That is neoclassical methodology is not without any defects but it is one paradigm in competition with other paradigms. These other paradigms highlight the problems and critique of neoclassical methodology or of its excessive abstractions and its methodological issues and assumptions.
Holist Critiques of Methodological Individualism (MI)
The attack here is on neoclassical theory's micro foundations approach, which treats the individual as an exogenous starting point (exogenously given preferences and ways of making sense of the world).
Different heterodox paradigms raise holist criticisms in different ways (through analysis of: “class structures and modes of production,” “social structures of accumulation,” systems of “patriarchy,” patterns of “institutional reproduction,” impacts of social contexts, etc.) But they all assert the need to study human behavior within the causal logic of a social system. The key claim is that coherence exists at a higher level of integration than the individual.
Holist models stress both the infusion of social contexts into economic activity and the impact of the economy on social institutions. In a complicated way a holist approach facilitates discussions of power and “meta externalities” (the influence of economic practices on cultural and other social practices). The approach invites attention to the big issues in economic analysis, such as: the social basis of economic inequality, the social basis of environmental problems, the proper role of markets in a good society, the nature and desirability of different forms of capitalism, and the nature and desirability of alternatives to capitalism. These latter topics are less attended to in neoclassical texts, though there are frequently subtexts about them.
Holist critiques of principles texts tend to stress the need for historical analysis in order to understand the feedback flows and evolutionary logic of an economy. Holist theorists attack principles texts for their synchronic format and tendency to treat variables endogenous to a social process as exogenously given. They note neoclassical texts'
frequent resort to ad hoc appendages and street corner sociology (e.g., people act altruistically in the family and selfishly in the economy, capitalism will solve the population problem through the demographic transition, the collapse of the Soviet Union proves that socialism can't work, etc.), in order to flesh out analyses constrained by methodologically individualistic principles (similar to the way neoclassical texts inevitably deploy non-positivist modes of argument to organize and assert their ideas).
Dynamic Objections to Comparative Statics
To some extent the dynamic/static dichotomy is a subset of the H/MI distinction, but it is sufficiently broad (and conceivable w/o a holist approach) to merit separate attention. From a holist perspective, rather than focusing solely on hypothetical equilibrium conditions (in a time frozen world), the critique expands inquiry into how a social system evolves (a la Marxist analysis, radical analysis, classical political economy, and post-Keynesian analysis). From an MI perspective the critique challenges the habit of comparative statics. The approach highlights the implications of disequilibrium (a la Post Keynesianism) and path dependency, both downplayed within neoclassical principles texts.
Objections to “Misplaced Concreteness”(the problem of excessive abstraction)
This critique challenges the simplifications made (often for the purpose ofmathematical tractability) in neoclassical texts. As all theories must simplify, theproblem is not that details are missing, but that necessary information, material whoseinclusion would often alter the conceptual framework organizing the discussion, isabsent. Concern about excessive abstraction brings us back to “subtext” issues, as what aparadigm deems important to explain influences what is a permissible abstraction.
Marxist objections to the treatment of labor as just other input, feminist objections to reducing all relationships to exchange relationships, institutional economist objections to neglect of institutional contexts, environmentalist objections to treating nature as a commodity, all illustrate this kind of critique of principles texts. Neoclassical authors often write about Giffen goods (but not positional goods), insatiable and transitive utility functions, (but not inter-personal utility comparisons), how tastes and preferences may change with income, but not in response to advertising, etc. From a heterodox perspective, they abstract from the wrong material, or as Yogi Berra would say, they make the “wrong mistakes”.
The problem of “excessive generality” is closely related to that of “misplaced concreteness”. For some subjects neoclassical theory's use of a highly abstract, static, and MI-oriented approach is reasonable. The problem with the paradigm is its aggressive extension into areas for which it is inappropriate, especially simplistic policy implications. “If you have a hammer the whole world is a nail”, and the neoclassical would bludgeon all into an abstract commodity space.
To drive this point home, I like to use a variation of the “emperor has no clothes” story. The emperor has some clothes, the problem is his wardrobe is limited and worn in inappropriate circumstances. The same outfit appears in the bedroom as the boardroom, in the car market and the computer market, etc
