Heterodox Economics Theory - Report Example

Macro & Micro economics Introduction Heterodox economics, an alternative explanation to the theories of mainstream economics is a rather ambitious attempt to make readers view the theories of economics in a different light. In this regard the purpose of this paper is to discuss the very concept of economic man. There is a great deal of debate among economists that mainstream economics tend to exclude a number of concepts and most of the assumptions are baseless (Diamond and Vartiainen, 2007). Mainstream economists and the theories developed by them basks in the self-flagellation that a unified theory is adequate to explain all the problems. Economic man is one of the basic foundations of economics theory which has been challenged by proponents of heterodox economics. Economists had assumed that the Homo Economicus is a person who is self-driven, unreflective and rationale with a static outlook around him (Diamond and Vartiainen, 2007). This concept is rather tall as human beings are quite dynamic and mainstream economists fail to capture the basic human nature. Mainstream economists have been long satisfied with the notion that economic man has a nature which can be strongly deduced by statistical or mathematical approaches and this is well reflected in most of the theories. It is this shortcoming in the concepts of mainstream economics which requires alternative thinking and this has acted as the main theme behind the paper. A generalized critique of the concept of economic man is considered in the light of the heterodox economics before discussing the inherent weakness of the chosen heterodox approach. Concepts of feminist economics and Marxist economics have been used in this regard. Human Nature and Needs The notion of human nature is largely excluded by economists in the mainstream approach. The ones who have been prudent enough to include the concept in their study have also been unable to shed the idea of methodological individualism from their study.. For instance, the model of Wilber (1996) can be used to understand the basic needs of humans. The hierarchy of human needs can be broadly divided into six steps physiological, safety, belonging, self-esteem, self-actualization and transcendence. The model of Wilber was actually an advancement of the model developed by Maslow who had pointed out to the hierarchy of needs. Basic needs of the humans like striving and needing forms the lower level of needs whereas the middle stage of human wants are mostly desires and preferences. The final level of needs can be strongly correlated to aspects like devotion, aspiration and fascination. Therefore, from these concepts it appears that human beings are not only driven by their own needs but also the needs of others associated with him. Wilber (1996) had also developed a model as shown in the following figure: Figure 1: Wilbers model of human needs (Source: Wilber, 1996) The first criticism against economic man is the self-occupied status, a flawed assumption in microeconomics concept. According to the model described by Wilber the selfish aspect of human nature may be true in the initial stages of human needs, but it is not true in the higher stages. Wilber’s model suggests that the selfish interests are significant in the outward arc but are not valid in the inner arc. This model had also suggested that the axiom of rationality in economics is not true because it fails to account for the fact that in prepersonal stages human beings are not able to rationalize as they are devoid of wholesome understanding. Even during the personal stages it is not prudent to assume that the humans will behave in a rationale manner because they often tend to behave in a holistic manner that violates the very assumption of rationality and even in the transpersonal stages humans feel the need of being socially acceptable which nullifies the assumption of rationality (Diamond and Vartiainen, 2007). Finally, Wilber’s model can also be used to criticize the static nature of economic man as human needs and cognition is a dynamic process that changes as humans pass from one stage to another (Wilber, 1996). Critique of homo economicus The synthesis of the existing literature shows that the concept of economic man or homo economicus can be criticized on multiple levels. One strand of literature in heterodox economics asserts that the socially constructed nature of human beings is not considered in the mainstream economic ideas. The research of Cohn (2000) had pointed out the independent treatment of human beings from the social world is rather ambitious and it is not true on multiple grounds. The second line of reasoning asserts that the oversimplification of the concept of economic man is a highly misleading assumption. They also argue as the entire base of economic theories is build on the concept of homo economicus so all the accepted theories in mainstream economics is highly unacceptable. Goodwin, et al. (2000) had shown that human beings does not always take decisions on the basis of rationality and may sometimes be driven by emotions and other cognitive needs and this makes him behave like a citizen rather than a consumer. Finally, the third strand of literature regarding the critique of economic man comes from the very concept of gender discrimination in the economics theory. Proponents of heterodox economics believe that mainstream economics have particularly constricted the role of women in households which is not acceptable. This critique emanates from the line of reasoning that the market forces are completely unfit for accounting the dynamics of the societal divide. The answer of heterodox economics to the concept of economic man has been the Homo institutional economicus. In this regard the research conducted by Hodgson (1998 cited in Hodgson, 2001) is quite insightful as it shows that the homo institutional economicus learns from his social surroundings and technical experiences in his life. This implies that human beings constantly learn new things from his environment and his power of absorbing new things evolve from his own capabilities, skills and cognition. This kind of a person is not influenced by objectives of utility maximization and the societal forces are major determinants of his behaviour (Etzioni, 1998). The proponents of heterodox economics had also suggested that the concept of the economic man actually eliminates the social nature of men which is quite important (Whalen, 1996). However, the concept of social man in heterodox economics is quite broad as it involves a number of other approaches. Humanistic economics, Marxism, institutionalism are the three major type of social economics concepts that has criticized the nature of the economic man. One of the interesting explanations regarding the characteristics of social man was provided by O’Boyle (1994) who had pointed out that the human beings often have the desire to be included in the communities to satiate his sense of belonging. The locus of identity for a social man lies outside his own self and he relates himself to the broader culture of his community. Weaknesses of the approach Heterodox economics attempts to provide a broader perspective of the human nature by integrating various nature of man that is often excluded by mainstream economics. However, the ideas provided by one stream of heterodox economics ignore the ideas presented for others. For instance, the chosen avenue of the heterodox economics studied in this essay does not include the ideas that are incorporated by feminist or Marxist economics stance. The economics of feminism has vehemently criticized the ideas of strong masculinity in the concept of homo economicus and has also identified that mainstream economists does not acknowledge a lot of cognitive aspects in homo economicus. Love and empathy, for instance are not considered as scarce resources in mainstream economics. The human and institutional branches of heterodox economics have also failed to accommodate these aspects (Ferber and Nelson, 2003). The issue of gender discrimination evolves strongly in the criticism against mainstream economics. The chosen field of heterodox economics in this essay has also been vague regarding the role of women, which is captured in a better manner in the feminism branch of heterodox economics. Gender discrimination and the role of the women in the households have almost been systematically neglected in the studies of most form of heterodox literature (Ferber and Nelson, 2003). Another view on the heterodox economics is that of Marxism. The view of Marxist economics is rooted strongly in the division of power in the society. Marxist economists have argued that the concept of homo economicus described by mainstream economists does not consider real people as it does not consider the inherent political and legal differences (Lee, 2009). For instance, the division of power and politics have a great impact on the cognitive reasoning of the individuals and this is one of the aspects that are not considered by the humanistic approach of heterodox economics. However, the Marxist theory also takes into account the social construct of the individuals that has been described in the human needs approach of heterodox economics. One of the chief attributes of Marx’s argument is that he represents the critique of the social and political institutions in a society along with criticism of the futility of social movements unless significant changes are brought in the power distribution (Lee, 2009). This multi-faced role of the political and other formal institutions is not considered in the chosen concept of heterodox man studied in this essay. Marx had identified the differences between the objective and subjective characteristics of the class which has not been acknowledged in other branches of heterodox economics. There are still others forms of heterodox economics which has explored into other avenues of the human aspects (Lee, 2009). Conclusion Heterodox economics is a very broad topic and it provides alternative views to the existing theories of mainstream economics. Homo economicus or the concept of the economic man is the basic foundation point of almost all the economic theories. This essay has highlighted the basic deficiencies of the homo economicus indicating that majority of concepts in mainstream economics is controversial as they are based on this concept. It has been found that human beings are not always rational and are almost always driven by strong societal forces. This paper has used Wilber’s model to understand the reasons which causes cognitive differences between humans. However, this approach is not wholesome because there are other views of heterodox economics which goes beyond the concept of social understanding of humans. For instance, the social standpoint of heterodox economics undermines the gender divide in the society and also does not take into account the class divisions. These are aspects described in economics feminism and Marxism. . It is almost impossible to integrate all of these approaches into one robust framework. A comprehensive understanding of human attributes on which economic theories are based cannot be contained in one singular framework as this would lead to over generalization. Reference List Cohn, S., 2000. Telling other stories: Heterodox critiques of neoclassical micro principles texts. [pdf] Tufts University. Available at: [Accessed 26 December 2014]. Diamond, P. and Vartiainen, H., 2007. Behavioral economics and its implications. New Jersey: Princeton University Press. Etzioni, A., 1998. The methodology of socio-economics. Journal of Socio-Economics, 27(5), pp.539–549. Ferber, M.A. and Nelson, J. A., 2003. Feminist economics today: Beyond economic man. Chicago: University of Chicago Press. Goodwin, N.R., Ananyin, O.I., Ackerman, F. and Weisskopf, T.E., 2000. Economics in Context: The need for a new textbook. Medford: Tufts University. Hodgson, G.M., 2001. How economics forgot history: The problem of historical specificity in social science. New York: Psychology Press. Lee, F., 2009. A history of heterodox economics: Challenging the mainstream in the twentieth century. London: Routledge. O’Boyle, E. J., 1994. Homo socio-economicus: Foundational to social economics and the social economy. Review of Social Economy, 52(3), pp.286–313. Whalen, C J., 1996. Political economy for the 21st century: contemporary views on the trend of economics. New York: ME Sharpe. Wilber, K., 1996. The Atman project: A transpersonal view of human development. London: Quest Books. Read More