Neoclassical theorists often argue that many of the objectionable assumptions in principles texts (such as perfect information or homo economicus) reflect the need to simplify “high theory” for beginning students. “No one really believes in general equilibrium theory any more,” and “Everyone is aware of the aggregation problem in capital theory,” are common rebuttals to heterodox economists' objections to principle texts. These rebuttals fail for two reasons. First, the texts generally use the “simplified” analyses, without qualification, to recommend public policies. Secondly, what principles texts retain from “high theory” reveals as much about what is the subtext of “high theory,” as what is accessible to introductory students.
The concepts of disequilibrium and positive feedback away from equilibrium, for example, are as comprehensible to undergraduates as introductory texts' preoccupation with equilibrium. The former's invisibility reflects neoclassical theory's subtext about market optimality more than the relative complexity of the two concepts.
As Keynes wrote in the preface to the General Theory, “The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most us have been, into every corner of our minds” (Keynes viii).
We shouldn't allow neoclassical economists to “run away” from their textbooks.
The tracts educate well over a million students a year and lay the groundwork for much of educated opinion about economic issues.
Critiques of the Assumptions of General Equilibrium (GE) Theory
These critiques operate at a lower level of abstraction and generality than the methodological arguments noted above. Most of the objections are well known. They are cited below to illustrate how they will be woven together in the critical commentary.
The analysis will concentrate on objections to the assumptions of: Homo Economicus, Perfect Information, Perfect Competition, and Says Law (permanent full-employment).
The objections will be linked to the methodological critiques noted above and to each other in order to generate patterns of critique across chapters. The goal of the analysis is to teach students to see different examples of critique as like each other, so that they can draw similar analogies and independent critiques on their own. One critique that will surface repeatedly, for example, is objection to the texts' “note but ignore response” to the unrealism of its assumptions.
Rather than detail objections to each of the 4 assumptions noted above, I will discuss a few representative objections in order to illustrate the logic of critique in the commentary.
Homo Economicus (rational, isolated, self-interested man). Building on holist objections to methodological individualism, one line of critique attacks the texts' refusal to explore the socially constructed nature of tastes and preferences and the texts' portrayal of individuals as isolated monads with independent rather than inter-dependent utility functions. Both habits prevent neoclassical theory from exploring the waste of positional competition.
A second line of critique builds on objections to excessive abstraction, and oversimplification. Folbre (1994), for example, asserts the need for models of human action to include attention to issues of identity as well as self-interest in order to understand the nature of solidarity and aspects of collective action. Goodwin et al. assert the need for economics to attend to the impact of context on decision making, arguing that people may sometimes make more thoughtful decisions as citizens than consumers, even when deciding the same issue.
A third line of critique attacks the static image of the person present in most neoclassical textbooks, noting for example, that women's specialization in household production may be economically “efficient” in the short run and socially destructive in the long run (reproducing discrimination and gender inequality). The critique warns that markets may not always provide the best mechanism for addressing dynamic questions with societal feedback due to framing effects, marginal constraints, and the problem of unintended consequences
A fourth line of critique builds on epistemological arguments and explores the limitations in neoclassical theory due to its gendered history. Many problems with neoclassical textbooks, such as their lack of coverage of women's experience (e.g., insufficient attention to household production and non-market caring labor) and sole reliance on the “separate” rather than “empathetic”-self, reflect this legacy17.
Taken as group, many of the critiques challenge the image and subtext of market optimality underlying neoclassical texts.
Perfect Competition (PC)
While there are separate sections in SN on monopoly
and oligopoly markets, most summary statements about supply begin with the preface, “in a perfectly competitive economy.” The commentary will try to draw attention to the assumption of perfect competition by abbreviating it “PC” and analogizing it to “political correctness” (i.e., it is the required or approved way for analysis within the neoclassical paradigm).
