Discusión

Blaug (1985) discusses the emergence of economics prior to Adam Smith. The first is what Smith termed ‘mercantilism’ or ‘the system of commerce’. Smith criticised mercantilism as a system of protectionist fallacies promoted by merchants and manufacturers based on “the popular notion that wealth consists in money” (as quoted in Blaug, 1985:11). Smith noted that mercantilists “do set out with observing that, the wealth of a country consists, not in gold and silver only, but in its lands,

houses, and consumable goods of all different kinds; in the course of their reasoning, however, the lands, houses and consumable goods seem to slip out of their memory, and the strain of their argument frequently supposes that all wealth consists in gold and silver” (Blaug, 1985:11). Blaug (1985) argues that “it was the mercantilists who, long before Adam Smith, broke with the canonical conception of market behaviour as a moral problem and fashioned the concept of ‘economic man’” (1985:30).

In contrast to mercantilism, Smith praised the physiocratic system with its imperfections as “perhaps the nearest approximation to the truth that has yet been published upon the subject of Political Economy” (Blaug, 1985:24). The physiocratic system is differentiated from the mercantilist approach by its emphasis on agriculture. Futhermore, “Quesnay’s Tableau Economique … was regarded in its day as the crowning achievement of the physiocratic school” (Blaug, 1985:25). “What it achieved was a vivid graphic picture of general interdependence by means of a drastic simplification of the economic system into three interacting sectors. Out of this emerged a conception of the closed ‘stationary state’ as a circular flow which in each period repeats itself, a conception that has ever since maintained a powerful grip upon the imagination of economics” (Blaug, 1985:25).

The period 1830–1930 was the marginalist era, with figures such as Leon Walras (1834–1910) – the founder of general equilibrium theory and William Stanley Jevons (1835–1882) who stated that “value depends entirely upon utility”². Along with the mercantilists, they placed much less emphasis on the production side of the economy (Henderson, 2008). Carl Menger (1840–1921) also contributed to the marginalist revolution with his ‘theory of derived demand’. This became the basis for much of the neoclassical synthesis, also known as ‘hydraulic Keynesianism’, that was to emerge as a result of the theory of consumption developed by John Maynard Keynes (1883–1946), the IS-LM framework of John Hicks (1904–1989) and the work of Paul Samuelson (1915–) (Hicks, 1937; Coddington, 1976; Beinhocker, 2007).

Although some authors, such as Wassily Leontief (1906–1999), attempted to combine the work of the physiocrats with the marginalist economics, over the past two centuries there has emerged an emphasis on the demand side, with complexities in the supply side not well modelled. A mercantilist concept that developed considerably was the idea of rational economic man (homo economicus).

This concept was not only applied in the field of neoclassical economics but also spread more widely (Hargreaves-Heap and Hollis, 1987). “Marx’s profit maximising capitalist fits the same instrumental model of rationality. Institutionalist accounts of, for instance, banks or trade unions often conceive economic bodies as unitary rational agents similarly” (Hargreaves-Heap and Hollis, 1987:54).

Furthermore, social theory is also modelled as individualist in this way, including works such as Hobbes’s Leviathan and Bentham’s utilitarianism. “For example, marriage has been analysed in this spirit as an arrangement to secure the mutual benefit of exchange between two agents with different endowments”

2 The Theory of Political Economy, Ch. I, par. 2 (Jevons, [1871] 1888).

Heap and Hollis, 1987:54). As other examples, household dynamics (Voyce, 2008) and crime (Becker, 1968; Stigler, 1970) have been modelled as a result of individuals weighing up the costs and benefits of actions. Institutions become the means of preventing individual preferences from becoming limited in prisoner’s dilemma type tradeoffs (Hargreaves-Heap and Hollis, 1987). In addition, political structures are also explained by government officials as “maximising expected utility, who form coalitions to market policies which will secure re-election” (Hargreaves-Heap and Hollis, 1987:54) . “In this sort of way homo economicus turns into a universal homo sapiens” (Hargreaves-Heap and Hollis, 1987:54).

Much of the abstractions in economics are as a result of the scientific method of J.S.

Mill, formulated in A System of Logic (Robson, 1963). Mill’s scientific method distinguish between a deductive method (method a priori), experiments (method a posteriori) and a method of pure observation (Figure 7).

Figure 7 Mill’s scientific method

Source: Hands (2001)

“Mill viewed economics as a science, which uses ‘the method a priori’, reasoning by deductive logic from basic assumptions about economic man” (Hay, 1990:101).

Since then economists have made model predictions based on “a few critical assumptions about the behaviour of economic agents” (Hay, 1990:90). We now examine some of the implications of these assumptions.

Composition of Causes (as in

mechanics)

Heteropathic (as in chemistry)

Method a priori (deductive)

Method a posteriori (experimental)

Method of experimentation

(combination that produces

that effect)

Method of pure observation

(Isolated instances) Experiment (can

reverse) (chemistry)

Not experimental

(can not reverse) (laws of

mind)

Rational economic man (homo economicus) is an abstraction that was used to simplify the model-building process. “In its ideal-type case the agent has complete, fully ordered preferences (defined over the domain of the consequences of his feasible actions), perfect information and immaculate computing power. After deliberation he chooses the action which satisfies his preferences better (or at least no worse) than any other. Here rationality is a means-to-ends notion, with no questions raised about the source or worth of preferences. This basic model is made more sophisticated … The basic vision remains, however, one of agents who are rational in the sense that they maximise an objective function subject to constraints”

(Hargreaves-Heap and Hollis, 1987:54)

Homo economicus is a simplistic framework that was never meant to be adopted as widely as it has been. “In his Essay on the Definition of Political Economy in 1836, Mill introduced the concept of ‘economic man’, which he took to be a partial description of man; but later economists argued that ‘economic man’ is the true nature of man, and not just an abstraction” (Hay, 1990:101).

Hay (1990) further argues that there are at least two reasons why a social science should be treated differently from a physical science:

1) The basic unit of analysis is not atoms or particles, but people. “The analyst therefore has additional information besides detached observation. He can

‘get inside’ the behaviour of economic actors, and can use introspection as a source of information” (Hay, 1990:100).

2) Human actions are to be understood in terms of reasons, motives and preferences rather than by cause and effect. “The emphasis is on an individual who weighs up alternatives, and then makes a decision” (Hay, 1990:101).

Daly and Cobb (1989:37) agree: “What is emphasised is the optimal allocation of resources that can be shown to result from the mechanical interplay of individual self-interests. What is neglected is the effect on one person’s welfare on that of others through bonds of sympathy and human community, and the physical effects of one person’s production and consumption activities on others through bonds of biophysical community”.

Another implicit assumption of traditional economic analysis is that it is divorced from value judgements. Robbins (1935:94) states: “While we assume that different goods have different values at different margins, we do not regard it as part of our problem to explain why these particular valuations exist. We take them as data”. De Wit (2001:32) states that “[p]ositive economics became divorced from value-judgements and too many values were treated as basic or were simply ignored … There is no real value free social science. Economy is partly ideology, and a separation of the positive from the normative in developing economic theory is impossible”.

A third problem with the traditional approach is dealing with issues exogenous to the theory. “Whenever the abstracted-from elements of reality become too insistently

evident in our experience, their existence is admitted by the category ‘externality’ … Externalities do represent a recognition of neglected aspects of concrete experience, but in such a way as to minimise restructuring of the basic theory. As long as externalities involve minor details, this is perhaps a reasonable procedure. But when vital issues (e.g. the capacity of the earth to support life) have to be classed as externalities, it is time to restructure basic concepts and start with a different set of abstractions that can embrace what was previously external” (Daly and Cobb, 1989:37).

The neoclassical framework has many advantages and uses in understanding and analysing economic problems. However, it is necessary to assess whether or not this framework is useful for addressing the problem proposed by this study. In order to do this, the strategic aspects identified as important for this study are revisited. First, in terms of the BM framework the neoclassical school is classified as functionalist, with a positivistic epistemology and realist ontology. The neoclassical school therefore shares many of the same epistemological and ontological characteristics of system dynamics modelling. This is promising, since it suggests a good fit between the proposed methodology of this study and mainstream economic theory.

In terms of the FJ classification, the analysis framework of neoclassical economics is classified as simple unitary, since it uses abstractions to analyse economic problems.

Interactions between elements are highly organised and well-defined laws govern behaviour. While system dynamics shares some of these characteristics, SD modelling fits primarily within the complex-unitary framework, with many interactions between elements and these interactions loosely organised. Fontana (2010) argues that ontologically and epistemologically the neoclassical paradigm is unable to address complexity. For example, rational economic man and the market mechanism are too limited to deal with issues such as realistic human behaviour (e.g. indecisiveness, adaptive behaviour), computational complexity (non-linear dynamics, disequilibrium) and heterogeneous agents.

In terms of DW, four strategic aspects were identified as relevant to this study:

quantitative, natural, socio-institutional and moral. As shown in Figure 8, evaluating neoclassical economics against these aspects indicates that within the quantitative aspect the spatial modality is not well addressed, the natural aspect is not covered at all³, while the socio-institutional aspect is mostly covered with the exception of the formative modality. In terms of the moral aspect, only the juridical aspect is covered, although even here not all elements of this aspect are included.

3 It is possible to define neoclassical economics more broadly to include those aspects that deal with the environment (e.g. Shi, 2010). A narrower definition of neoclassical economics is adopted, which focuses on the ontological and epistemological aspects of the approach. The schools of economics that address environmental issues are discussed in the next section.

Figure 8 Neoclassical economics within DW’s modalities

Strategic aspects Modality Neoclassical economics

Quantitative Numerical √

Spatial

Kinematic √

Natural Physical

Biological

Socio-institutional Sensitive √

Analytical √

Formative

Communicative √

Social √

Economic √

Moral and governance Aesthetical

Juridical √

Ethical Credal Source: Own analysis

In summary, despite some of the limitations of NC economics, it shares many ontological and epistemological characteristics with system dynamics modelling. This is seen particularly in the way in which NC economics attempts to explain the social phenomena by investigating consistencies and causal relationships between different entities. It is now necessary to investigate whether there are links between other schools of economics and system dynamics modelling.