-eauilibri~m: On Economic ~y@tem~ Theory and the TasKs of Research, ~msterdam, 1971, p. 9. 401eg Zinam, "Socio-Economic Cost of a Narrow Paradigm: Great Depression, Stagflation and Economic Theory," Paper presented at the meeting of Atlantic Economic Society, Washington, D.C., October 15, 1976. 5Samuelson used the term "Grand Neoclassical Synthesis," Paul Samuelson, Economics, 6th Edition, New York: McGraw Hill Book Company, 1964, pp. 560-361. 6jan S. Prybyla, Ed., Com psrative Econ0mic Systems, New York: Appleton-Century-Crofts, 1969, p. 4. 7Robert L. Heilbroner, "On the Possibility of a Political Economics," Journal of Economic Issues, December 1970, Vol. IV, No. 4, p. 12. 8R.A. Gordon, "Rigor and Relevance in a Changing Institutional p. 1 Setting, " Op . cit., . 9Elman R. Service, "The Law of Evolutionary Potential," Evolution of Culture, Marshall D. Sahlin and Elman R. Service, eds., Ann Arbor, Michigan: University of Michigan Press, 1960, p. 97. 10Robert L. Heilbroner, "On the Possibility of a Political Economics," Jo.urn.al of Economic Issues, December 1970, Vol. IV, No. 4, p. 6.

11Ibid., p. 6 12Walter W. Heller, What's Right With Economics?" The Amer.lcan Economi c Review, Volume LXV, Number I, March 1975', p. 20. 13Martin Shubik, "A Curmundgeon's Guide to Microeconomics," Journal of Economic Literature. June 1970. Volume VIII, No i 2, p. 408

40

!

4

J

.

Schumpeter, C a ~ l i s m . 2nd ed., New York, 1947, p. (D~

A

.

Socialism, end Democracy,

15Robert Aaron Gordon, "Rigor and Relevance in a Cbanglng Institutional Setting," Op. cSt., p. 1. 16Fredricka Scherer, Industrial Market Structure and Economic Pe rformance, Chicago, Illinois: R a n d McNaliy, 1970, pp. C-7. " 17Robert L. Heilbroner, "On the Possibility of a Political Economics," 0p. clt., p. 1. 18joel Jalladeau, "Restrained or Enlarged Scope of Political Economy? A Few Observations," transl, by ~;.E. Kuhn, Jqurngl of Economic I sgu99, Vol. IX, No. 1, March 1975, p. 4. 19Kenneth Boulding, "After Samuelson, ~ o Needs Adam Smith?" History of Political Economy, Fall 1971, p. 233. 20Benjamin V;ard, ~Pnat's ~ o n ~ With Economlcs? New York: Books, 1972, pp. ~2, 1 ~ .

Basic

21joel Jalladeau, Op.cit., p. 2. 22R.A. Gordon, "Institutional Elements in Contemporary Economics," in C.E. Ayres et al., Institutional . . . . . Economics: . . Veblen, Commons• Mitchell Reconsidered, Berkeley, 1963, p. i46. 23~[illiam J. Baumol, Economic Dynamics, The Macmillan Company, New York, 1959, p. 8. 24Allan G. Gruchy, Modern Economic ThouKht, New York: Prentice-Hall, Inc., 194,77-~. 18. 25~;illiam J. Baumol, QD. cir., p. 13. 26Dvsey D. Domar, Essays in.the Theory of Economic G?owth, Oxford University Press, 1957, p. 32. 27Allan G. Gruchy, "The Neelnstitutlona! Paradigm and the Limitations of Keynesian Economics," Proceedings of.the Eastern Economic Assoglatlon ,, Albany, New YorE, October 25-27, 1974. 28Joan Robinson, "~'/hatHas Become of the Keynesian Revolution?" Challenge, Vol. 17, January-February 1974, p. 7.

41 29Allan G. Gruchy, Modern Economic Thought, New York: Prentice-E-ll, Inc., 1947, p. 24. 300leg Zinam, "Search for a Broader Paradigm in Economics: Organization, Power, Preference and Effective Freedom, "Rivista Internazionale di Scienze Economiche e Ccmmerciali, May 1975, pp. 467-492; "Search for a Logic of Change in Economic Theories: Evolution, Revolutions, Paradigmatic Shifts and Dialectics," Op.cit, accepted for publication; and "Relevance Through ntegration: Cost-Benefit Analysis of Micro-Macro Dichotomy," paper presented at the Ohio Association of Economists and Political Scientists, Columbus, Ohio, April 18, 1975. 3101eg Zinam, "Economics of Command Economies," Comparative Economic Systems, Jan S. Prybyla, ed., New York: Apple%onCentury-Crofts, 1969, p. 35. 3201eg Zlnam, "Socio-Economic Change and Discontent: A Eastern Economic Search for a Broader Paradigm in Economics, " ~ Journal, October 1974. 330leg Zinam, "Theory of Discontent: Heart of Theory of Economic Development, " Rivista Internazionale di Scienze Economiche e Commerciali, November 1971, and "A Note on Elastlcity o~ Discontent," Op.cit., January 1970. 34The groundwork for this type of theory of change was developed in Oleg Zinam, "Interaction of Preference and Opportunity Functions and Long Range Economic Development," unpublished dissertation, University of Cincinnati, 1963, pp. 70-85 35G. Warren Nutter, "Economic Welfare and Welfare Economics," Journal of Economic Issues , Vol. II, No. 2, June 1968, p. 169. 36R.A. Gordon, "Rigor and Relevance in a Changing Institutional Setting," Op. clt., p. 11. 37Martin Shubik, "A Curmundgeon's Guide to Microeconomics," Op.qlt., p. 417. 38L. Robbins, An Essay on the Nature and Signiflqance of Economic Science, 2d. ed. London: Macmillan, 1937, p. 38. 39Allan G. Gruchy, Comparative Economic Systems, 2d. ed. Boston: Houghton Mifflin Company, 1977, p. 25.

42

4001eg Zlnam, "Economics of Command Ec0~omies," Comparatlve Econ0mlc Systems, Jan S. Prybyla, ed., New York: Appl~tonCentury-Crofts, 1969, pp.19-46 and "Cross-Sectlonal Analysis of Economic Systems," ~lyi~ta Internazional.e di Sclenze Economlphe e Commerclall, April 1974, pp. 312-333. 41Walter W. Heller, "~a%at's Right WiSh Economics?" Th__~e American Economic R~Miew, March 1975, p. 15. 42Robert M. Solow, "Science and Ideology in Economics," Contemporary Issuep in Ecopomics, Robert W. Crandall and Richard Eckaus, eds., Boston: Little, Brown and Co., 1972, p. 12. 4~esley Clair Mitchell, "Quantitative Analysis in Economic Theory," American Economic Review, March 1925, reprinted in The Backward Art of ~pendin~Money, New York: McGraw Hill Book o~..,

937. 4~R.A. Gordon, "Rigor and Relevance in a Changing Institutional Setting," op. cit., p. 12.