On the Lookout for Causality along the Distinction between Entity Realism and Structural Realism

The question of fundamental importance is whether a real causal structure can really be discovered by omitting the real properties of the entities standing in relations.

The intuitive answer is negative. Causal realism built up without entity realism means that we try to describe some causal connections underlying reality while conceiving the related things as having only secondary importance. According to the idea of structural realism, describing a structure is possible by effacing the real nature of the related things. In this context, Chakravartty (1998: 400–402) calls attention to the circumstance that knowledge of the structure involves knowledge of certain properties of the entities standing in relations—properties that are important in terms of facilitating such relations and the behaviour entities show there. Psillos (1995) draws similar conclusions when he suggests the notion of “structural properties”. Structures are underpinned by certain properties of the related entities; that is, knowing of the structures necessitates our knowing of those properties of the entities that are crucial with regard to relations. Relations contains information about entities. Such information describes what characteristics the related entities have in terms of relations and interaction. A given structure is compatible only with certain entities (those it conjoins), so a structure is not indifferent to the (nature of) entities. In other words, the description of a real causal structure cannot be built on entities the properties of which are not abstracted from the nature of real agents. As describing a causal structure requires us to specify some entity-level assumptions too, entity realism as to the relevant properties is the prerequisite for causal realism. The properties of entities are not transcendent relative to structure. In his critique on structural realism, Psillos (1995: 31–32) highlights that a description of a structure is nothing but a description of the way entities are related and the way they behave in the context of such relations. The causal roles and causal properties of entities are not over and above the details that can be described in terms of structure. As a consequence, if we intend to describe a real structure, we are in need of (approximately) true entity descriptions. However, if our entities are not like their real counterparts in terms of the relevant aspects, then our knowledge can be negative at best. The surrounding world evidently works in a way other than our ideas.

References

Chakravartty, Anjan (1998): Semirealism. Studies in the History and Philosophy of Science, 29(3): 391–408.

Psillos, Stathis (1995): Is Structural Realism the Best of Both Worlds? Dialectica, 49(1): 15–46.

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Incommensurability in Economics?

Highlighting the lack of mutual understanding in particular approaches to reality makes up a crucial constituent in Kuhn’s (1970) commentaries on paradigm shifts. Theories are separated logical and conceptual schemes between which the transitions during paradigm shifts are not smooth but rather saltatory. Differences between accepted theoretical frameworks appear even at the level of experiences, so it is not an overstatement to say that researchers working within different traditions observe different worlds. This is particularly true of the equilibrium–disequilibrium approaches in economics to socio-economic reality. Incompatible theoretical frameworks are incommensurable: scientists scrutinizing the one and only reality in different ways are not talking of the same thing. Even if there is an intersection of the phenomena recognized as problems, scientists within individual approaches make efforts to solve the puzzles while following their own particular methodological guidelines. For example, the Lucas-critique can be regarded as the mainstream solution to the problem of macro-social changes. Kuhn (1987: 83) describes paradigm shifts during which there are changes in the way how terms attach to reality—and, moreover, there are changes in the set of entities and phenomena to which such terms attach. On this showing, the ongoing controversy between institutionalism and mainstream economics is the still effective aftermath of a non-fulfilled paradigm shift. Both systems have advantages, their own problems to investigate and even norms. However, on account of selectivity and their complementary character of fundamental importance, none of them can solve the problems to which the rivalling approaches can effectively elaborate answers, respectively. Genuine albeit different ways of turning to reality preserve both approaches within the realist tradition, offering a marvellous example for the circumstances accentuated by Lewens (2005: 569). Approaches to reality are not only shaped by reality itself but also the conventions and the theoretical concepts any scientist shares with his fellow researchers indoctrinated in the same paradigm. The result is a set of theories which are mutually incompatible while true[1] at the same time.

The approach set in the crossfire of the institutionalist critique has not been extinct since the newly emerged theory cannot provide answers to the problems the old one can successfully analyse—and vice versa. What is more, none of them can realise the problems of their counterparts. Due to selectivity, a “crowding out” effect can hardly be a plausible scenario, since right because of the selectivity none of the approaches can outrival their counterparts. This is one of the peculiarities of the history of the economic thought. Each incompatible theoretical system has its own language, so a change in the scientific dictionary must facilitate the occurrence of new observational accounts and their interpretations set on rough-hewn paths. Languages themselves that interconnect the members of each distinctive tradition are the primary causes of locking up in one’s own doctrines. In the case of economics, recognizing this demarcation occurring even at the level of languages may help us to interpret why our debates have stagnated.

References

Kuhn, T. (1970): The Structure of Scientific Revolutions. Chicago: The University of Chicago Press.

Kuhn, T. (1987): What Are Scientific Revolutions? In: Patton, L. (ed.) (2014): Philosophy, Science, and History. A Guide and Reader. London: Routledge. pp. 71–88.

Lewens, T. (2005): Realism and the Strong Program. British Journal for the Philosophy of Science, 56(3): 559–577.

[1] Here, of course, true refers to approximate truth interpreted according to ones’ own epistemological guidelines.

Pictorial: Thomas Kuhn (via alchetron.com)

Thomas Kuhn

Structural Realism vs. Entity Realism

In the literature there can be found a widely applied distinction between entity realism and structural realism. On its face value, structural realism does not involve entity realism—the only problem is whether there is a minimum requirement as for the construction of the theoretical entities through assumptions in our theories. In other words, is it possible to complete a structurally realist program through models built up in an instrumentalist way? Can our assumptions be simply cooked-up?

I got the most important impulse for scrutinizing this problem from Kevin Hoover’s Milton Friedman’s Stance: The Methodology of Causal Realism (2009). On this present occasion it is not possible to look into the alleged instrumentalism of Friedman, so here I can only drop a hint to my surmise. According to this, the most problematic part of F53 is the long paragraph where Friedman writes about the assumption of leaves rationally maximizing their utility. For Hoover, the way the assumptions regarding entities are constructed is subordinated to the purpose of causal realism. The assumptions underlying a model must be designed in order that the resulting theory could be capable of highlighting the relevant causal mechanisms. Elsewhere (in Galbács 2017, forthcoming in Acta Oeconomica, 67(2)) I called attention to the fact that presumptions generally sorted under the label of “unrealistic assumptions” may actually come from two distinct strategies, from which the one is purely instrumentalist and the other is the type that Max Weber assigned to neoclassicals. The latter are those ideal-types that are instrumental in highlighting some lines of the real causal structure and that bring to the fore those causal mechanisms the analysis of which is traditionally covered by the neoclassical orthodoxy. However, it is doubtful whether both are compatible with the idea of causal/structural realism, or successful causal realism needs a certain degree of entity realism as a prerequisite. Richard Boyd in his On the Current Status of Scientific Realism supports a naturalistic theory of reference in a similar vein. Its primary purpose is to underlie our strategies of building assumptions as to entities. Accordingly, the contents of our concepts are to reflect the real features of actual entities—which is still not the case of direct descriptive relevance. Even though one may set as a prerequisite the idea that our concepts must refer to the actual attributes of real-world entities, this is not an argument for entity realism involved by structural realism. Is it possible to map the real causal structure even by neglecting the real attributes of the related entities?

The intuitive answer to the question is negative. Distinguishing entity realism and structural realism as a first step and arguing that structural realism requires entity realism as a second step is a remarkable way of highlighting Friedman’s instrumentalism and Lucas’ realism. Doing so, Lucas can be introduced as a structural realist, interested in revealing the causal structure underlying macro-economic phenomena. Dropping adaptive expectations hypothesis and using rational expectations hypothesis instead, Lucas, this is my surmise, opted for entity-realism-based structural realism, since structural realism does not seem to be achievable by an instrumentalist strategy as for entities.

INEM 2017 Conference at San Sebastian

“Dear Peter,

On behalf of the INEM executive board, we are pleased to let you know that your abstract has been accepted for presentation at INEM 2017 in San Sebastián, from August 28-30, 2017.”

International Network for Economic Method (INEM) is the leading international organisation and platform for economic methodologists. It has a bi-annual conference (the next event of this series is exactly the San Sebastian conference in August), a quarterly journal (Journal of Economic Methodology) and a book series (Routledge INEM Advances in Economic Methodology). These are the facts. INEM was called into existence by some leading US and European methodologists (some of them are closely tied to the Erasmus Institute at Rotterdam), so the collaboration between the European and overseas colleagues is extremely strong, vivid and fruitful here. This is the reason why INEM is so outstanding.

I am over the initial registration process as I confirmed my taking part. Now I have no detailed information about the venue, so I have no idea about either the sessions or the panelists. My lecture “Lucas on Method” is in the making. To be perfectly honest, I can hardly wait to arrive at San Sebastian, to attend as many lectures as possible and to write a detailed diary on a daily basis whit photos and short summaries. I hope I can meet some of my colleagues there again.  It is going to be a great fun.

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New Draft for Comments

My latest draft “Some methodological aspects of the controversy between mainstream economics and institutionalism” is ready for comments. It is available here.

Abstract:

Mainstream economics has been running the gauntlet of adverse criticism for decades. These critiques claim as a message of central importance that mainstream economics has lost its relevance as for understanding reality. By making a brief comparison between the methodological strategies of the main stream and institutional economics I suggest that the firm demarcation between the streams stems from the difference between their methodologies. Its peculiar interest directed mainstream economics to take a unique methodological path and consequently the adherents have not been able to be on the lookout for certain facets of socio-economic reality. However, the chosen path, the axiomatic-deductive strategy proved to be an appropriate method for identifying economic laws. This claim is justified even by some recent efforts of new institutional economics. In order to support the conversation between the schools I highlight some causes that currently make it impossible to start a rational discourse.

Keywords: mainstream economics, institutional economics, methodology of economics, isolation, homo oeconomicus

JEL codes: B13, B15, B41, C12

Any comments are warmly welcome.

discussion

EIPE20 Anniversary Conference, Day 2

It is a tough day, and it is not over at all. Today’s plenary session was presented by Johanna Thoma and Francois Claveau at the Pavilion of the university. This is an iconic place of the campus. Johanna talked about preference-based instrumental rationality. I have got some new insights on rational choice theory. The outlines have always been clear, but I was curious about the details… how economists use this framework in practical terms. Now I see what the problem is. This theory helps us to explain human decisions on the basis of preferences and the rationality postulate. There are some extraordinary patterns in human decisions and some extraordinary sets of preferences, so the task to complete is to give a rational account of them within this theoretical framework. How can this model be modified so that phenomena out of the ordinary can be explained or understood as well?

Francois gave a speech on an interesting topic: Central banks as experts. It is rather personal, but this guy moved and acted (and actually looked) on the stage like Mark Zuckerberg. Funny. He walked up and down in a really cool style… but for me… this is strange. It is not good or wrong… just strange. For me the great economists of the 70’s and the 80’s have always been the models. To step up the stage, to walk to the desk, to put on the glasses and to read the lecture. In a calm and elegant way. This new thing… is just a show. But admittedly, the world has really changed. If you are a scientist… you need to be a showman as well. All in all, Francois’ lecture was interesting. He talked about central bank communication in a context where central banks are surrounded by the public as an epistemic community. His theory is called applied social epistemology. His work seems to be interesting as for revealing the hidden structures of the communication between central banks and the public.

Let’s see some interesting lessons from today’s panel sessions. Michael Joffe expressed his strong interest in biology. He always turns to biology in order to find a discipline that is used for scrutinizing some complex, heterogeneous and open-ended processes of reality. For him biology is an empirically-based causal theory. This is the method of natural sciences. That is, such disciplines start from reality itself-and this is the big picture to which economics makes a difference. It was nice to hear that he referred to F53 as a meta-theory directed to highlighting false causal mechanisms… but I am still dissatisfied because Michael depicted economics (as such) as the enterprise of missing the point. Models should capture a causal mechanism-but is it serious that ALL of our models fail to capture actual-plausible mechaisms…? I don’t think so…

Actually, Michael’s account seems to be a further item in the institutionalist critique. For example, the theory of money creation should be based on real/actual behaviour of real/actual agents, according to him. But for me this is clear that we have more options than capturing all the mechanisms vs. capturing nothing. Modern economics is about highlighting only one mechanism-meaning… one at a time. So we can be realists by setting up extremely abstract models. Michael wanted to call attention to the fact that some mechanisms are left out of our models. But I think this has always been on purpose!

Virginia Ghiara talked about Process Tracing as a means of testing and creating hypotheses. Now I am under the slight impression that Process Tracing is the macro-version of experimental economics. In both cases we are interested in collecting data on elementary human actions-it is the volume that makes the only difference. But these are only impressions…

Then there came my lecture. I was shocked at the very beginning because in the first minutes of the session Mäki Uskali joined us in the room. He is the leading international figure of the realist interpretation of modern economics, so it was my great pleasure to see him in the audience. I talked about the Friedman-Lucas-RBC line, on which Lucas performed a realist break, while Friedman and RBC were instrumentalists. Actually, I could surprise the colleagues. To my shock, Lucas is often labelled as an instrumentalist or anti-realist, but this view seems to be ungrounded. It all is about the methodology of creating unrealistic assumptions in order to set a realist theory-a theory that is directed at revealing the consequences of some plausible causal mechanisms. I don’t need to be an anti-realist just because I use unrealistic assumptions. By using appropriate assumptions I can tie my models to reality, no matter how unrealistic they are, provided they are set up from real constituents of reality.

This has been the day so far. Soon I need to leave for the anniversary party at Hotel Bazar.

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EIPE20 Anniversary Conference Program

The detailed program of EIPE20 anniversary connference has just been announced: EIPE_Programme. According to the heavy schedule I am going to give my lecture on Thursday afternoon. Now I need to go over the program in order to prepare my own schedule on what to see. Lots of  interesting presentations to pay attention to and lots of interesting people to meet.

As far as I can see now, my panel consists of three presentations which are worked out on closely related topics. It is worthwhile to focus on the colleagues here so as to get new insights and inspirations on my topic. To be perfectly honest, I can hardly wait to arrive.

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Axioms and the Protective Belt: the Case of Economics

Axioms and hypotheses make up a two-layer system, in which the axioms are situated in the core, surrounded by the testable hypotheses (theories) as a protective belt. When comparing our theories to reality, it is the hypotheses that we test, not the axioms. In case we cannot find a considerable concordance between the outcomes we generate and reality, we can only reject the hypotheses, not the axioms. Axioms cannot be refuted within the system. Whilst it is true that axioms cannot be traced back to anything in the system, they are not based on anything, they still have a source outside the theory. Axioms do not turn up by deus ex machina, but they directly rise from the interest of the scientist. Axioms can only be analysed on the basis of the purposes underlying a theory. In other words, the only question that makes sense is whether the axioms are appropriate as for achieving the purposes. All this calls attention to the fact that the ultimate grounds of any theory lie concealed in the scientist himself. It is us who create the theory.

Axioms make up the inner protected core not because of us having chosen them for this role. The reason is that testing axioms directly, i.e. without any theory is unattainable. Through a theory that is directly confronted with reality an axiom that bears indirect relation through the theory itself to reality cannot be tested. Naturally, it does not rule out the possibility of treating an axiom of a theory as a testable hypothesis in another system. It was exactly the case with rational expectations hypothesis suggested by Muth (1961). As the econometric tests had considerably confirmed the hypothesis, Lucas (1973) could apply that as an axiom. However, as soon as a hypothesis is put amongst the axioms, it loses its testability. It is in complete consonance with the results of Carnap (1939: 59). It is the same process as what was described by Lakatos (1968) analysing the evolution of modern natural science at multiple places. On account of the positive heuristics and negative heuristics, the testable protective belt built around the hard core prevents the most characteristic and most stable system of theories and assumptions from the critique and from any modifying efforts. The neutrality of the main stream against the institutionalist critique is not only the result of an instinctively followed scientific strategy. We should not forget about that fact that modern macroeconomics after Keynes have never made efforts to set up general theories.[1] It is exceptionally true of Friedman having worked along an eclectic methodology, who was not even worried about the occasional inconsistency between his particular theories. However, it is also true of the subsequent Lucas–RBC-line that has always been directed at analysing only certain individual mechanisms of the complex causal structure.

[1] Keynes was far from the level of complexity that is the ideal for institutional economics. De Vroey (2016: 74) quotes a passage where Friedman writes that his esteem to Keynes was raised by the fact that Keynes could focus his attention to a small number of key variables.

References

Carnap, Rudolf (1939): Foundations of Logic and Mathematics. Chicago: The University of Chicago Press.

De Vroey, Michel (2016): A History of Macroeconomics from Keynes to Lucas and beyond. Cambridge: Cambridge University Press.

Lakatos, Imre (1968): Criticism and the Methodology of Scientific Research Programmes. London: Aristotelian Society.

Lucas, Robert E. (1973): Some International Evidence on Output-Inflation Tradeoffs. The American Economic Review, 63(3): 326–334.

Muth, John F. (1961): Rational Expectations and the Theory of Price Movements. Econometrica, 29(3): 315–335.

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Imre Lakatos (1922 – 1974)

The Main Stream vs. Institutionalism: A “Différance” at the Methodological Level

Today the dialogue between the main stream and institutionalism is an exception rather than a rule. Any exchange of views is further hindered by the fact that for institutionalists questioning the scientific status of mainstream economics seems to be a compulsory item. A thunderous proclamation to announce in order to declare one’s affiliation.[1] Manoeuvring at a lower level of generalization, old institutional economics did not establish a coherent and well-formalized theoretical system, which has been a standard for neoclassical orthodoxy from the very beginning. This is not a failure, of course, only a peculiarity that stems from a unique interest and some methodological decisions. It is undoubted that institutionalism applies more de-idealized concepts—notions that are created at a lower level of abstraction, so they can have a higher degree of direct descriptive relevance. However, the difference is more fundamental. Upon its birth, institutional economics did not show any interest in abstract deductive systems. Instead, institutionalists try to capture the historical trends experienced in real societies and the country-specific social phenomena emerging under the influence of complex causal structures (Veblen 1898). It is much more than an interest in social determinants[2] (i.e. the institutions) that are well beyond the scope of mainstream models.[3] Members of the old institutionalist camp positioned their interest to another area. For them individual and social behaviour was not controlled by timeless economic laws, so they did not need formalism which proved to be very effective in discovering the consequences of premises and axioms. Even though these effects can hardly be approached through less formalized methods, institutionalists categorically rejected formalism (Rutherford 1994: 9). On the basis of their concepts they made efforts to understand the particularities rather than the general features. The ultimate purpose was to understand historically and socially determined constellations and evolutionary processes tied to unique places and periods. Such an ambition evidently requires a methodology other than mainstream formalism.

[1] At the same time mainstream economics tends to apply passive resistance. In his famous Economics, Paul Samuelson did not even devote a single word to institutionalist achievements (Tsuru 1993: 59). As it is highlighted below, we can easily find examples for an open attitude towards institutionalism.

[2] Habits, norms, rules and their evolution, and the like. These factors jointly control human behaviour, the functioning and the evolution of real societies and economic sub-systems. By today, new institutional economics has arranged these social institutions into a complex, multi-level hierarchy (Williamson 2000).

[3] Mainstream economics put these factors under the care of sociology and psychology or even social psychology (Keizer 2007: 10). Consequently, interdisciplinarity has different meanings for both of the streams. Mainstream economics expects related branches of knowledge to succeed in exploring their own territories, so answering certain questions is transferred to these disciplines. The institutionalist purpose is an active utilisation of the achievements of the related fields (Brousseau – Glachant 2003: 5).

References

Brousseau, Éric – Glachant, Jean Michel (eds.) (2008): New Institutional Economics. A Guidebook. Cambridge: Cambridge University Press.

Keizer, Piet (2007): The Concept of Institution in Economics and Sociology, a Methodological Exposition. Tjalling C. Koopmans Research Institute Discussion Paper Series No. 07-25. Utrecht: Utrecht School of Economics.

Rutherford, Malcolm (1994): Institutions in Economics. The Old and the New Institutionalism. Cambridge: Cambridge University Press.

Tsuru, Shigeto (1993): Institutional Economics Revisited. Cambridge: Cambridge University Press.

Veblen, Thornstein (1898): Why Is Economics Not an Evolutionary Science? The Quarterly Journal of Economics, 12(4): 373–397.

Williamson, Oliver E. (2000): The New Institutional Economics—Taking Stock, Looking Ahead. Journal of Economic Literature, 38(3): 595–613.

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