Heterodox economics refers to the approaches, or schools of economic thought, that are considered outside of orthodox economics.^[1] Heterodox Economics is an umbrella term used to cover various separate unorthodox approaches, schools, or traditions of economic thought that are outside of mainstream economic thought. These include post Keynesianism, (old) institutionalism, feminist, social, Marxian and Austrian economics, among others.^[1] Orthodox economics, also known as mainstream economics, largely consists of the neoclassical synthesis, which combines a neoclassical approach on microeconomics and Keynsian approach to macroeconomics.^[2][3]

While mainstream economics may be defined in terms of the "rationality-individualism-equilibrium" nexus, heterodox economics may be defined in terms of a "institutions-history-social structure" nexus. Note that there is a different emphasis in distinguishing mainstream and heterodox economics in this way than is involved in distinguishing them as closed-system and an open-system approaches respectively (Lawson,1997);^[1] Dow, 2000) ^[4]

It is difficult to define heterodox economics. The International Confederation of Associations for Pluralism in Economics (ICAPE) has prudently avoided defining its umbrella too specifically, choosing instead to define its mission as "promoting pluralism in economics." All strands of socialism are heterodox, but not all heterodox schools are socialist. A key challenge for "heterodoxy" is to define itself in ways that move beyond the rubric of "non-neoclassical" economics. In defining a common ground in the "critical commentary" some heterodox economists, such as Steve Cohn (Knox College, USA), have tried to do three things: (1) identify shared ideas that generate a pattern of heterodox critique across topics and chapters of introductory macro texts; (2) give special attention to ideas that link methodological differences to policy differences; and (3) characterize the common ground in ways that permit distinct paradigms to develop common differences with textbook economics in different ways.

Rationality

One of the most broadly accepted principles of neoclassical economics is the assumption of the "rationality of economic agents". Indeed, for a number of economists, the notion of rational maximizing behavior is taken to be synonymous with economic behavior (Becker 1976, Hirshleifer 1984). When some economists' studies do not embrace the rationality assumption, they are seen as placing the analyses outside the boundaries of the Neoclassical economics discipline (Landsberg 1989, 596). Neoclassical economics begins with the a priori assumptions that agents are "rational" and that they seek to "maximize their individual utility" (or profits) subject to environmental constraints. These assumptions provide the backbone for rational choice theory, and from this basis neoclassical economists derive the familiar supply and demand functions which, under certain conditions, will lead to a determinate market clearing equilibrium. Under even stricter conditions this equilibrium will be Pareto efficient.

Heterodox economics reject these fundamental assumptions on which most of neoclassical economics theory has been built. Up to 1980 heterodox economics could be defined as:

1. rejection of the atomistic individual conception in favor of a socially embedded individual conception;
2. emphasis on time as an irreversible historical process;
3. reasoning in terms of mutual influences between individuals and social structures.

On 1980 (or thereabouts) significant changes begin to occur in economics; a number of new research programs began, in various ways, to be recognized by the mainstream economics. These include behavioral economics, complexity economics, evolutionary economics, experimental economics, neuroeconomics, and others. As a consequence, some heterodox economists, such as John B. Davis, proposed that the definition of heterodox economics has to be adapted to this new, more complex reality.^[5]

The argument of the previous section is that heterodox economics post-1980 is a complex structure, being composed out of two broadly different kinds of heterodox work, each internally differentiated with a number of research programs having different historical origins and orientations: the traditional left heterodoxy familiar to most and the 'new heterodoxy' resulting from other science imports.^[5]

Rejection of Neoclassical Economics

There is no single "heterodox economic theory"; there are many different "heterodox theories" in existence. "What they all share, however, is a rejection of the neoclassical orthodoxy as representing the appropriate tool for understanding the workings of economic and social life. The reasons for this rejection may vary."^[6]

Reasons for the rejection of Neoclassical economics

• That neoclassical theory is appropriate as a tool only under certain limited conditions, where there is "perfect" or "near-perfect" competition.
  • The Austrian School in particular considers neoclassical theory relevant for conditions of equilibrium
• That it is useless as a tool for understanding economic and social life.^[7]
• That all theories are valid so long as they are internally consistent.^[8]
• That neoclassical theory is a form of ideology or religion, which is grounded in unscientific concepts.^[9]

According to Satya Gabriel:

Neoclassical economic theory is grounded in a particular conception of human psychology, agency or decision-making. It is assumed that all human beings make economic decisions so as to maximize pleasure or utility. Some heterodox theories reject this basic assumption of neoclassical theory, arguing for alternative understandings of how economic decisions are made and/or how human psychology works. It is possible to accept the notion that humans are pleasure seeking machines, yet reject the idea that economic decisions are governed by such pleasure seeking. Human beings may, for example, be unable to make choices consistent with pleasure maximization due to social constraints and/or coercion. Humans may also be unable to correctly assess the choice points that are most likely to lead to maximum pleasure, even if they are unconstrained (except in budgetary terms) in making such choices. And it is also possible that the notion of pleasure seeking is itself a meaningless assumption because it is either impossible to test or too general to refute. Economic theories that reject the basic assumption of economic decisions as the outcome of pleasure maximization are heterodox.

Most recent developments

Over the past two decades, the intellectual agendas of heterodox economists have taken a decidedly pluralist turn. Leading heterodox thinkers have moved beyond the established paradigms of Austrian, Feminist, Institutional-Evolutionary, Marxian, Post Keynesian, Radical, Social, and Sraffian economics?opening up new lines of analysis, criticism, and dialogue among dissenting schools of thought. This cross-fertilization of ideas is creating a new generation of scholarship in which novel combinations of heterodox ideas are being brought to bear on important contemporary and historical problems, such as socially-grounded reconstructions of the individual in economic theory; the goals and tools of economic measurement and professional ethics; the complexities of policymaking in today's global political economy; and innovative connections among formerly separate theoretical traditions (Marxian, Austrian, feminist, ecological, Sraffian, institutionalist, and post-Keynesian) (for a review of post-Keynesian economics, see Lavoie (1992); Rochon (1999)).

Fields or schools of heterodox economics

# Listed in Journal of Economic Literature codes scrolled to at JEL: B5 - Current Heterodox Approaches.

§ Scrolled to at JEL: C73 - Stochastic and Dynamic games; Evolutionary games.

Research is also being done in the multidisciplinary field of cognitive science on individual decision making, information as a general phenomena, distributed cognition and their implications on economic dynamicity.

Some schools in the social sciences aim to promote certain perspectives: classical and modern political economy; economic history; economic sociology and anthropology; gender and racial issues in economics; economic ethics and social justice; development studies; and so on.

References

See also

External links

Publications on heterodox economics

Articles

• LEE, Frederic S. "heterodox economics," The New Palgrave Dictionary of Economics, 2008, 2nd Edition, Abstract.

Books

• Blatt, John Markus: Dynamic Economic Systems: A Post-Keynesian Approach, Armonk, 1983, ISBN 0710802730
• COHN, Steven Mark. ''Reintroducing Macroeconomics: A Critical Approach.'' M. E. Sharpe, Inc, December 2006 ISBN 978-0-7656-1450-6 ISBN 978-0-7656-1451-3
• DAVIS, John, editor. ''The Theory of the Individual in Economics: Identity and Value.'' Routledge, 2003 ISBN 0415202191
• FULLBROOK, Edward, editor. ''A Guide to What?s Wrong with Economics.'' London: Anthem Press, November 2004 ISBN 1843311488
• HARVEY, John T. and GARNETT JR., Robert F. Garnett, Editors. ''Future Directions for Heterodox Economics'', Series Advances in Heterodox Economics, The University of Michigan Press, 2007. ISBN 978-0-472-03247-1

• LAVOIE, M. (1992) Foundations of Post-Keynesian Economic Principles, Aldershot: Edward Elgar.

• McDERMOTT, John. Economics in Real Time: A Theoretical Reconstruction, Series Advances in Heterodox Economics, The University of Michigan Press, 2003 ISBN 978-0-472-11357-6

• ROCHON, Louis-Philippe (1999) Credit, Money and Banking: An Alternative Post-Keynesian Approach, Cheltenham: Edward Elgar.
• ROCHON, Louis-Philippe and ROSSI, Sergio, editors. '' Modern Theories of Money: The Nature and Role of Money in Capitalist Economies''. Edward Elgar Publishing, 2003 ISBN 1840647892

Articles, conferences, papers

• COHN, Steve. ''Common Ground Critiques of Neoclassical Principles Texts.'', 2003. Knox College (Illinois).
• COLANDER, D. ''The Death Of Neoclassical Economics''. Journal of the History of Economic Thought, 2002, 22 (3), pp. 127-43. <small>Online readable, free link - Copyright JHET, All rights reserved</small>
• LAVOIE, Marc. ''Do Heterodox Theories Have Anything in Common? A Post-Keynesian Point of View.''

• LAWSON, Catherine & LAWSON, Larry (1990). Financial system restructuring: lessons from Veblen, Keynes, and Kalecki. Journal of Economic Issues 24 (1): 115-31.
• LAWSON, Tony. The nature of heterodox economics. Published by Oxford University Press on behalf of the Cambridge Political Economy Society, 2005, in: Cambridge Journal of Economics 2006 30(4):483-505; doi:10.1093/cje/bei093

• MINSKY, Hyman (1996). Uncertainty and the institutional structure of capitalist economies. Journal of Economic Issues 30(2):357-68.
• RANSON, Baldwin ''Heterodox theoretical convergence: possibility or pipe dream?'' (Notes and Communications)(Report). Journal of Economic Issues, 01-MAR-07

• SECCARECCIA, M. Early Twentieth-Century Heterodox Monetary Thought», Money, Financial Institutions, and Macroeconomics, ed. by A.J. Cohen, H. Hagemann and J.N. Smithin, Boston: Kluwer Academic Publishers, 1997, pp. 125-39

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