JEM179 History and Methodology of Economics
Instructor: Michal Paulus, M.A., [email protected]
Seminar Leaders: Andrej Virdzek, M.A., [email protected]
PLACE: Monday 12:30 – 13:50, room 314, Opletalova IES
MOODLE course name: JEM179 History and Methodology of Economics
MOODLE password: provided at the lectures
Goal of the course
The course aims to explain key methodological revolutions within economic theory leading to the
modern mathematical economics. We provide participants with a basic understanding of the most
important concepts from philosophy of science which have influenced economic methodology and
practice of economists. In general, we are primarily interested in the mathematization of economics.
We discuss the impact of philosophy and other sciences on this development, the consequences of
this trend or philosophical debates within economics reflecting the mathematical nature of modern
economics.
The course is designed as an introductory course therefore no deep knowledge of economic theory
or philosophy is expected. However, the background in economics is of course an advantage. Our
coverage of historical milestones and economic (or philosophical) schools is arbitrary to fit to our
main task (follow the gradual development of economics towards science based on mathematical
methodology). Therefore, many issues are neglected because of limited space (e.g. institutional
schools, etc.). However, we will discuss additional topics related to the history of economic thought
and methodology in in the course “JEM180: Philosophy, Economics and Politics: Current Debates”
which is being taught in the summer semester (syllabus will be updated before the summer semester
in the December/January). Students interested in the economic history are recommended to visit
course JEB133 Economic History of doc. Doležalová. You can also check for course JEB016 solely
focused on the history of economic schools of prof. Horváth which covers many topics deeper.
Literature
Each lecture is provided with several types of additional reading: original texts of discussed authors
and secondary literature. Students are expected to read compulsory papers.
Textbook chapters are not mandatory but they provide complex understanding of the discussed
topics. Textbook chapters usually go beyond lecture content: especially Screpanti and Zamagni
(1993). Backhouse (2002) much more reflects the level of lectures related to the history of economic
thought and is definitely recommended to be read (very interesting book explaining also historical
and political context). Screpanti and Zamagni (1993) are recommended to be read after Backhouse
(2002) especially for those without any background in economics.
Requirements
Overview
Each student is expected to write an essay and pass the final exam. A student can gain maximum 50
points from an essay and 50 points from the final exam. Therefore, the total amount of points is 100.
However, any student can get additional extra points for class activity. The maximum amount of
these bonus points is 10. These points add to points from essay and final exam and hence they can
significantly improve grade. All three parts of the grading are described in more details below.
The final grade will be determined by the sum of all points which the student has gained from essay,
final exam and his activity throughout the semester according to this scale:
1= 100-90, 2= 89-75, 3= 74-60, F= 59-0
Essays
It is compulsory for every student to write an essay for the course. Not writing one will automatically
lead to failing the course. It is important to write a short and concise essay with a clear logical
structure.
There are three kinds of topics which student can take up for his essay:
1) Critical discussion of some of the primary (or supplementary) literature in the syllabus for the
course.
2) Comparative discussion between two or more of the authors debated in the course.
3) Free topic which should be connected with the topics debated during the course. (Here we
recommend to consult the topic with the teachers).
It is possible to consult the essay topics with the teachers, but it is not compulsory. It is also not
required from the students that they send an information about what topic they have chosen for the
essays, but please note that choosing a bad essay topic (disconnected from the course or too general
topic about “everything” or dealing with “all problems within economics or philosophy”) will lead to
a request for a new essay with a different topic. Failure to produce a new essay will lead to 0 points
from the essay assignment and therefore to failing the course.
The recommended length of the essay is 1600 words. Any essay which will have more than 1700
words will be penalized by losing a point for every 10 words above the limit. Given the space
restrictions it is advised not to take a broad and general topic. It is important to write a short,
concise and clear essay.
The essay should have a short introduction which will state the goal(s) of the essay and the thesis
that will be defended in the course of the essay.
The most important on which the thesis as such will be valued mostly is the actual defence of the
thesis.
At the end the essay should contain a discussion which will remind the reader of the general
structure of the argument of the essay and point on to some further possible developments of it.
The essays are due before the final exams. If a student wants to attend the final exam he must
submit his essay before the exam otherwise he will be not allowed to participate in the exam.
The maximum amount of points to be gained from the essay is 50. To sum up, these are the following
criteria on which the essays will be evaluated:
a) The logical structure of the argument,
b) The quality of the content of the essay,
c) The language of the essay,
d) Complying with the citation standards,
e) The length of the essay.
KEY TECHNICAL RECOMMENDATION:
1) Check your essay for proper citation standard. Choose one (e.g. APA) and stick to it (=be
consistent).
2) Avoid any form of plagiarism. We check every essay using anti-plagiarism software.
Activity during the lectures
Students can gain maximum 10 points for the general classification during the semester by actively
participating in the debate during the seminars and lectures. By active participation it is meant that a
student actively participates in the class debate, have read the readings and debate them in the class,
etc. If anybody had a point that he wanted to say but for different reasons could not or got the idea
after the lecture, he can write it in e-mail form to his lecturers. These can also be evaluated by
points. It is recommended to be actively participating also for different reasons, e.g. one can think of
his essay topic during these exchanges. A student can get maximum one activity point per class.
Final exams
To successfully pass the course the student must write the final exam. The maximum amount of
points to be gained from the exam is 50. The exam will be divided into five different parts each with
value of 10 points. The content of the exam will not vary from the topics discussed on the seminars,
lectures or in the readings (at least one part of the exam will be solely based on compulsory texts). It
is a necessary prerequisite to submit the essay before one can sign up for the final exam.
Course structure
Short Summary
1) Economics and moral philosophy: The way to Adam Smith (3.10., MP)
2) Marx and his influence. Struggle of socialists with Austrian school, the economic
calculation debate. (10.10., MP)
3) Marginal Revolution and the Rise of Mathematics (foundation of neoclassical orthodoxy):
Jevons, Walras, Menger, Marshall and Methodenstreit. (17.10., MP)
4) Philosophy of Science and Economics; General Overview and the Vienna Circle (24.10., AV)
5) Philosophy of Science and Economics: Overcoming logical positivism in philosophy of
science Karl Popper and Thomas Kuhn (31.10., AV)
6) Keynesian Revolution and Followers of Keynes (14.11., MP)
7) Philosophy of Science and Economics III – later developments in philosophy of science
(21.11., AV)
8) Philosophy of Science and Economics IV: Some problems in philosophy of economics
(28.11., AV)
9) Positive economics and influence of Popper (5.12., MP)
10) Modern Mathematical Economics (12.12., MP)
11) Explanatory power of economic models (theory)? (19.12., MP)
12) Behavioral economics: pragmatic way to solve the paradox? Realism as a philosophical
reaction on the paradox. (2-6 January, MP)
Detailed description
1) Economics and moral philosophy: The way to Adam Smith (3.10., Paulus)
The first lecture discusses the interrelation of economics and moral philosophy/ethic and the key
milestone of the discipline: the work of Adam Smith who is regarded to be the founder of economics
as a separate scientific discipline.
Compulsory readings (will be discussed at the beginning of the second lecture):
SMITH, Adam. The Theory of Moral Sentiments. Part VII, Section II, Chapter IV.: Of licentious systems
pp. 279 – 287.
Possible to download here: http://www.ibiblio.org/ml/libri/s/SmithA_MoralSentiments_p.pdf
MANDEVILLE, Bernard. Fable of the Bees. Preface and The Grumbling Hive, pp. 21 - 38,
Possible to download here:
https://ia800306.us.archive.org/10/items/fableofthebeesor027890mbp/fableoftheb
eesor027890mbp.pdf
Textbook chapters:
Screpanti, E. and Zamagni S. (1993). An Outline of the History of Economic Thought, Clarendon Press,
Oxford 1993. Chapters 1 and 2.
Backhouse, R. (2002). The ordinary business of life: A history of economics from the ancient world to
the twenty-first century. Princeton University Press, chapters 6 and 7.
2) Marx and his influence. Struggle of socialists with Austrian school, the economic
calculation debate. (10.10., Paulus)
We focus on the establishment of Marxian economics and Marx´s influence on economics. We
discuss the interrelation of the classical political economy and Marx (primarily the role of Ricardo)
and present the historical context surrounding Marx´s ideas. Regarding the influence of “Marxist
economics” we primarily cover debates of socialist economists with Austrian school and the debate
on economic calculation (e.g. Misses and Hayek x Lerner and Lange).
Compulsory readings:
Hayek, F. A. (1945). The Use of Knowledge in Society. American Economic Review. Vol. 35, No. 4. pp.
519-30. Possible to download here: http://www.econlib.org/library/Essays/hykKnw1.html
Marx, K. (1869). Value, Price and Profit. New York: International Co., Inc,
Taken from: https://www.marxists.org/archive/marx/works/download/pdf/value-price-profit.pdf
Supplementary readings:
Von Mises, L. (1990). Economic calculation in the Socialist Commonwealth. Ludwig von Mises
Institute.
https://mises.org/sites/default/files/Economic%20Calculation%20in%20the%20Socialist%20Common
wealth_Vol_2_3.pdf
Lange, O. (1936). On the Economic Theory of Socialism: Part One. The Review of Economic Studies,
Vol. 4, No. 1 (Oct., 1936), pp. 53-71.
Lange, O. (1937). On the Economic Theory of Socialism: Part Two. The Review of Economic Studies,
Vol. 4, No. 2 (Feb., 1937), pp. 123-142.
Textbook chapters:
Screpanti, E. and Zamagni S. (1993). An Outline of the History of Economic Thought, Clarendon Press,
Oxford 1993. Chapters 3.1, 4 and 8.4.
Backhouse, R. (2002). The ordinary business of life: A history of economics from the ancient world to
the twenty-first century. Princeton University Press, chapters 7, 8 and 12.
3) Marginal Revolution and the Rise of Mathematics (foundation of neoclassical orthodoxy):
Jevons, Walras, Menger, Marshall and Methodenstreit. (17.10., Paulus)
The lecture presents the key event in the process of mathematization of economics (the Marginal
Revolution) and gradual foundation of neoclassical orthodoxy. We discuss key scholars associated
with the revolution (Jevons, Walras and Menger) and also main contributors to the neoclassical
economics of this time (Marshall). The struggle for appropriate methodology (Methodenstreit)
between German Historical School and Austrian school is discussed.
Compulsory readings:
Louzek, M. (2011). The battle of methods in economics. The classical Methodenstreit—Menger vs.
Schmoller. American Journal of Economics and Sociology Vol. 70, No.2. pp. 439-463.
Marshall, A. (1890). Principles of economics (selected chapters). In Martin C. Spechler (1990).
Perspectives in Economic Thought. McGraw-Hill. pp. 171-176. (see Moodle)
Menger, C. (1985). Investigations into the Method of the Social Sciences. Ludwig von Mises Institute.
Book I, Chapter 2, pp. 41-49. Download here:
https://mises.org/sites/default/files/Investigations%20into%20the%20Method%20of%20the%20Soci
al%20Sciences_5.pdf
Supplementary readings:
Brems, H. (1975). Marshall on mathematics. Journal of Law & Economics, Vol. 18, No.2, pp. 583-585.
Coase, R. H. (1975). Marshall on method. Journal of Law & Economics, Vol. 18, No. 1., pp. 25-31.
Dardi, M. (2016). Philosophy and psychology of mathematics according to Alfred Marshall.
Cambridge Journal of Economics, Vol. 40, No. 1, pp. 283-308.
Von Mises, L. (1969). The historical setting of the Austrian school of economics. New Rochelle:
Arlington House.
Can be downloaded here:
https://mises.org/system/tdf/Historical%20Setting%20of%20the%20Austrian%20School.pdf?file=1&t
ype=document
Textbook chapters:
Screpanti, E. and Zamagni S. (1993). An Outline of the History of Economic Thought, Clarendon Press,
Oxford 1993. Chapters 5 and 6.2.1-6.2.3
Backhouse, R. (2002). The ordinary business of life: A history of economics from the ancient world to
the twenty-first century. Princeton University Press, chapters 8 and 10.
4) Philosophy of Science and Economics; General Overview and the Vienna Circle (24.10.,
Virdzek)
The seminar will focus on basic questions connected with a philosophical approach to economics.
From there it will get to more general questions of philosophy of science. We will start the seminar
with a philosophical conception of science which was central at the beginnings of 20th century,
namely that of logical positivists. The question of meaning will be shown as a central to their
philosophical project. The D-N model will be explained and their considerations on ethics will be used
as an example of their philosophical method. In the next two seminars we will go deeper into
questions of philosophy of science and after that we will return to some problems of philosophy of
economics.
It is recommended that students, apart from reading the required literature, prepare for the seminar
by trying to come up with answers to questions such as: What is economics? What is science? What
is philosophy? What are the goals of science? Is there progress in economics? Is there progress in
philosophy? What is the interrelation between philosophy and economics?
Compulsory Readings:
For a general overview of the field, please read the entry in SEP:
http://plato.stanford.edu/entries/economics/
For a closer look on the goals and methods of logical positivists read:
Schlick, Moritz, The Turning point in Philosophy in: Logical Atomism (ed. A.J. Ayer) pp. 52 - 59
Ayer, Alfred J. Language, Truth and Logic.
Chapter 1: The Elimination of Metaphysics pp. 13 - 29
Chapter 6: Critique of Ethics and Theology pp. 104 – 117
Readings for the more interested:
For engaging with a basic notion of what philosophy is:
Plato’s classic dialogue Euthyphro (It is app. 20 pages long)
One of the most influential thinkers on the way in which logical positivists were doing philosophy:
Wittgenstein, Ludwig. (1921) Tractatus Logico-Philosophicus, London: Kegan Paul
5) Philosophy of Science and Economics: Overcoming logical positivism in philosophy of
science Karl Popper and Thomas Kuhn (31.10., Virdzek)
Probably the most influential criticism of the dominant conception of science in the works of logical
positivist can be found in the work of Karl Popper. We will discuss his criticisms, but also his positive
views on what science is and what it should be. Popper’s position will be contrasted with a starkly
different philosophy of science presented in Thomas Kuhn`s The Structure of Scientific Revolutions.
This book is probably the most famous philosophical treatment of science, and it is much celebrated
e.g. for its use of historical examples to show some of the most essential characteristics of science.
Problems of induction will also be discussed.
It is recommended that students think before the seminar of these questions: Why isn`t astrology
considered a science? How does science come up with new knowledge? Is progress in the sciences
linear? Do scientists verify or falsify propositions? Why were Einstein’s discoveries important for
philosophy of science? What is science?
Compulsory Readings:
Gattei, Stefano. (2009) Science and Philosophy (Chapter II.), Karl Popper’s Philosophy of
Science: Rationality without Foundations. Routledge, pp. 28-43
Marcum, James. (2005) What is The Structure of Scientific Revolutions? In: Thomas
Kuhn’s Revolution: An Historical Philosophy of Science, Continuum Publishing: London,
2005
57-75
Russell, Bertrand. (1912) Chapter VI: On Induction in The Problems of Philosophy pp. 2023
Kuhn, Thomas. (1970) Chapter VIII: The Response to Crisis in The Structure of Scientific
Revolutions, 2nd edn. Chicago: University of Chicago Press. pp. 77-83
Readings for the more interested:
The Classical Statement of the Induction Problem and problem of causality:
Hume, David. (1748) An Enquiry Concerning Human Understanding.
Chapter 4: Sceptical doubts concerning the operations of the understanding pp. 18-29
Chapter 6: Of the Idea of necessary Connexion pp. 42-55
The actual book written by Popper:
Popper, Karl. (1968) The Logic of Scientific Discovery, London: Hutchinson &Co.
Other takes on Popper:
Putnam, Hillary. (1991). The “Corroboration” of Theories: in Scientific Revolutions (ed.
Ian Hacking)
Lakatos Imre. (1978) Popper on Demarcation and Induction in The Methodology of
Scientific Research Programmes pp. 139-167
6) Keynesian Revolution and Followers of Keynes (14.11., Paulus)
The work of J.M. Keynes and his influence is presented. We discuss the neoclassical synthesis and
other interpretation of Keynes´s legacy – the Post Keynesian school, which represents different
methodological approach to economics than mainstream orthodoxy based on neoclassical synthesis.
We mention key methodological differences between Post Keynesian school and neoclassical
orthodoxy and discuss the critique of mainstream methodology from the Post Keynesian perspective
(historical x logical time, open x closed systems, etc.). The famous Keynes-Tinbergen debate is also
mentioned to present methodological differences between Keynes and modern mathematical
economists of those times (e.g. Tinbergen, Hicks or Samuelson).
Compulsory readings:
Dow, S. (2001). Post Keynesian methodology. A New Guide to Post Keynesian Economics. Routledge,
Chapter 2. pp. 11-20.
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money(selected chapters). In
Martin C. Spechler (1990). Perspectives in Economic Thought. McGraw-Hill. pp. 210-227. (see
Moodle)
Supplementary readings:
Backhouse, R., and Laidler, D. E. (2004). What was lost with IS-LM. History of Political Economy, Vol.
36, No. 5, pp. 25-56.
Hicks, J. R. (1937). Mr. Keynes and the" classics"; a suggested interpretation. Econometrica, Vol. 5,
No. 2, pp. 147-159.
Keynes, J.M. (1939). ‘Professor Tinbergen’s Method’, Economic Journal, Vol. 49, No. 195, pp. 558577.
Keynes, J.M. (1940). ‘Comment’, Economic Journal, Vol. 50, No. 197, pp. 154-156.
Minsky, H. P. (1978). The financial instability hypothesis: a restatement.
Tinbergen, J. (1940). On a method of statistical business-cycle research. A reply. Economic Journal,
Vol. 50, No. 197, pp. 141-154.
Textbook chapters:
Screpanti, E. and Zamagni S. (1993). An Outline of the History of Economic Thought, Clarendon Press,
Oxford 1993. Chapters 7.2 and 9.1-9.2, 9.5
Backhouse, R. (2002). The ordinary business of life: A history of economics from the ancient world to
the twenty-first century. Princeton University Press, chapter 10.
7) Philosophy of Science and Economics III – later developments in philosophy of science
(21.11., Virdzek)
What were perceived as shortcomings of Kuhn’s philosophy of science and the shift of overall
philosophical background lead to search for a new ways of philosophizing about science. Lakatos`s
philosophy of scientific research programmes is probably the most famous work which tries to
combine insights both from Kuhn’s and Popper’s positions. Feyerabend’s work is another approach
to philosophy of science which owes a lot to the possibilities that Kuhn’s work opened and we will
talk about it in the seminar. We will also mention some other criticisms of Popper.
Questions to think about: Is there such a thing as a scientific method? What does it consist in? What
is truth and is it needed as a concept for a successful science? What about objectivity? Can a
philosopher prescript or should he only descript what scientists do? Are social sciences?
Compulsory Readings:
Larvor, Brendan. (1998). Chapter Lakatos: an introduction. Routledge. pp. 47-71
Lakatos, Imre. (1978). The Methodology of Scientific Research Programmes, Cambridge: Cambridge
University Press pp. 1-9
Readings for the more interested:
Criticism of the idea of conceptual schemes as meaningless (attack on some of Kuhn’s and Quine’s
ideas):
Davidson, Donald. (1973). On the Very Idea of a Conceptual Scheme. Proceedings and Addresses of
the American Philosophical Association. pp 5-20
Ed.: Hacking, Ian. (1981) Scientific Revolutions. Oxford: Oxford University Press
Feyerabend, Paul. (1975). Against Method: Outline of an Anarchist Theory of Knowledge pp. 1-24
8) Philosophy of Science and Economics IV: Some problems in philosophy of economics
(28.11., Virdzek)
Seminar discussion. Reserved for clearing up of misunderstood notions, discussion about the
connection of philosophy of science and economics. It will be the responsibility of students to discuss
the issues with an understanding of the previous texts and trying to look on the issues from a
broader perspective.
Compulsory readings:
None
9) Positive economics and influence of Popper (5.12., Paulus)
The lecture is devoted to the Friedman´s essay on positive economics and the impact of Popper´s
work on falsification on economics. We primarily discuss Friedman´s essay and related criticism from
economic methodologists and heterodox approaches. The main question of the lecture is whether
the Popper´s concept of falsification is appropriate methodology for economics.
Compulsory readings:
Boylan, T., and O'Gorman, P. (Eds.). (2007). Popper and economic methodology: contemporary
challenges. Routledge. Chapter 1, pp. 5-32.
Caldwell, B. J. (1980). A critique of Friedman's methodological instrumentalism. Southern Economic
Journal, pp. 366-374.
Friedman, M. The methodology of positive economics. In: Friedman, M. Essays in positive economics,
Chicago Press, 1953.
Can be downloaded here: http://is.muni.cz/el/1423/jaro2014/HEN444/um/friedman-1966.pdf
Supplementary readings:
Caldwell, B. J. (1980). Positivist philosophy of science and the methodology of economics. Journal of
Economic Issues, Vol. 14, No. 1, pp. 53-76.
Caldwell, B. J. (1991). Clarifying popper. Journal of Economic literature, Vol. 29, No.1, pp. 1-33.
Textbook chapters:
Boumans, M., and Davis, J. B. (2015). Economic methodology: Understanding economics as a science.
Palgrave Macmillan. Chapters 2 and 3 pp. 31-92.
10) Modern Mathematical Economics (12.12., Paulus)
The lecture discusses two interrelated topics. Firstly, we focus on the Weintraub´s historical work
revealing the story behind mathematization of modern economics in 20Th century. The impact of
modern mathematics and physics on economics is presented (Bourbaki group, G. Debreu). Secondly,
we talk about one key methodological revolution within macroeconomics: microfoundation of
models. Therefore, we discuss famous “Lucas Critique”.
Compulsory readings:
Davidson, P. (2003). Is" mathematical science" an oxymoron when used to describe economics?.
Journal of Post Keynesian Economics, Vol. 25, No.4, pp. 527-545.
Debreu, G. (1991). The mathematization of economic theory. American Economic Review, Vol. 81,
No. 1, pp. 1-7.
Lucas, R. E. (1976). Econometric policy evaluation: A critique. In Carnegie-Rochester conference
series on public policy (Vol. 1, pp. 19-46). North-Holland.
Can be downloaded here:
http://isites.harvard.edu/fs/docs/icb.topic500592.files/lucas%20econometric%20policy.pdf
Supplementary readings:
Weintraub, E. R. (2002). How economics became a mathematical science. Duke University Press.
Textbook chapters:
Backhouse, R. (2002). The ordinary business of life: A history of economics from the ancient world to
the twenty-first century. Princeton University Press, chapter 11.
11) Explanatory power of economic models (theory)? (19.12., Paulus)
The lecture examines the question whether economic mathematical models are explanatory. This
question is of high importance within philosophy of economics and while the modern economics
formulates its theory via mathematical models. Therefore, the debate in facts explores the
explanatory power of economic theory. The lecture is based on two chapters (6 and 7) from Reiss
textbook where we discuss the “paradox of explanation”.
Compulsory readings:
Reiss, J. (2013), Philosophy of economics: a contemporary introduction. Routledge, chapters 6 and 7.
Supplementary readings:
Will be updated.
12) Behavioural economics: pragmatic way to solve the paradox? Realism as a philosophical
reaction on the paradox. (2-6 January, Paulus)
The last lecture at first discusses the behavioral economics as an approach overcoming
methodological weaknesses of modern mathematical economics reflected in the so called “paradox
of explanation” (discussed in lecture 11). Weaknesses of this potential solution are discussed. Then
we focus on more abstract reaction: realism as a stream in philosophy of economics (e.g. Lawson or
Mäki).
Compulsory readings:
Mäki, U. (2011). Scientific realism as a challenge to economics (and vice versa). Journal of Economic
Methodology, Vol. 18, No. 1, pp. 1-12.
Reiss, J. (2013), Philosophy of economics: a contemporary introduction. Routledge, chapter 15.
Supplementary readings:
Hausman, D. M. (1998). Problems with realism in economics. Economics and Philosophy, Vol.14. No.
2, pp. 185-213.
Will be updated.
13) January Class (reserve): Can be used for consultations or finishing lectures