What Is Neoclassical Economics

* Article: What Is Neoclassical Economics? By Christian Arnsperger and Yanis Varoufakis. Panoeconomicus 53 (1): 5-18, January 2006

URL = http://www.paecon.net/PAEReview/issue38/ArnspergerVaroufakis38.htm [1]

Abstract

"This paper offers a precise definition of neoclassical economics based on three axioms which lie at the latters foundations. This definition is all inclusive in that it applies as much to the neoclassical economic models of the late 19th century as it does to todays more flexible and inclusive models.

The paper argues that these axioms, simultaneously,

(a) provide the foundation for neoclassicisms discursive success within the social sciences and

(b) are the deep cause of its theoretical failure.

Moreover, (a) and (b) reinforce one another as neoclassicisms discursive power (which is largely due to the hidden nature of its three foundational axioms) makes it even less likely that it will con-duct an open, pluralist debate on its theoretical foundations (i.e. the three axioms which underpin it)."

Summary

From the reading notes of Michel Bauwens, 2006:

Neo-classical economists claim they do not exist: tere is just a scientific economics and a speculative one. For critics, it is therefore important to define it.

Three features are really essential

Axiom 1: Methodological Individualism

Individuals need to be studied as cogs in the wheel, although it is now admitted they are no longer perfectly informed, rational, and selfish.

So,

- 1) there is an abstraction from the social

- 2) a reductionism

- 3) a split of agency from structure and a move from the former to the latter: 'structure is the crystallization of the agents' past actions.

Axiom 2: Methodological instrumentalism

All behavior is preference-driven, i.e. maximizing preference satisfaction, but it is now recognize that such preferences have a dynamic character. Utility functions have been enriched by psychological game theory.

Axiom 3: Methodological equilibration

Any problematic ends with the question: "what behavior should be expect at equilibrium ?

The method is:

- 1) one discovers an equilibrium

- 2) one assumes that agents will find it

- 3) it is discovered that small perturbations cannot destroy it

According to the authors, it is the capacity of the profession to keep these three axioms hidden and undiscussed, which explains their dominance.