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Four Species of Reflexivity and History of Economics in Economic Policy Science*

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AbstractThis paper argues that history of economics has a fruitful, underappreciated role to play in the development of economics, especially when understood as a policy science. This goes against the grain of the last half century during which economics, which has undergone a formal revolution, has distanced itself from its ‘literary’ past and practices precisely with the aim to be a more successful policy science.The paper motivates the thesis by identifying and distinguishing four kinds of reflexivity in economics. The main thesis of this paper is that because these forms of reflexivity are not eliminable, the history of economics must play a constitutive role in economics (and graduate education within economics). An assumption that I clarify in this paper is that the history of economics ought to be part of the subject matter studied by economics when they are interested in policy science. Even if one does not accept the conclusion, the fourfold classification of reflexivity might hold independent interest.The paper is divided in two parts. First, by reflecting on the writings of George Stigler, Paul Samuelson, George and Milton Friedman, I offer a stylized historical introduction to and conceptualization of the themes of this paper. In particular, I identify various historically influential arguments and strategies that reduced the role of history of economics within the economics discipline. In it I also canvass six arguments that try to capture the cost to economics (understood as a science) for sidelining the history of economics from within the discipline. A sub-text of the introduction is that for contingent reasons, post World War II economics evolved into a policy science. Second, by drawing on the work of Kenneth Boulding, in particular, George Soros, Thomas Merton, Gordon Tullock, I distinguish between four species of reflexivity. These are used to then strengthen the argument for the constitutive role of the history of economics within the economics profession. In particular, I argue that so-called Kuhn-losses are especially pernicious when faced with policy choices under so-called Knightian uncertainty.

1. FN0*) This paper is the product of a long-standing on-going conversation with the economists M. Ali Khan, David M. Levy, and Sandra J. Peart. In addition this paper has benefitted from comments by and discussion with Robert Goldfarb, Michel Heijdra, Floris Heukelom, Maarten Schinkel. Finally, I thank Paul Roth for his encouragement and suggestions. The author is solely responsible for any errors.
2. FN11) We forget easily that economics is not the only contender: law, history, sociology, political science, and even organizational psychology are active competitors.
3. FN22) Robert S. Goldfarb, 1997. “Now You See It, Now You Don’t: Emerging Contrary Results in Economics,” Journal of Economic Methodology, vol. 4(2): 221–44; see also Robert S. Goldfarb and H.O. Stekler (2000) “Why Do Empirical Results Change? Forecasts as Tests of Rational Expectations,” History of Political Economy. 2000; 32: 95–116.
4. FN33) All these numbers are taken from a remarkable self-study: http://www.cpb.nl/sites/default/files/publicaties/download/voorspellen-crisistijd-de-cpb-ramingen-tijdens-de-grote-recessie.pdf, accessed on May 17, 2011. This study has received no attention outside the Dutch planning agency.
5. FN44) By ‘stylized’ I mean the simplification of a complex empirical fact; since Kaldor introduced the term into economics in the early 1960s, it has become a popular locution in that field: http://en.wikipedia.org/wiki/Stylized_fact.
6. FN55) See, for example, Eric Schliesser (2009) “Prophecy, eclipses and whole-sale markets in Babylon: a case study on why data driven economic history requires history of economics, a philosopher’s reflection,” Jarhrbuch für Wirthschaftsgeschichte. Edited by Bertram Schefold.
7. FN66) Ivan Moscati has documented some recent trends on the disciplinary orentation of active historians of economics “More Economics, Please: We’re Historians of Economics,” Journal of the History of Economic Thought (2008), 30: 85–92, DOI: 10.1017/S1042771608000070.
8. FN77) The first use of “economic imperialism” may be in T. Parsons, “Some Reflections on the ‘Nature and Significance of Economics,’ ” Q JE, 1943, p. 522.
9. FN88) “One need not read in the history of economics – that is, past economics – to master present economics,” G.J. Stigler (1969) “Does Economics Have a Useful Past?” History of Political Economy, 1(2): 217. The whole paper is worth quoting.
10. FN99) I have documented this claim in Eric Schliesser “Inventing Paradigms, Monopoly and Methodology at ‘Chicago’ Economics: Nutter and Stigler”, Studies in History and Philosophy of Science A (forthcoming).
11. FN1010) This attitude – without mathematics there is really just confusion; with mathematics progress is possible – is very nicely revealed in Paul A. Samuelson’s (1946) intellectual obituary of Keynes, “Lord Keynes and the General Theory,” (Econometrica, 14(3): 187–200: “until the appearance of the mathematical models of Meade, Lange, Hicks, and Harrod there is reason to believe that Keynes himself did not truly understand his own analysis [in General Theory – ES] . . . the realization grew that the new analysis of effective demand associated with General Theory was not to prove such a passing fad, that here indeed was part of “the wave of the future,” (188; emphasis added).
12. FN1111) See Paul A. Samuelson (1987) “Out of the Closet: A Program for the Whig History of Economic Science,” Keynote Address at History of Economics Society, 1987. History of Economics Society, Bullet in 9(1): 51–60. For very effective criticism, see Charles Kurdas (1988) “The ‘Whig Historian’ on Adam Smith: Paul Samuelson’s Canonical Classical Model,” HES Bulletin 10(1): 13–24; I thank Nicholas Theocarakis for calling my attention to it. For a balanced survey of Samuelson’s activity as a historian, see Steven G. Medema & Anthony M.C. Waterman. (2010) “PAUL ANTHONY SAMUELSON: HISTORIAN OF ECONOMIC THOUGHT” History of Economic Ideas 18(3): 67–86.
13. FN1212) This last statement is not so easy to prove, but see Paul A. Samuelson (1972) “Jacob Viner, 1892–1970” The Journal of Political Economy, 80(1): 5–11; there Viner is elevated above the “mere mortals” and his historical mastery of economics is indulged (even praised). For a subtly different understanding of Samuelson’s position, see Peter J. Boetkke, Peter Leeson, and Christopher Coyne “Contra-Whig History of Economic Ideas and the Problem of the Endogenous Past,” http://ssrn.com/abstract=1686134.
14. FN1313) See, for example, the papers collected in Roy E. Weintraub (2002). Editor, The Future of the History of Economics, Annual Supplement to Volume 34 History of Political Economy, Durham: Duke University Press.
15. FN1414) See for references to the behavioral literature and a nice case-study of economic-expert overconfidence, Erik Angner (2006) “Economists as Experts: Overconfidence in theory and practice,” Journal of Economic Methodology 13(1): 1–24.
16. FN1515) The Locus Classicus is Derek J. de Solla Price (1965) “Networks of Scientific Papers”, in Science 149 (3683): 510–515.
17. FN1616) This is not an innocent observation: Kuhn’s description of the practice in physics became a prescriptive norm in economics (see Schliesser (forthcoming), op. cit.). For an important recent study of how economics textbooks (including Samuelson’s) deal with historical, cultural, institutional variance, see David M. Levy & Sandra J. Peart (2011) “Soviet growth and American textbooks: An endogenous past,” Journal of Economic Behavior & Organization 78(1–2): 110–125.
18. FN1717) See Eric Schliesser (2005) “Galilean Reflections on Milton Friedman’s ‘Methodology of Positive Economics,’ with Thoughts on Vernon Smith’s ‘Economics in the Laboratory,’ ” Philosophy of the Social Sciences, 35(1): 50–74.
19. FN1818) In 1946 Keynes’ theory was understood as recovering the “classical system as a special case” (Samuelson 1946: 190). It is not clear if that judgment still holds. Later debate, for example, centred on whether to assume wage stickiness was the special case (used by critics of Keynes) or whether perfect wage flexibility was the special case (used by Keynesians who wanted to argue in terms of special cases); as Roger Backhouse, pointed out to me even this way of putting it is oversimplification and the discipline lost interest in proving which theory was the special case.
20. FN1919) I started reflecting on the significance of Kuhn-losses by Hasok Chang (2004) Inventing Temperature: Measurement and Scientific Progress Oxford: Oxford University Press; in Eric Schliesser (2008) “Philosophy and a Scientific Future of the History of Economics” Journal of the History of Economic Thought, March 30: 105–116, DOI: 10.1017/S1042771608000094), I used the possibility of Kuhn-loss as an argument for the proper role of history of economics (and economic history in Schliesser 2009 cited above) in developing economic science. According to I. Votsis “Structural Realism: Continuity and its Limits” chapter 6 in P. Bokulich and A. Bokulich (eds.) Scientific Structuralism, Springer, DOI: 10.1007/978–90–481–9597–8_6, the term “Kuhn-loss” seems to be coined by Heinz Post “Correspondence, Invariance and Heuristics” Studies in History and Philosophy of Science, 2 (1971): 213–255.
21. FN2020) For a profound analysis (it may be the only use of Derrida within the history of science that illuminates its subject) that deploys Critical Theory to illuminate the development of (high theory) within mathematical economics, See M. Ali Khan, (1993) “The Irony in/of Economic Theory” MLN 108(4), (French Issue): 759–803; DOI: 10.1353/mln.1993.0004.
22. FN2121) An example of a Kuhn Loss within economics is provided by David Levy and Sandra Peart in their recovery of Melchior Palyi’s now prophetic work on rating agencies, “Prudence with Biased Experts: Ratings Agencies & Regulators” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1681609. Palyi, who was Max Weber’s last student and taught at The University of Chicago in the 1930s (where he was the teacher of Rose Director, later Rose Friedman). Palyi also warned that financial instruments needed to be treated as near-money – a very prescient warning. Palyi (who became associated with crank ideas about Gold standard) and his insights (and the whole connection between Chicago economics and Max Weber) completely disappeared from disciplinary memory.
23. FN2222) Schliesser 2008 and 2009 quoted above.
24. FN2323) I do not mean to be facetious about this. The loss of training in reading books anchored in history and philosophy (as the Classical economists were) with complex arguments and rhetorical structure may well represent a psychological cost to some professional economists (who are trained on a diet of short journal articles).
25. FN2424) See, for example, Koopmans’ side in the celebrated (1947–1949) Koopmans-Vining debate; the papers are nicely available here: http://cowles.econ.yale.edu/P/cp/p00a/p0029.pdf, accessed on May 16, 2011.
26. FN2525) Friedman is referring to John Neville Keynes, the father of his ideological foe, John Maynard Keynes.
27. FN2626) This is not the place to recount how Friedman defends a certain type of social engineering. But see Eric Schliesser (2010) “Milton Friedman, Positive Economics, and the Chilean ‘Chicago Boys’,” The Companion to Chicago Economics, edited by Ross Emmett, Elgar, 175–195.
28. FN2727) The fall of Lehman Brothers is taken to be a policy decision in http://www.cpb.nl/sites/default/files/publicaties/download/voorspellen-crisistijd-de-cpb-ramingen-tijdens-de-grote-recessie.pdf, accessed on May 17, 2011.
29. FN2828) I focus on economics for the purpose of this paper, but these points can generalize to other social and human sciences.
30. FN2929) John B. Davis and Matthias Klaes (2003) “Reflexivity: Curse or Cure?” Journal of Economic Methodology 10(3): 329–352, identify three kinds of reflexivity: immanent, epistemic, and transcendent. All four of the kinds of reflexivity I identify incorporate aspects of their three kinds.
31. FN3030) “Not all of the advocates of tariffs, of course, are hired by ‘the interests.’ But the existence of people whose living does depend on finding arguments for tariffs and the further existence of another group who think that maybe, sometime in the future, they might need the assistance of either someone who believes in tariffs or an economist who is in this racket makes it possible for them to continue to publish, even in quite respectable journals. Thus a dispute which intellectually was settled over a century ago still continues.” The point generalizes. Gordon Tullock, The Selected Works of Gordon Tullock, vol. 3 The Organization of Inquiry, ed. and with an Introduction by Charles K. Rowley (Indianapolis: Liberty Fund, 2005). Chapter: CHAPTER VII: THE BACKWARDNESS OF THE SOCIAL SCIENCES Accessed from http://oll.libertyfund.org/title/1555/136952 on 2011-05-17. I thank David M. Levy for reminding me of Tullock.
32. FN3131) Roger Koppl (ms) “Experts and Information Choice” has coined the term “Information choice theory” to describe the burgeoning field that studies and models the relationship between incentives and experts.
33. FN3232) I have shared this example with Dutch journalists and bureaucrats at the finance ministery and none objected to this characterization; they did help me rewrite it to make it more precise.
34. FN3333) The disarmingly frank self-assessment of the Dutch planning agency, http://www.cpb.nl/sites/default/files/publicaties/download/voorspellen-crisistijd-de-cpb-ramingen-tijdens-de-grote-recessie.pdf, accessed May 17, does not study the impact of the model on outcomes, nor does it study how the evolution of the model has impacted policy and outcomes. It does identify major lacunae in the model (in the Dutch case trade impacts).
35. FN3434) For those in the grip of a supposed contrast between economics and ethics, the title of Boulding’s piece is irrestible. But Boulding is echoing an older use of ‘moral science’ familiar to those with knowledge of the classics of the discipline and the history of philosophy.
36. FN3535) The point was debated with ferocity by Stigler and Samuelson in 1943 in the pages the American Economic Review. I have traced its disastrous impact on the so-called Chicago Boys (in Schliesser 2010) and described its provenance to the neo-Weberianism of Talcott Parsons and Frank Knight. See Eric Schliesser (2011) “The Surprising Weberian Roots to Milton Friedman’s Methodology”, Explanation, Prediction and Confirmation. New Trends and Old Ones Reconsidered. Ed. by Dennis Dieks et al., Dordrecht: Springer.
37. FN3636) Michel Foucault (2008) The birth of biopolitics: lectures at the Collège de France, 1978–79, London: Palgrave Macmillan.
38. FN3737) Kenneth E. Boulding (1948) “Samuelson’s Foundations: The Role of Mathematics in Economics,”The Journal of Political Economy 56(3): 187–199. I thank M. Ali Khan for caling my attention to it.
39. FN3838) Kenneth E. Boulding (1956) “General Systems Theory-The Skeleton of Science Management Science,” 2(3): 197–208.
40. FN3939) This is not to deny the possibility of successful predictions (that don’t meaningfully change the path of the underlying system). We can understand the important paper by E. Grunberg & F. Modigliani (1954) “The Predictability of Social Events,” Journal of Political Economy 62: 465–78, and J.F. Muth’s (1961) “Rational Expectations and the Theory of Price Movements,” Econometrica, 29: 315–35, as characterizing precise (and rather infrequent) circumstances in which this can take place. As Wade Hands points out, Herbert A. Simon (1954) “Bandwagon and Underdog Effects and the Possibility of Election Predictions” Public Opinion Quarterly 18: 245–253 does something similar. See W. Hands (1990) “Grunberg and Modigliani, Public Predictions and the New Classical Macroeconomics” Research in the History of Economic Thought and Methodology, 7: 207–223 for discussion.
41. FN4040) Robert K. Merton (1996, reprint) On social structure and science Chicago: The University of Chicago Press, 185.
42. FN4141) Donald A. MacKenzie (2006) An engine, not a camera: how financial models shape markets Cambridge, MA: MIT Press.
43. FN4242) Quoted from http://en.wikipedia.org/wiki/Reflexivity_(social_theory). For a nice summary of his views by Soros, see: http://www.sharpeinvesting.com/2007/08/george-soros-theory-of-reflexivity-mit-speech.html.
44. FN4343) A more complex example is Adam Smith’s claim in Wealth of Nations that “To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the public, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it.” (Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. I ed. R. H. Campbell and A. S. Skinner, vol. II of the Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1981). Chapter: [IV.ii] CHAPTER II: Of Restraints upon the Importation a from foreign Countries of such Goods a as can be produced at Home. Accessed from http://oll.libertyfund.org/title/220/217458/2313890 on 2011-09-21.) While this can be taken as a mere statement of fact, it is more likely intended to rouse (part of) the public to overcome the private interests of some. One reason to doubt that Smith is making a purely factual claim is that it is unlikely that he thought that there ever was an entire freedom of trade in Great Britain (he never makes mention of it in WN) ! I thank David Levy for these examples and discussion.
45. FN4444) The Locus Classicus is F.H. Knight (1921) Risk, Uncertainty, and Profit. Boston, MA: Hart, Schaffner & Marx; Houghton Mifflin Company. Many more recent discussion start from Daniel Ellsberg (1961). “Risk, Ambiguity, and the Savage Axioms”. Quarterly Journal of Economics 75 (4): 643–669. doi:10.2307/1884324. As Ellsberg documents, modern economists, most famously Arrow and Samuelson, have tried to displace Knightian risk by treating it is as a species of randomness. Even Nassim Nicholas Taleb (2011, 2nd edition) The Black Swan: The Impact of the Highly Improbable New York: Random House, which captures the phenomenon very nicely, generally treats events that fall outside the model as “highly improbably” (or as “fat tails,” etc.) rather than as simply beyond the concept of measurement altogether.
46. FN4545) The creative philosopher, Hasok Chang (op. cit.) has even advocated a new role for philosophy and history of science to explore such Kuhn-loses in what he calls “complementary science.”
47. FN4646) Charles Manski, an economist at Northwestern associated with the prestigious NBER, has a working paper, POLICY ANALYSIS WITH INCREDIBLE CERTITUDE: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1648007. It explores an important topic, namely the tendency of policy sciences “to regularly express certitude about the consequences of alternative policy choices.” In the paper Manski offers a typology of variants of this problem. Manski promotes what in the body of the text I have called a portfolio approach to model and policy.
48. FN4747) http://en.wikipedia.org/wiki/Precautionary_principle. Of course, establishing that the precautionary principle has been followed without relying on the potentially question-begging aspects of the science is a non-trivial matter. Together with Merel Lefevere I hope to report on this in the near future.
49. FN4848) But recall the closing lines of Q. Skinner (1969) “Meaning and Understanding in the History of Ideas,” History and Theory, 8(1): 3–53.
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2011-01-01
2016-02-07

Affiliations: 1: Department of Philosophy and Moral Sciences, Ghent UniversityNescio2@yahoo.com

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