By Dan Kervick
This is just a brief note to the readers of New Economic Perspectives to point them to an outstanding new working paper posted by L. Randall Wray at the website of the Levy Economics Institute of Bard College. The paper is called “Introduction to an Alternative History of Money”. In the abstract of the paper, Randy beautifully captures a feature of heterodox approaches to economics that distinguishes those approaches from much orthodox economic theorizing:
Heterodox economists reject the formalist methodology adopted by orthodox economists in favor of a substantivist methodology. In the formalist methodology, the economist begins with the “rational” economic agent facing scarce resources and unlimited wants. Since the formalist methodology abstracts from historical and institutional detail, it must be applicable to all human societies. Heterodoxy argues that economics has to do with a study of the institutionalized interactions among humans and between humans and nature. The economy is a component of culture; or, more specifically, of the material life process of society. As such, substantivist economics cannot abstract from the institutions that help to shape economic processes; and the substantivist problem is not the formal one of choice, but a problem concerning production and distribution.
There is no doubt that abstraction has its purposes in science. But so much of orthodox economic debate these days seems to get lost inside the formal models of the debaters, adding pointless epicycles to models that are fundamentally flawed from the outset, and whose inherent social and psychological unreality no number of added complications can fix.
The curves of economic theory have an attractive and almost addictive visual simplicity. Some are very useful. The risk, however, is that they quickly become intellectual crutches. People addicted to the representational power of these curves can start thinking too much in terms of animated PowerPoint displays, where various actions produce automatic effects in terms of motions either of the curves or along the curves in a pure mathematical space. And as a result they may begin to neglect observation of the real-world processes occurring among actual, organic and historically given people and institutions – the processes that the models were supposed to describe in the first place. The human reality of MMT and other heterodox approaches is part of what attracted me to this new way of thinking in the first place – and helped break me of some of the bad mental habits burned into my brain from that old Intermediate Macro course I took in 1978.
Anyway, enjoy Randy’s paper!