In philosophy of economics through roughly the 1990s, there was a somewhat annoying dialectic that went as follows.
First, a philosopher would come along saying that economists typically make all sorts of implausible assumptions. These include:
- Perfect rationality;
- Perfect information;
- Markets in everything;
- Zero transaction costs; etc.
Obviously these are implausible, and the philosopher will say loudly how absurd it is that we take seriously a discipline built on crazy foundations.
Second, an economist will come along and say that this is all a misreading of the discipline and a sign of ignorance of the state of contemporary economics. It’s true, they’ll say, that every one of those assumptions is made in intro textbooks. But they aren’t made by real working economists. Look, here’s a paper where perfect rationality is dropped, and here’s one where perfect information is dropped, and here’s one where we assume limited markets, and here’s one where we assume zero transaction costs. (If you want real-life examples of my storybook version of history, see some of the responses to Daniel Hausman’s “The Inexact and Separate Science of Economics”.)
And at this point it might look like the economist has won. At least I haven’t see a lot of pushback from philosophers from philosophers. But I think the response rests on a scope ambiguity. It’s true that cutting edge work doesn’t make all of the assumptions listed above. Indeed, it’s true that every one of those assumptions has been questioned in some cutting edge work or other. But what’s not true is that there is a large body of mainstream top level work that questions all of the assumptions simultaneously. The steady state of the discipline seemed to be that we’d start with the absurd idealisation, and then relax assumptions very slowly, seeing how far we could go before the mathematics became intractable. (Or, worse still, we had to pay attention to institutional/sociological matters.)
None of this will be news to people who have been following Crooked Timber, because it’s been a major theme of John Quiggin’s posts on the failures of modern economics. (See, for instance, here, here and here.) But it was sort of news to me. If I’d realised this point about scope ambiguities 10 years ago, I might have written several papers in philosophy of economics in the meantime. It’s obviously a bit late for that. But I do strongly recommend these Quiggin posts, which are both relevant to live policy debates, and connect to several philosophically fascinating questions about scientific methodology and the nature of rationality.