Economic.methodology Heterogeneity.and.Relevance.(a.J).2004

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Economic Methodology: Heterogeneity and RelevanceAuthor(s): Amartya SenSource: Social Research, Vol. 71, No. 3, "Social Research" at Seventy (FALL 2004), pp. 583-614Published by: The New SchoolStable URL: http://www.jstor.org/stable/40971716 .Accessed: 04/06/2014 13:15

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Amartya enEconomic Methodology:Heterogeneity andRelevance

THIS IS AN ISSUE-RAISING, QUESTION-MONGERING PAPER. MANY MORE

questionswillbe asked han will, n fact, e answered. he ntention sto propose broad-based ritique f contemporary conomicmethod-ology tarting ff rom he recognition f the deep-seated eterogeneityof he ubjectmatter f conomics.

There s a gooddeal of discontent bout the methods nd tradi-tions n vogue n contemporary conomic heory. shall argue thatwhile parts f that disquiet re well grounded, heyhave to be sepa-rated rom thers hat eem to take nsufficient oteof the particularnature f he xercises nder ttack. n particular, omereproaches rebasedon an inadequate ecognition f hediversity fmotivations ndconcerns nderlying ifferent ypes f conomic heory.

In reading he literature, am sometimes eminded f an old

story oncerning wo stranged rothers one a general nd the othera bishop who meet fter many ears n a desolate ailway tation ndfind heir ld dislikes evived. hebishop sks the general: AssistantStationMaster, ellme when s the next rain o London? hegeneralreplies o the bishop: Madam,nyour ondition, oyou hink t s safeto travel? ur ability omisrepresent r misunderstand hat othersareup to s quite triking. s a consequence ddly nappropriate road-sidescan come mixed with pertinent nd penetrating riticisms. heneedfor orting ut s,thus, uite central. o someextent, his s whatORIGINALLYPUBLISHED INSOCIALRESEARCHVOL.56, NO. 2 (SUMMERI989)

social research Vol 71 No 3 : Fall 2004 583

http://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsp


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willbeattempted nthispaper, hough iven hevastvarieties fmeth-odologies sed and the criticisms ade, heground shall be able tocoverwill, fnecessity, erelatively iny.

THEHETEROGENEITYOF ECONOMICSThere are many different ypesof problemswith which economicsas a subject s concerned. his simple nd homely hought s worthstating nly because the diversities re so often verlooked, nsistingon a narrow pproach confined o addressing particular ategoryof

problems, gnoringr

denyinghe

egitimacyf others. or exam-

ple, prediction s undoubtedly major exercise n economics, ut anoverconcentration n this one function an lead to undue neglect fother xercises for xample, oing conomic valuation r providingadequatedescription.

Thenarrowness fthat rediction-centeredpproach an be illus-trated yconsidering ilton riedman's therwise lluminating ontri-bution o themethodology fpositive conomics nwhich e proposes

that realism may have to be judged by eeingwhether he theoryworks,which eans hether t yields ufficiently ccurate redictions(Friedman, 953:15).Theability f a theory oyield ufficiently ccu-rate predictions s undoubtedly mportant, nd Friedman oes ndeedthrow much ight n this spect of the problem. ut there re manyotherworthy conomic xercises hat annot ossibly e udged n thislight Sen,1982;Hicks, 983).For xample, escriptive tatements uchas unemployment as ncreased r inflation sslowing own allfor

somewayof ssessing hereality fwhat soccurring. hey re primar-ily oncerned ith eflecting dequately hathashappened ather hanwith oretelling hatwill appen r what would ave appened adthecircumstances een different. imilarly, valuative tatements nvolv-ingvaluation nd assessmentmaydepart rom urely redictive xer-cises nd the methodology elated o that xercise.Whether r not oneaccepts ohn icks's owerful rgument o the effect hat conomics sadiscipline, ot science Hicks, 983),wehaveto acknowledgehat

there smuchmore o economics hanpredictive fficiency.

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At hevery east, he ubject f conomics ncludes hree iverse,though nterrelated, xercises: 1)predicting he future nd causallyexplaining ast events, 2)choosing ppropriate escriptions f statesand events n the past and the present, nd (3)providing ormativeevaluation f states, nstitutions, nd policies. redictive conomics sdirectly oncerned nlywith he first f hese xercises. he method-ology f economics as to admit nough diversity obe able to dealwith he other lasses f problems s well.

Thesedifferent xercises re not, f course, ndependent f eachother, nd there re clear inks between hese

problems.he nterde-

pendence f the ssues must be recognizedwithout onfounding hedistinctions etween hem ndwithout gnoring heir laims ospecificattention.

Whiledescription, rediction, nd evaluationmaybe the mainelementary xercises ith which he ubject f conomicssconcerned,there re more omplex and, n someways,morederivative) roblems,too, uch s using conomic rguments or olitical dvocacy Myrdal,

1953;1958)or seeing the rhetoric f economics s an object fdirectimportance, n addition o ts nstrumental oles n means f ommuni-cation McClosky,983, 985).Thediversity f hediscipline f conom-ics has to be kept firmly n viewto achieve n adequate grip on themethodologicalssuesunderlying he ubject.

VERIFIABILITYANDTESTING:SCOPE ANDRELEVANCEThe issues of testing nd verification re important ormany ypesof economic nalyses, incethey re concernedwith ausal relation-ships nd with making redictions either bout the future, r coun-terfactually bout the present r eventhe past. n the context f thisparticular art of economics, he failure o formulate heunderlyingconcepts nd categories n such a way that they can be examinedand used for esting an be quite a major hortcoming. he problem-atic ssues n this rea havereceived gooddeal of critical ttentionrecently Ward, 972;Latsis, 976;Gibbard nd Varan, 978;Blaug,1980;Belland Kristol, 981;Boland,1982;Pitt, 981;Klamer, 984;

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a country asexperienced ncreased tarvation r enhanced nequal-ity mayhavemany roblematic eatures, articularly he selection fthe ssessment riteria sed,but the problems eed not rise from hedifficulty f testing implicit redictions resent n these descriptivestatements ecausethere may r maynot be any uch mplicit redic-tions.

There an be considerable rgument s to preciselywhere helines re to be drawn.What hould not,however, e so disputable stheexistence fdifferent ypes f conomic roblems n someofwhich heissues f

estingnd

verifiabilityre

quiteentral, hile n others

heyare either eripheral r quite rrelevant.

COUNTERFACTUALS AND SRAFFAThe mportance f counterfactual ropositions n economics s easyto see.1What would avehappenedhad something een different s anatural ormat f nquiry n predictive conomics. ounterfactuals analsobe relevant ven for normative xercises. or example, he dea

that omeone should eceive high eward fhe or she causes greatdeal of wealth o be created nvokes normative rameworkn whichcounterfactuals lay n active art.2 imilarly, he claims f need maybe based on an analysis s to what would happen e.g., what suffer-ing,what misery, hat deprivation) ut for hose laims beingmet cf.Meade, 976;Atkinson, 983).

However, here re many escriptive roblems n which ounter-factuals o not have ny ssential ole. omeeconomists ave lso triedto explore heextent o which conomic nalysis an do without oun-terfactual ropositionsltogether. erhaps hemost nteresting ontribu-tion o this xploration amefrom iero raffa 1960).n a work hat sjustly amousandalso,arguably, uchmisunderstood), raffa ried oexplore hether herelationship etween rices, roductions, nd distri-butions f ncome annot e substantiallyxplored ithout onsideringany hanges factual r counterfactual andwithout, hus, nvolvingnymarginal oncepts t all (since uchconcepts ake he form f sking

whatwouldhavehappened f omething adbeenoneunitmore r ess).




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It s quiteremarkable hat raffa id stablish number f mpor-tant elationshipse.g., hosebetween he wagerate nd the profit ate,and between elative rices nd quantities) hat ould be expected nthe basisof ertain ivenharacteristicssuch s the ame rate f profitsand same wagerates n different nterprises). e did not go into thequestion s to why hese characteristics e.g., he same rate of profitin all enterprises) ouldbe expected ohold, nd t s possible oarguethat uch ustificatory nquiry ould ake one n the direction f qui-librium conomics, nvolving heuse of counterfactual onsiderations.But hat was not he

ubjectf Sraffa's

nvestigation.Sraffa's san important ethodological ontribution n trying ounderstand he relation etween rices, osts, roduction, nd distri-bution. The concept of determination sed in this approach s abroader ne than hat f ausal elations, hichwouldnecessitate oun-terfactual nalysis. t can be argued hat Sraffa ocused ttention nthe coherence f observed eality nd the power fthat oherence,showing owobserving part f the reality e.g., uantities f nputs

and outputs nd the profit ate) an tell us about nother art in thiscase,the wagerate nd all the relative rices). his ype f nquiry asbeenneglected n modern conomics partly ecauseof he dominanceof the positivist ethodologynd the narrow ange f scientific nter-est n contemporary conomics) nd it can be seen as a return o animportant lassical nterest nderlying part f he motivation or hesearch or theory fvalue. 3

However,twould e, believe, mistake o see ashas been ome

times uggested)n Sraffa's nalysis causalystem ival o the tandardneoclassical odel f he determination f rices, uantities, nd he distri-bution f ncomes. raffa aschanging henature f he nquiry- owardan important ut neglected heme- rather hanproviding differentanswer o a given uestion lready nvogue ncontemporaryconomics.

TESTING:IMMEDIACYAND ULTIMATEUSEAsfar s causal theories re concerned, he need to test them withempirical nformation s fairly niversally ccepted n principle y

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economic theorists. However, nly a relatively mall minority feconomic heories n causal relations re, n act, ested. here wouldseem o be here remarkably arge ap between rinciple nd practice.There s an important roblem f methodological trategy nvolved nthis ension.

The belief hat s meant o ustify hegap is rather arely rticu-lated. t mainly akes he form f seeing esting s an ultimate, atherthan an immediate, tep to be undertaken. he complexity f manyeconomic roblems equires hat onceptual nd analytical ssuesbe

explored ery ubstantiallyo understand hat

typesf

relationshipsmight e involved.While the analyses t this tage re not meant forimmediate esting nd verification, hey an greatly elp cognitiveassessment f the problems nd the relations nder examination.great eal of economic heory nvolving ausalrelationships s, n fact,of hiskind, nd the practical alueof nsights btained rom nalyticalreasoningmaywellbevery ubstantial.

While his may eemfair nough, t maywell be askedwhether

economic heorists o not tend o overindulge n lingering n at thisallegedly reliminary nd less immediate tage.Theanalytical truc-tures may nd up being, n effect, ubstitutesor, ather han omplemen-tary o,empirical nvestigations. here s a narrow assagebetweenthe Scylla f over-immediatend breathless earch or esting nd theCharybdis f self-indulgent ure theory, ever oming oterms withempirical xamination. he mportant ole of analytical easoning npredictive nvestigation asto be recognized, ut t the same time hetendency omakethe ntermediate roduct n effect lso the inal nedeserves ard crutiny.

EQUILIBRIUMECONOMICSOnespecific ield f economic nquiry n which heconflict iscussedin the ast section omes hrough ery harply s that ofgeneral qui-librium nalysis. n terms f a rather implified tructure f causalrelationships, ompetitive eneral quilibriummodelshavebeenwellexplored Hicks, 939;Samuelson, 947;Arrow, 951;Debreu,1959;




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McKenzie, 959;Arrow nd Hahn, 971).t s plausible oargue hat hemany nsights erived rom hese nalyses re helpful ven n under-standing esssimplemarket tructures ncountered n the real world,and that hese xercises n pure heory ltimately avemuchpracticalrelevance.

On the other and, t shard o be sure hat he spects f he realworld n which hese theories rovide seful llumination re reallymore mportant han he respects nwhich hese implemodels istortreality. ome economists aveforcefully rgued hat not only s thenature f

contemporary apitalism erydifferent romwhat we see

in modelsof competitive eneral quilibrium, ut also that he mostmomentous eatures f modern apitalism re largely ost in thesemodels.4

JanosKornaihas argued persuasively hat equilibrium heoryis merely n intellectual xperiment nd that its propositions avenot been verified Kornai, 971).Thatobservation s certainly orrect.But hehard question o settle s the extent o which he ntellectual

experiment as or has not been indirectly aluable n the formula-tion nd assessment f empirical ropositions bout the real world. fgeneral quilibrium heory as been at east n somerespects aluable(as, tend obelieve, t has been),5 his s not because ts results avebeen anything ikeverified, or because the theory s free rom eri-ous distortions f reality. he claims ie elsewhere in the nsights hatthis heorymayhaveprovided bout how a class of crucial conomicinterrelations ork.That claim s not easyto dismiss, iven hewaygeneral-equilibrium elations re invoked often mplicitly even nvery ractical ebates boutprices nd markets.

Underlying his problem s the issue of the usefulness f theidea of general quilibrium, nd more generally f the concept fequilibrium tself s a basic building lock n economic nalysis. n

standard general quilibrium heory, heassumption f equilibriumhas several ifferent equirements. hey nclude ach agent eing n amaximized osition iven heconstraints aced y heagent nd therebeingno excessdemand n the market and f here s excess upply f

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somecommodity, tsprice eing ero) Koopmans, 957;Debreu, 959;Arrow nd Hahn, 971).

Theconcept f equilibrium asan important eductionist ole,and it makes t possible odeal with omplexities f human behaviorand of nterdependences n markets n a relatively impleway.Therecannot be any doubt at all that the assumption f equilibrium ascontributed oth ractability nd elegance oa gooddeal of economicreasoning.What s less clear s whether hese chievements ave beenpurchased t a high price of remoteness rom escriptive eality r

predictive fficiency.Onetype f criticism f equilibrium conomics oncerns heuseof equilibrium-basedeasoning. ometimes his ype f economicsis invoked n a starkly impleform, rawing nstant olitical onclu-sions for xample, bout the efficiency f the market mechanism.This does little ustice to general quilibrium heory s such, whichdistinguishes etween nd provides artly isparate nswers o differ-ent questions regarding quilibrium, n particular 1) existence, 2)

uniqueness, 3)stability, nd 4)efficiency.General quilibrium heory xplicitly cknowledges hepossibil-ity f the nonexistencef a general quilibrium venwhen all marketsare competitive.ndeed, gooddeal of the theory as been concernedwith dentifying onditions hat would ensure n equilibrium. venwhen uch n equilibrium xists, t may enonunique.t s possible lsofor n equilibrium oexist, nd even be unique, but nevertheless eunstable,o that departures rom t maynot be corrected, nd it could

not be assumed hat rrespective f nitial onditions heeconomy illmove o such n equilibrium. lso, n equilibrium ould xist and lsobe unique nd stable) ut be economicallyneffidentn the senseofnotachieving areto ptimality.

In popular use of general equilibrium heory, many of thesedifferent oncepts re confounded, o that the mere presence of acompetitive rocess s sometimes aken mplicitly o entail he exis-tence, uniqueness, tability, nd efficiency f a general quilibrium.Sometimes olicy rguments re based on these mplicit ssumptions.




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Onehasonly o ook t the imple ronouncements nthe arly ears fMrs. hatcher's overnment n Britain o see this process t work. ikeMonsieur ourdain, howasunaware f hefact hat he spokeprose,Mrs.Thatchermay not have known hat he talked general quilib-rium, ut her economic nalysis ould have actually rofited romsomereal general quilibrium heory nd from eeing hecontingentnature f market-based conomic fficiency. f there re problems nthese pplications, heblamefor his annot eput ongeneral quilib-rium heory s such, ince hat heory xplicitly ecognizeshe ubstan-tive nature f each of these

questionsnd

investigateshe conditions

under which atisfactory nswers o the respective uestions o or donot merge.

Another mportant ssue concerns he use of the idea of equi-librium tself. he reductionist ole of this dea and its contributionto tractability re highly rized n economic heory, ut the point softenmadethat t s an artificia1 onstruct. here s some truth n thisclaim, ut t s also mportant orecognize hat he dea of quilibrium

is widely sed usually n an implicitway in our common racticalreasoning. f, or xample,we arrive t a railway tation nd find hat fthe wo icket ounters ne has a long ueue n front f t nd the otherhasonly ne person tanding lone,we do not ypicallyend o assumethat eople re ust being illy n sticking othe first ounter nd that twouldmake ense mmediately orun o the econd. hepresumptionthat wemight ntertain ouldbe that hepeople tanding n the queueknow omething hatwe do not yet know-for xample, henature f

the transaction hat s beingmade at the uncrowded indow, nvolv-ing perhaps time-consuming icketing r a slow-moving ayment.That commonsense rgument s, of course, based essentially n theideaof n equilibrium in this ase of icket uyers hoosing etweenwindows. n onewayor another he notion f equilibria sveiywidelyused n nformal swell s formal easoningnvolving uman ehaviorand nteraction.

Infact, he mplicit se of uch n assumption anbe seen lso nsomeof he iterature ritical f tandard eoclassicalheory. or xam-

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pie, n Sraffa's nalysis f he production f commodities ymeansofcommodities t s assumed hat he profit ate s the ame n all enter-prises nd the wagerates do not vary rom ne enterprise o another(1960).Whileno reason s given s to why his ssumption s made andfor raffa's wn exercise t s not reallynecessary, s we discussed, ogo nto hat ausal connection), defense f uch n assumption ouldtend o require omekind f n equilibrium rgument. twouldbeveryhard o reject heconcept f equilibrium ltogether nd still e abletodeal with omplexities f ocial nd economic roblems.

Themethodological

ifficulties fequilibrium

conomics o notlie in the dea tself. hey ie in the rather arrow nd simplewaytheidea is often nterpreted nd the overextensive se that s frequentlymade of this one concept.Hereagainthere s scopefor onsiderabledisputation asedon a discriminating nalysis f he uses and abuses ofthe dea of quilibrium n economics.

VALUEJUDGMENTSANDWELFAREECONOMICS

Under he nfluence f positivist hilosophy, he need to keep valuejudgments ut of conomicswasfairly idely ccepted n the writingsthat ollowed ionel Robbins's owerful ritique Robbins, 935).Manybattles ave beenfought ince hen n the field f conomicmethodol-ogy n the ubject fvalue udgments nd their oles.

The decision o keep economics value-free ould,of course,militate gainst the subject of welfare conomics s such. Indeed,welfare conomics as n a state f very onsiderable ecline or longtime after Robbins's ttack, nd the revival f this subjecthas beenrelatively low. However, nsofar s welfare conomics and, moregenerally, heevaluative oncernswithin he field f economics) reaccepted s legitimate, taying learofvalue udgments ould carcelybeaccepted sgoodpractice. f valuations ave obemade,norms ndvalueshave o beused, nd there s really oescapefrom hisnecessity.Onthe whole, his s rather n old and tired ssue, nd t cannot e saidthat his s an area ofburning rgency mong hemethodological rob-lems o be addressed oday.




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However, here an be fruitful rguments n the need for moreexplicit nd well-defined resentation f value judgments used inwelfare conomics xercises. hishas some mplications or onstruct-ing the axiomatic foundations f welfare conomics. A number fpowerful esults avebeen derived n analytical elfare conomics ymaking xtensive se of uch xplicit onditions.

Byfar he most mpressive f these results s,of course,Arrow'simpossibility heorem Arrow, 1951] 963).Thistheorem hows he

impossibilityf ombining ogether number f plausible-lookingalue

judgmentsn

derivingocial

udgments,r social hoice, n the basisof

individual references. ne of the essons hathas emerged rom helarge iterature hat has developed n social choice theory ollowingArrow's ork s the possible paqueness f pparently ransparent aluejudgments.Many nnocuous-lookingalue udgments avesurprisingimplications, specially hen hey re combined ogether.n the ase ofArrow's impossibilityheorem, set of four mild-looking onditionsfor ocial choice nvoked yArrow enerates n impossibility n the

sense hat hey annot ll be fulfilled ogether Arrow, 1951] 963).Theinformational asesofvarious alue udgments o callfor lose crutiny(Sen,1970;d'Aspremont nd Gevers, 977;Hammond, 982; PattanaikandSalles, 983; uzumura, 983), ut he requirement f explicitnessof value udgments s not altogether simple nd unambiguous ne.Value udgments tated n formal nd exact erms an,nevertheless, eextremely paque.There re mportant ethodologicalssues nvolvedin the presentation fvalue udgments n welfare conomics.

VALUES,DESCRIPTION,AND PREDICTIONWhile hesystematic oleofvalue udgments n the evaluative xerciseofwelfare conomics seasy oaccept, t spossible ohavemore f nargument n the relation etweenvalues,on the one hand, nd theexercises f descriptivend predictiveconomics, n the other. he twotypes f ssues re taken p in turn.

The role that value udgmentsmight lay n the descriptivexer-cises involved n such activities s measuring overty r inequality

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or unemployment as been a matter f somedisputation. t has beenargued, with much plausibility, hat n choosingbetween differentdescriptions, e must be guidedby what s regarded s valuable, ndas such he pparently escriptive xercises ould end o havevariousimplicitalue lements Myrdal, 953, 958;Streeton, 958;Blaug, 980;Dyke, 981;Dasgupta, 985;Heilbroner, 988).

Sometimes hese mplicit lements avebeenmade uite xplicit,and a very mportant nd influential xample f this can be found nthe class of economicmeasurements ased on explicit ormulationof valuation functions for

xample,n Atkinson's thical measure

of ncome nequality Atkinson, 970). n this pproach he extent finequality s measured y he oss of ocialwelfare in terms f quiva-lent ncome resulting rom he nequality n question.

Theneed for election etween ifferent escriptions annot, nfact, e disputed, nd the case for doing heselecting n the basis ofappropriate alueswouldbe hard o deny.6 hat s ess clear s whetherthe discrimination ust be done specificallyn terms f value udg-

ments oncerning uchmatters s sodaiwelfarerelated o someunder-lying otion f a socialwelfare unction ). t can be argued hat ourinterest nseeking hedescription aywell rise lso frommotivationsother han he pursuit f ocialwelfare. he evaluative xercise nchoos-ingbetween ifferent escriptions s, thus, not necessarily matter fsocialwelfare unctions s such i.e.,what sgoodfor he ociety), ut

ofbetter ulfilling hediverse nterests hat re served y uchdescrip-tions r measures i.e.,what s goodfor he nquiry, iven heobjectsof heexercise). ocheckwhat erves he goalsof he nquiry estwillof ourse nvolve alue udgments egarding henature nd uses of heinquiry. or xample, n examining herole ofeconomic nequality nfostering erious rime, he relative eriousness f different ypes fcrimeswouldhaveto be udged longwith udging hedifferent aysofdescribing conomic nequality, ut hesevalue udgments eednotbe just about the size of socialwelfare s such.There s a complexissuehere, nd there s obviously copefor onsiderable rgument nthe precise oleofvalues n the ssessment f lternative escriptions.




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As far s prediction s concerned, he role of value udgmentsis typically ather imited. ndeed, t is precisely n this context hatthe mplicit se of value udgments n compromising heobjectivity ftests f predictive ypotheses as been seen as being specially bjec-tionable. his s, believe, largely lausible osition otake, nd donot propose ochallenge t here.

However, he mportance fvalues n motivatingredictive nqui-ries of different indshas also to be acknowledged. esearchings anaction, nd like any other ction, here s ultimately question f ts

justification.he

questionsHowshould act? What hould do? are

critically valuative nes n the choiceofresearch ctions, n the ameway hey re n other ypes f hoices.

Choosingto investigate ne type of predictions ather hananother annot, n this sense, be divorced from he values of theinvestigator. ut hisdoesnot, f course, n anywaydeny heneedforobjectivityn the predictive ccounts hemselves. ven when hemoti-vational oint s granted nd research ctions re seen as acts of voli-

tion hat all for ustification, he mportance f objective ssessmentof the predictive ypotheses, yusing ppropriate ests nd verifica-tion procedures, eednot be for hat eason compromised.

It s n thesemore omplex ssues nvolving heuse of value udg-ments 1) nthe hoice fdescriptionsnd 2) nthe hoice f problems obeselected or tudy ndreporting hat hemethodology f nvestigationcan encounter nteresting ndchallenging uestions t the present ime.Incontrast, heold ssues f keeping conomics value ree nd dump-ingwelfare conomics n favor f no-nonsense ositivism re hardlyworth nvestigating, iven hepeculiar aivete f hose ositions.

FORMALISMANDMATHEMATICSThe formalization f economics has received good deal of criticalattention ecently. ome have questioned the cognitive imitationthat s imposedby a formal anguage, ndermining other ognitivepotentials nd strengths Woo,1986). t s certainly rguable hat helanguage f tandardmathematical xpression s often otrich nough

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to capture many ubtleties hat call for nformal nderstanding theformal xpressions f which, f possible,would be extraordinarilyunhelpful, ong, nd complex).On this ine of critique, he failing foverformalizedconomics s one of ack of balance. hisdoesnot, fcourse, emand hat ormal easoning eabandoned n economics, utonly hat t be used with reater iscrimination.

Certainly, hebelief hat mathematical xpressions ust e moreprecise n capturing hatwe wish to saycanbe badlymistaken, incesubtletiesmaybe eschewed n choosing articular ormal tatements.Indeed, he

precise xpressionf a

complicatedruth annot

possiblytake simple orm, owever recise-lookinghe imple ormulamightbe.Aformal xpression an be extremely recisewithout eing t allapreciseepresentationf heunderlying oncept o be captured. n fact,if hatunderlying oncept s ambiguous, hen he demands f preciserepresentation all for apturinghat mbiguity ather han replacing tby omedifferent dea precise n form ut mprecise n representingwhat s to be represented. t s in this ontext hat uchmathematical

structures s partial rderings, uzzy ets, tc.,havemuch o offer.7Another ssueconcerns he excluding olethat mathematicaleconomics llegedly lays n making t hard for many conomistswithout he neededmathematical raining to followwhat s happen-ing n that elect erritory. ome have evenseen n the emergence fmathematical conomics heconstruction f a symbolic anguage fpriesthood, xcluding henonselect rom laims o understanding hereal ntricacies f conomics. heremaybe omepoints f ubstance

in this diagnosis f the allegedly excluding ses of mathematics neconomics, ut the dichotomy etweenmathematical nd nonmath-ematical conomics s rather esssharp now than used to be the caseeven omedecades go.Onereasonfor his, ndoubtedly, s that mosteconomists hesedays, ven hosewho are not particularly nvolved nmathematical easoning, o have some acquaintancewith he kindsof mathematics tandardly sed in economics e.g., basic calculus,elementary inear lgebra), nd the senseofdistance s much essnowthan t used to be. Furthermore, he aura ofglory hatwasassociated




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once with being rigorous, exact, nd modern available nly othe chosenmathematical ew has rather immed n recent ears. hefact hat remarkable xactness f operations an be combined withextremely rude conceptualization f the nature of economic prob-lemshas become rather more ransparent hanmight ave been thecase earlier. he division has certainly ecome ess spectacular, ndshrill resentations f hepositions for r against havebecome,happily, essfrequent.

There do remain, however, ome substantial ssues to bediscussedon the use of formalism nd mathematics n economics.MichioMorishima as discussed hedistinction etweenwhat he callsthe goodand bad uses ofmathematics Morishima, 984), nd n the

debate nvolving orishima nd Gorman headvantages s well as thedifficulties f he useofmathematical ethods neconomics avebeenilluminatingly rought ut Gorman, 984;Morishima, 984). t s, nfact, asyto sympathize oth with Morishima's riticism f the waymathematics as often een used, evenby the finest conomists, n

constructing conomic heory, nd at the same time cceptGorman'sconclusion hat n some otherwayswe do need moremathematics, otless, o sort ut the realeconomic roblems.

I believeMorishima rings ut the central ssue clearlywhenhe states: I would not care in the east f this Centre at LSEwhereMorishima orks]were 100percent ccupiedby mathematicians, slong s these mathematicians erecapableof furthering hestudy feconomics yusing he chievements frelated isciplines,nd as longas this swhat they ctually id Morishima, 984:76-77). he ssue,in this view, s not the use ofmathematics s such but rather he needto nclude nfluences hat tandardmathematical odels ften end oleaveout.

In fact, Morishima otes that the development f economicshas owedmuch o the Econometric ociety's deathat here hould ea trinity onsisting f mathematics, tatistics nd economic heory,but arguesfor ts replacement y a new trinity f economic heory,statistics nd related isciplines Morishima, 984:77).The real ssue,

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therefore, oes not concern doubts bout the positive ontributionsthat mathematics an make to economic reasoning f both analyti-cal as well as empirical inds, ut relates oworries bout he negativeeffects in the form f xclusions that verconcentration n standardmathematical ethods ften ends oproduce. here s scopeformeth-odological rguments n the mportance hatmathematical ormaliza-tions hould lay neconomics, ut he rgument annot ruitfully akethe form f being for r against mathematics n economics.

RATIONALITYANDSELF-INTERESTTraditional conomic heory ncorporates onsiderable se of certainreductionist ssumptions hichmakea complex roblem ractable

by reducing he dimensions hat have to be considered n economicinterrelation. he assumption f rationality s one such postulate,which s used explicitly r by mplication pervasively. he conceptof rationality s used in economic heory ends o have two differentinterpretations, iz., 1)internal onsistency f choice nd 2)maximi-

zation f self-interest. hey re related o each other n the sensethatmaximization f self-interest, hen self-interest tself akes a ratherorderly orm,may nduce onsistent hoices n terms f tandard rite-ria of consistency. n the other hand, consistent ehavior need notinvariablynvolve he pursuit f one's self-interest, inceother ypes fgoalsand objectivesmay lso induce imilar onsistency. lso, t s byno means clear that n situations f game-theoreticnterdependence,enlightened elf-interest ay not permit behavior patterns hat

might pparently ook inconsistent, n the sense ofviolating ertainmechanical riteria f onsistency hat re frequently sed Sen,1987).Motivationally,hedemand f consistency nd that f elf-interest rerather istinct rom achother, ince he former s a procedural emandwithout ny ubstantive ontent s to what s beingpursued,whereasthe atter s a particularly ubstantive ommand s to what s beingpursuedwithout ecessarilynducing rigid rocedural tructure.

The assumption of self-interest aximization has played acentral art n economicmodel-building f both formal nd informal




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kinds. hat ssumption s often raced oAdamSmith nd the concep-tion of he economic man, nd there s certainly omeevidence hatAdam mith ntertained hepossibility hat ndividualsn the contextof exchange elations n the market ursue heir elf-interest nd inthe processhelp each other osatisfy heir espectiventerests. ut tis also true hat Smith xtensively iscussed he mportance f socialinterdependence nd the communal dvantages f following rules fconduct, ven when they o against dictates f what he called self-love Smith, 1776] 975, 1790] 975;Sen,1987:22-28, 7-88).

Be that s itmay,

elf-interest aximization as become he tan-dard almost niversal assumption sed n modern conomics. hisuniformity s rather emarkable iven he fact hat many ther ypesofobjectives nd valuesclearly o have a role n human hinking ndaction.The issue is not so much that ndividual ehavior may ome-times o against elf-interest aximization. hat laim wouldbe rarelyresisted. he real question concerns he importance f these depar-tures in particular whether here are certain ystematic atterns

in it which mayhelp one to understand nd interpret conomic eal-ity etter, nd which maybe fruitfully sed in making redictions rformulating ublic policies. There s certainlymuch scopefor rgu-ment here.

Theassumption f rational ehavior s used n economics artlybecauseof ts nterest n its own,but lso because t s seen as a wayofcoming ogripswith ctual ehavior. he atter xercise ives ational-ity n intermediating ole n economic nalysis. he simultaneous se

of heassumptions 1)that people ct rationally nd 2)that ationalityrequiresmaximization f self-interest akesactualbehavior, n thisformulation, ake rather traightforward orm.

There re, n fact, hree istinct uestions ere. hefirst oncernsthe presumption hat peoplewill ehave rationally, nd that depar-tures from ationalbehaviorwill not be very frequent. he secondquestion oncerns he haracterizationf rationality n the form f elf-interest aximization. hethird ssue oncerns he laim,which anbederived rom hefirst wopresumptions ut ould lso be asserted nde-

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pendently f them, hat ctual ehavior will take the substantive ormof elf-interest aximization. hese uestions an be discussed n theirown, nd each has received ome ttention n the xisting iterature.8

Asfar s actual ehavior sconcerned, t s alsopossible obase theallegedprevalence f the maximization f profits nd of self-intereston natural election nd survival ather han on the deaof reflectiverationality. heprofit-maximizers obetter, re more prosperous, ndsurvivemore asily, venwhen there re no definitive nternal easonsfor ccepting he uperiority fpursuing elf-interest ather han thergoals Friedman, 953).

The mportance f volutionary rguments anhardly e deniedin economics, ince selection nd evolutionmust have relevance owhat survives nd flourishes Hicks,1969;Hirschleifer, 977, 1984;Guha, 1981; Nelson and Winter, 982. On the other hand, t is farfrom lear that natural electionmust necessarily ake the particularform f consolidating elf-interest aximizationn general nd profitmaximization n particular, nd contrary rguments ave been force-

fully resented Schotter, 981;Nelson nd Winter 982;Helm,1984;Matthews, 984).ndeed, volutionary rocesses anbe very omplex,and the invoking f natural electionmust lso come to grips withthe complexities hat haveemerged n the biological iterature tself(Dawkins, 976,1982;Smith, 982).

It is also important o distinguish etween 1)the problem fnatural election f motivations mong differentndividualsn a givensociety nd 2)that f natural election mongdifferent eneralmoti-

vations n differentodeties. ven f t were the case that relentlesslyprofit-maximizingndividual oulddo better n a society here thersin that ocietywere nclined n other directions Friedman, 953), tdoes not follow t all that society n which veryone s self-interestmaximizingwould do better han another n which self-interestedbehavior sstandardly onstrained y ystematic dherence o rules fconduct Smith, 1790] 975).

Thus, the pervasive se of self-interested ehavior n moderneconomics annot be adequately efended y natural-selection rgu-




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ments. The alternative ustification hrough 1) the assumption frational ehavior nd 2)characterization f ationalitynterms f ntel-ligent ursuit f elf-interest asremained elevant s a defense f hisstandard ssumption. t is not, however, very trong efense ither,since t s not at all clearwhyrationality houldnot nvolve he ntel-ligent ursuit f all one's goalsand values,properly eighted, atherthan sticking nly to a particular lass of goals,viz., self-interestedones.Thesequestions ave been raised forcefully nd discussed airlyextensivelyn recent ebates Hirschman, 970,1977; 1982,1985;Sen,1973, 1982,1987;Hollis nd Nell,1975;

Leibenstein, 976; Scitovsky,1976, 1986; Schelling, 978, 1984, 1986; Collard, 978; Elster, 979,1983, 1986;Hahn and Holli, 1979; Lutzand Lux,1979;Solow,1980;McPherson, 982, 1984; Margolis, 982;Akerlof, 984; Parfit, 984;Frank, 985, 1988;Pagano,1985; Putterman, 986; Schwartz, 986;Steedman nd Krause,1986;Dasgupta,1987;Walsh, 1987a, 1987b,forthcoming; tzioni, 988; Slote, 989).

The role of self-interest n human behavior ncludes different

components nvolving 1)individual elfare, 2)individual oals, nd(3)individual hoice. ndividual welfare an be self-centered withno externalities, uch s sympathy);ndividual oalscan be confinedto maximizing self-welfare with no concern or he well-being fothers); ndividual hoices can be geared ntirely o self-goal withno note being aken f he goalsofothers). ut person an have goodreasons or iolating ach of hese respectively emanding assump-tions.9 he departures rom elf-interested ehavior an take differentforms epending n which of the three lements orwhich ombina-tion of them) et violated. he descriptive, redictive, nd normativeimplications f hedifferent iolations an be quitedissimilar.

Also, twouldbe a mistake o assume hat hereal ssue concernsonly heconflict etween elf-seekingnd some kind f generalltru-ism. Group nterrelations an be of many different ypes, nd theidentity f the person with groups o which he or she belongs cantake manydifferent orms. urther, erceptions f interests nd ofgoals can be influenced y dentity ith quite different roups uch

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as families, ommunities, ccupation roups, lasses,gender atego-ries, nd others, nd the nfluence f the different dentities an takequite dissimilar orms.10 his s a rich ield or nvestigation, hichhasbeen fairly xtensively eglected n modern conomics, hanks o therestrictive iscipline mposed by the wide almost universal use ofthe ssumption f elf-interested ehavior.

ECONOMICSANDNONECONOMICVARIABLESTheemergence f economics s a separate iscipline s not new. t is

arguablehat modern conomicshas had two distinct

rigins.11ne

of these origins elates o philosophy, nd in particular oethics, ndthere s a longtradition hereby conomic ontributions avecomefrom eople deeply oncernedwith moral philosophy. he ine fromAristotle o Adam Smith, ohn tuart Mill,Henry idgwick, rancisEdgeworth, nut Wicksell,AlfredMarshall, nd A. C. Pigou can beeasily raced. he other rigin elatesmore o natural cience nd engi-neering, nd here one thinks f the ine of tradition unning hrough

Petty, uesnay, avoisier, icardo, ournot, Walras, nd others.12 hilethe former riginmakes t easy o ink conomicswith omplexities fhuman ehavior nd reflection, he atter as tended oemphasize heproblems f technology, astes, nput-output elations, nd other uchinterdependences. either radition an encourage conomics o be adiscipline nrelated o others.

However, he point has been often made with ome usticethat he nature f economic iscipline asbecomeunduly arrow nrecent years, nd even if technological nterdependences ave notbeen ignored, he social nfluences n economic ariableshave beenfrequently eglected. Humanbehavior s influenced y a variety fconsiderations hat go well beyond henarrowly conomic. olitical,sociological, nthropological, nd other nfluences n economic ari-ablesare often xtremely mportant. hat these nfluences re oftenneglected s hard odeny.Ofcourse, t s true hat deliberately imit-ing the scopeof one's exercise maymake t more ractable, nd fromthis point f view,neglecting ome nfluencesmaynot, n itself, e a




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wrong hing odo. It is, however, rguable hat he neglect has beenmuch more severe han that, nd it has played counterproductiverole,making he assumed conomic ehavior horoughly mplausibleand, n fact, lsounhelpful or ausal andpredictive nalyses.

Whatever he reason for the neglect of related disciplines neconomic rguments, hecase for aving loser elations sfairly idelyaccepted. ut n interesting uestion rises egardingheform hat ucha relation hould ake. ometimes heproposed elation as been givena rather imperialist orm, ith conomic heorists dhering trictly otheir

stonishinglyarrow

methodologynd hen

pplying,ith emark-

able confidence, hat slim methodology o other disciplines s well.Interesting nd nnovative xamples f uch xtremist onsistencyanbefound n the writings fBecker1976; 981), mong thers.

Themotivation nderlying heproposed ntegration as much ocommend. t s ndeed rguable hat f conomists eally obelieve hatthesenarrow echnologies ork o well neconomics, hen t s naturalto see whether hey ouldnot be fruitfully sed nrelated isciplines s

well.But he rub ies precisely n the ntecedent ssumption, ince t sfar rom lear, oput t mildly, hat hese narrow echnologies ork tall well n analyzing conomic roblems hemselves.

Thevariety f social,political, nd ethical nfluences hat theeconomic pproach ohuman behavior, s it is rather misleadinglycalled, eavesout makes hat pproach nappropriate or se not onlyin the related disciplines ut also in economics tself.What s prob-lematic n this ttempt t extending heso-called conomic pproachto other iscipliness not o much he differences etween henatureof economics nd these other disciplines, ut the imitations f theeconomic pproach pplied oeconomicstself. he theoretical odels

of he economic pproach rove o be inadequate otonly n handlingsocialproblems, ut lso n providing reliable uide ohuman ehav-ior n economic ecisions for xample, n the determination fworkefforts, actory iscipline, nd economic roductivity. henarrow truc-ture f human motivation ssumed n the economic pproach ffersvery ittle xplanation f somecentral conomic henomena, uchas

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differencesnthe xperience fproductivity rowth n different cono-mies for xample, nJapanwith ts enormously owerful ocialmoti-vation is--vis,ay, heUnited ingdomMorishima, 982;Dore, 987).Especiallyn dealingwith production fficiency nvolving ndividualefforts nd traditions f cooperation nd discipline, heneed to takebroader iew of he economic roblem tself s hard odeny.

It is, in fact, plausible to argue that while the gap betweeneconomics nd related isciplines hould learly e reduced nd whilethe program f extending he domain of economics s not n itself

objectionable,he

expansionas to take a broader iewof the

respec-tive disciplines hemselvesSen,1973,1987;Hirschleifer, 984).Manyeconomicariables re also social, political, r anthropological. hedifferent isciplines o not provide partition f areas of concern,with ach phenomenon eing ither conomic r ocialbut never oth.The ssue, herefore, s not so much hat f pursuing nterdisciplinaryworks, nd even ess of ust expanding he domain of economics. tis primarily ne of recognizing he nescapable ntersections etween

the different isciplines hat make economic phenomena requentlyinseparable rom hose that are traditionally tudied n the relateddisciplines.

A CONCLUDINGREMARKInthis ssay n the methodology f economics havebeenboth defen-sive and critical. he starting oint of the paper was the recognitionof the heterogeneity f economics s a subject nd the diversity f ourconcerns,motivations, nd objectives. haveargued gainst hose rit-icisms f particular raditions r particular pproaches hat eem totake nadequate oteof hepluralities nvolved.

Ihave ried o show hat number fdisputes hathaveengageda great deal of attention re, n fact, ased on misunderstanding hediversities f he xercisesnvolved. or xample, riedman's nsistenceon the mportance fpredictive fficiency anbe easily ccepted n itsown,without hat cceptancehaving heeffect, laimedby Friedman,ofundermining heconcept f descriptive eality nd ofendorsing he




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positivist ethodology ngeneral. imilarly,raffa's ttempt t analyz-ing conomiceality ithout ounterfactualonceptsurns ut o be ofmuch nterest f ts wn,without oingmuch ounderminehe reva-lent raditions f predictiveconomics.imilarly, hile esting sofcrucial elevance o certain ypes f conomic ropositions,tsusabil-ity nmany ther ypes fdescriptive,valuative,ndeven redictiveeconomicsas obeseen s severelyonstrained.

However,ven fter aking oteof the heterogeneity f thesubject nd he diversity f ur pursuits, here emain ertinent riti-cisms f hedominant raditions fmodern conomics,nd everal fthem urn ut o besignificantnd mportant. have ried o discusswhat s involved n some f hese hallenges,oncerning henatureof conomic ationality, sesand abuses f he dea of quilibrium,the relation etween conomicsndrelated isciplines,heuseandlegitimacyfvalues neconomicnalysis,ndso on.Frequently,heanswers hathave merged ave lsopointed o the need o extendand reformulate hecritical uestions. iven henature nd scope

of he ttempted crutiny, hat act, t any ate, eednot ome s asurprise.

NOTESThispaper s written n honor f one of he great eachers f conom-ics,Professor habatosh atta of Presidency ollege, alcutta, ithwarmmemories f ome of hefinest ectures haveeverheard. orhelpful iscussionsnd comments, am most grateful oSukhamoyChakravarty, erence orman, ieterHelm, ohn icks, rienMack,Henry eskin, nd two nonymous eferees. hepaperdraws n anearlier ssaywritten orResources or he Future.

1. On different ypes fuses of ounterfactualsn the ocial ciences, eeElster 1978).

2. For normative efense f sucha framework, eeBauer 1981).Onrelated ssues, ee alsoBuchanan ndTullock1962).

3. On that motivational uestion, eeDobb 1937).havediscussed omeaspects f his uestion n Sen 1978).

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4. Oneearly nd consistent ritic as been John enneth albraith, ndtheparticular oles f modern usinesses ndprofessions nwhich ehas focused re certainly ard o capturewithin he restricted truc-ture f general quilibrium heory. eeparticularly albraith 1952,1958, 967).

5. Idonot hink ornai willdeny his ither. ndeed, n his ownpioneer-ing ontributions othe economics f hortage 1980), e doesmakeextensive se of general quilibrium easoning.

6. I have discussed he nature f description s choice n Sen 1982).The issue relates

loselyo the

general methodological uestionconcerning he so-called cience-ethics istinction, hichhas oftenbeen aken obe a much irmer ichotomy han tcanreally e,giventhe nature f cientific nowledgetself. n this, ee Putnam 1988).On related matters oncerning conomicmethodology, ee Walsh(1987, orthcoming).

7. On the need for sing ess restrictive tructures n choice heory ngeneral nd n social hoice nparticular, ee Sen 1982, 986).

8. Evenwhen he bjectivesre fixed, here emain mportant uestionsas to what wouldbe, n fact, emanded ythe ntelligent ursuit fthose bjectives. hisbecomes particularly ifficult uestion n thepresence funcertainty, nd mportant nalytical s well s empiricalissueshavebeen nvestigatednthis ontext. ee, mong thers, llaisand Hagen 1979);Machina 1981);Kahneman, lovik, nd TVersky(1982); evi 1986);Dasgupta1987).

9. I havediscussed he relevance f thesedistinctions nd the relations

between hem n Sen 1987).Onrelatedmatters, eealso Parfit 1984),Dasgupta1987),ndWalsh forthcoming).

10. bor xample, ndividual dentity ith he amilynterests an serveimportant ooperative unctions ithin hat nstitution nd also bethe means of systematic nequalities etweenmen and women nthe division f oint benefits, oing gainst ender dentities. havediscussed he mportance f the coexistence f these ssues n Sen(1985, 989).

11.For a more extensive iscussion f this claim, ee Sen (1987).For




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an analysis f a different ut related principle f classification feconomic raditions, ee Baeck 1988).

12.To some xtent ach economist n the wo istshad diverse nterestsand motivations, nd the classification s an attempt oidentify hemain hrust f he ontributions f ach. Among hegreat ineteenth-century conomists, arlMarx sperhaps hehardest o classify, incehe hadremarkably trong inkswith oth raditions. heMarx f TheEconomicndPhilosophicanuscriptnd TheGermandeologyasmoreclearly n line with he former egacy hanthe Marx f Capital nd

CritiquefheGotha

rogram,houghven hese ater ocuments ave

strong lements f ocial philosophy nd psychology.

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