On the Limited "Relevance" of Economics

Robert L. Heilbroner

[Reprinted from, "On the Limited 'Relevance' of Economics,"
The Public Interest, No.21, pp.80-93, Fall, 1970]

Relevance is a word that makes professors of economics wince these days. ...

Is it [economics] relevant? Have the refined figments of economics anything to do with ghetto life or the behavior of corporations or the military industrial complex? . . .

... It must be clear from the title of this essay that I am not among those who are so persuaded. For behind the question ... is a deeper issue to which the standard reassurances do not always address themselves. It is that economics exists for a purpose, and is meaningful and useful only insofar as it serves that purpose. The purpose is to enable us better to comprehend the structure and tendencies of the economic order - that is, the institutions and activities that affect the production and distribution of wealth. Insofar as economics gives us this understanding, no matter how abstract or far-fetched it may seem, it is undeniably relevant. But insofar as it fails to do so, no matter how elegant or scientific it may appear, it is not.

I do not think an instructor would take issue with this criterion of relevance. Rather, he would argue that economics meets it very well. Does not the enormous demand for economists, he would ask, imply that the discipline has something to offer for which hardheaded businessmen are willing to pay? Does not the recent creation of a Nobel Prize in economics testify that it is an activity of high public importance? Is not the flattery of imitation paid by other social sciences to the techniques of economics similar testimony from the world of scholarship? What further proof of relevance would one want?

The answer I wish to give is not to denigrate what economics has done. It is to stress what it has failed to do. Obviously, economics throws a good deal of light on the workings of the economic process. But the light is curiously uneven. Some parts of the social machinery are brilliantly lit. Other parts are left shadowy or totally dark. And this uneven lighting, I would maintain, is not merely due to the fact that, like all sciences, economics is more highly advanced in some areas than in others. It is the consequence of the kind of illumination that conventional economic theory sheds. In other words, I believe there are aspects, of the economic system that economics, as it now exists, cannot light up, no matter how brightly its lamps may burn. For someone who wants to inspect those parts of the machinery, economics today is as useless as a searchlight fixed in the wrong direction.

The irrelevance of economists

. . . Let me give a few instances of this disregard of certain economic problems. One area of nearly Stygian blackness is to be found in the growth of American economic power abroad. Between 1950 and 1969, American overseas investment increased from $12 billion to over $65 billion, giving rise to the familiar charge that American imperialism has become a dominant force in international economic (and perhaps political) affairs. Astonishingly, however, a student of international events who depended for his knowledge of current trends on the professional journals would have remained totally unaware of this portentous development. The statistics of foreign investment were, of course, reported. But I am unaware of an analysis of the politicoeconomic consequences of this economic penetration in the professional literature. Our knowledge of the extent, nature, or effects of American hegemony in foreign investment has been gained almost entirely from the work of Marxian economists or from that of journalists such as Servan-Schreiber. . . .

This roster of ignored subjects could be easily expanded. I do not know of any treatment in the professional literature of the size and distribution of the benefits of the war economy by socio-economic groupings; of any interest in the question of the means by which private wealth and income are preserved from one generation to the next; of any analysis of the benefits accruing from "public" goods by income strata. Even poverty and ecological damage, now fairly common subjects for professional examination, were not issues originally unearthed by economists, although both problems would seem to lie directly beneath their gaze.

This is not to say that nothing has been written on these matters. Here and there an economist has looked in these directions, at aspects of the social machinery that were formerly obscured. Yet I do not think that many will dispute my contention that these are not the kinds of questions that crowd the pages of the economics journals, or that the attitude of most economists has been to avoid rather than to seek out perspectives of this kind.

I would feel somewhat more uneasy in my contention that economists were markedly one-sided in their outlook were not my belief bolstered by the support of an impeccable observer, George Stigler, one of the most respected economists of the conservative Chicago school. In a well-known essay, "The Politics of Political Economists," Stigler has written that "the professional study of economics makes one politically conservative." The reason for this is "the effect of the scientific training the economist receives. ... It becomes impossible for the trained economist to believe that a small group of selfish capitalists dictates the main outlines of the allocation of resources. ... He cannot unblushingly repeat slogans such as 'production for use rather than for profit.' He cannot believe that a change in the form of social organization will eliminate basic economic problems."

Professor Stigler's point is clear: if economists tend to be conservative, this is because it is the more intelligent thing to be. Without conceding that point (for I am by no means convinced by Stigler's examples of the things that economists cannot believe), I would like to raise another, less elegant, explanation for the phenomenon. It is that economists are conservative because they tend to be located in the upper echelons of the pyramid of incomes. The demand for economists has now raised their salaries until [as of 1967) the median pay of an associate professor was $14,000, that of a full professor $18,000, and of a "superior" full professor $21,000. This scale of salaries, quite aside from the royalties, consultation fees, foundation grants, etc. which are the common complement of professional pay, suffices to place associate professors in the top 15 per cent of all taxpayers; full professors in the top 5 per cent; and "superior" full professors in the top 2 per cent.

In his article Stigler raises venality as a possible cause for the conservatism of the profession, and dismisses it with the comment that "current rates of pay for good economists are much below what I would assume to be the going rate for a soul." But venality is not the issue at stake. When we seek to explain the prevailing political outlook of other groups in society, it is first and foremost to their place in the socioeconomic spectrum that we look. Thus, if economists are conservative, one prime facie reason would seem to be that they simply share the conserving attitudes we find in the top echelons of all societies.

To this one should no doubt add that special contemplative approach of the scholar which in itself tends to militate against "radicalism." But the first consideration remains to be faced; economists fare very well in this social order; why should they search for problems that might ruffle that serene temper on, which conservatism always rests? The answer, to come out with it flat-footedly, is that they do not, with the result that the picture of the economic order that conventional economics gives us is not one which might emerge if every portion of the mechanism were illumined as brightly as every other portion, but a partial and selective view from which much that is unpleasant or disturbing has been, no doubt unconsciously, passed over.

Let me now pass to more elevating matters. For there is a second and more interesting reason for the unreliable illumination that economics affords. It is (to continue our metaphor) that the light of economics only seems to work when the machinery of the social system is turning over smoothly, whereas any failure in the social mechanism short-circuits the beam that economics throws.

This will take us into a quick tour of the electrical arrangements. As anyone knows who has ever looked into an economics journal, economics is now a very complicated subject, virtually inaccessible to someone without a fairly thorough grounding in mathematics and statistics. Yet what is really significant about the discipline communicates itself immediately to the most casual browser. It is that economics bases itself on the methods of "real" sciences. In the severity of its language, its omnipresent formulae, the recurrent use of the word "model," there is clear advertisement that the paradigm of elucidation that economics follows is patterned as closely as possible on that of the physical sciences. In particular, economic methods stress rigor of procedure and proof, and a studied absence of value judgments - an approach that finds its ultimate expression in the depiction of the economic process as a series of interconnected mathematical equations.

Now what is astounding about economics - or more accurately, about society - is that this mathematical paradigm actually finds its application to social reality. That is, economics can indeed construct algebraic (or geometrical] analogues of social situations that explicate social action with the irresistible force of a logical demonstration, an achievement before which other social sciences pale with envy. . . .

. . . The unusual attribute of economics - its claim to relevance, if you will - lies in its ability to portray important aspects of the social universe in terms of the same kind of determinate models that we use to depict certain processes of the natural universe. What is more, there is no doubt but that this fantastic claim is partly true. There are relationships of an opposing-behavior or force-constraint kind that hold with sufficient regularity to enable us to use economics with considerable accuracy as a means of explaining or predicting many economic events. As I have said, the practical usefulness of economics is without question, and much of it derives from this "scientific" base.

Economics and the real world

There is, however, a problem. It lies in the fact that the premises ... on which so much of the scientific model rests are behavioral assumptions, and these assumptions, while valid enough of the time to give the scientific model its usefulness, are not valid all of the time. Behavior, in a word, contains an element of indeterminacy that plays hob both with real social processes and with the accuracy of their representation in mathematical models. For when behavior departs from the pattern on which economic theory is built, the illumination - the relevance - of that theory suddenly disappears.

But how indeterminate is behavior? ... In "ordinary" circumstances the behavior of buyers and sellers and producers is sufficiently like that on which economic theory builds its edifice so that economics enables us to make predictions and analyses of considerable accuracy. But conditions, alas, are not always ordinary. Indeed, in precisely those times when we most want the assurance of theoretic reliability- when, for example, times are unsettled, or the economy seems poised at the edge of a boom or bust, or when expectations are particularly labile (such as is the case right now) - the dependability of the behavioral premises rapidly deteriorates.

As it does, the determinacy of the scientific model of society deteriorates as well. . . .That is why the marvellously sophisticated computer models of the economy, which perform well as long as things fundamentally conform to the behavioral patterns of normality, lose their predictive power totally when a sharp change in the winds of opinion brings about a change in economic habits. It explains also why the government which can build elaborate models of the economy for normal periods, detailing with considerable accuracy the effects of small changes in monetary or fiscal policy, cannot tell in advance how a major change in policy will affect the economy because it cannot know how such a change will be "interpreted" by the public. . .

Economics and social change

What we have seen so far is that economics lacks relevance insofar as its practitioners are loath to apply it to "radical" critiques of the system, and to the extent that the real world defies the regularities of behavior on which the economic model of reality is based. But there is, as well, a third problem to be faced. It is that economics, by its very insistence on dealing only with the quantifiable elements of social activity, thereby distorts and misrepresents the activities it seeks to explain. Economics deals with the economic order as if it were only a mechanism for the generation and allocation of goods and services. But the fact is that the economic order is also and inextricably a mechanism for the generation of power and privilege, life-style and motive,. Hence, in wrenching something called "the economy" from the larger "society," economics performs an operation that is intrinsically self-defeating. For the economic variables cannot be excised from the larger social system in which they are embedded and treated as a microcosm of that system without seriously distorting the relation of the model to the reality. . . .

There is, of course, a reason for this restricted scope of economic analysis. It is that neither economists nor anyone else are in a position to state with any degree of certainty what the social and political effects of economic change will be. The economist is not heedless as to the wider implications of the economic model he manipulates. It is rather that he feels that he cannot say anything "scientific" about them, within the rules and conventions of the paradigm in which he works.

Here is where the "scientific" model of economics thus meets its ultimate limit. For in its unwillingness to indulge in sociopolitical "guess-work," out of fear of transgressing the limits of proper scientific procedure, economics is placed in a position in which its findings must be partial and incomplete and very possibly erroneous. For every economic act, from the simplest response to a change in prices to the most complex decisions of an entrepreneur, is also a social act. Every action taken by the actors in a social system is freighted with innumerable significances, which we clumsily categorize under the rubrics of "economics" and "sociology" and "politics," etc. Here is the problem of abstraction that we encountered as the initial stumbling block in the approach to economics, come home with a vengeance at a much deeper level of significance. No one denies that abstraction is an essential precondition for a social science if it is to reduce the complexity of the real world to manageable proportions. But we can now see that the sharper and clearer the abstract model we create, the less "interdisciplinary" that model must be - and insofar as the reality of the social process is unitary and indivisible, the less reliable as a guide to the social mechanism it must also be.

Must economics resign itself to the "irrelevance" of an avowedly inadequate grasp of society? Or should economists abandon the scientific] paradigm that has given such distinction to their efforts?

There are, so far as I can see, two ways out of the impasse. The first is to seek to widen the existing model of society by deliberately setting out to add as many social and political linkages as possible to the economic armature. The problem is how to go about this ambitious task. . . .We seek ... a principle for introducing order into seeming chaos. Because we do not have that organizing principle, there is little we can do at the moment except to search for one, and that will necessarily impose a considerable burden on economic thought. For the search requires that we bring into sharp focus the hitherto overlooked noneconomic aspects of the familiar economic variables. The economist, in building his models, will have to learn to think in units much richer - but correspondingly much less easily manageable - than heretofore. . . .

It is enough merely to suggest such an enlargement of the model to recognize its difficulties. For we are asking for an extension of the orderly patterns of the scientific paradigm to cover a much wider expanse of life than we have hitherto been able to encompass within the bounds of equations. Indeed, it may be that we are asking for an extension of the paradigm beyond the limits to which it can properly be applied. Undoubtedly there are some linkages in the social process that patient investigation will enable us to incorporate into a richer model of society, but it seems very probable that many others will remain elusive, or indeterminate (as we have seen economic behavior itself to be under certain circumstances), or simply too complex. In the end, the very ideal of a scientific model capable of representing social change may be beyond hope of attainment.

In that case where can economics go? There is one direction, I would suggest, that would enable it to retain the marvellous architecture of the scientific model, while shedding the restrictions that rob that model of so much relevance. This would be the conversion of economics into an instrument of social science whose purpose and justification was not so much the elucidation of the way society actually behaves, as the formulation of the ways in which it should behave. To put it differently, it would change the purpose of economics away from the discovery of the consequences of presumably known behavioral tendencies to the specification of the necessary behavioral patterns to enable society to reach a postulated goal. . . .

Once a social destination has been posited (if only as the premises of an economist's model), it then becomes possible to apply the "scientific" procedures of economic analysis, supplemented to whatever extent we can with sociological and political linkages. For the task of the economist - who is now properly on the way to becoming a true social scientist - is to describe the various ways in which a social system that finds itself at point A may begin to move to point B. This description must include not only the necessary technical steps, such as the amassing or reallocation of capital or other resources, but also the sufficient behavioral steps, including the political and social as well as economic actions that will be compatible with the final target. And in turn these behavioral conditions will cause the social scientist to ask what institutional settings, what political directives, etc., may be needed as a still deeper-lying prerequisite for the desired social change.

It is enough merely to specify the width and depth of the necessary instrumental analysis to indicate that such a redirection of economics would be very nearly as challenging as the extension of the scientific model we previously discussed. The difference, however, is that a failure to specify all the various interactions of the social process does not vitiate the instrumental model, as it does the conventional "predictive" model. It simply means that various policies may have to be tried on a pragmatic basis to see how well they succeed in bringing about the desired result. Instrumentalism thus does not require a set of universal laws of behavior, but only a commitment to the conscious subordination of behavior to the requirements of deliberately selected social goals. . . .Economics can thus find its ultimate relevance by becoming the instrument through which men can, within the limits of their knowledge and wisdom, use the procedures of science to gain those ends they hold in high value.