Yanis Varoufakis on Postmodernism and Economic Methodology

Yanis Varoufakis, now Finance Minister of Greece, some years ago wrote a fascinating book review (see Varoufakis 2002a) of Postmodernism, Economics and Knowledge (2001), an edited collection of essays many of which defend Postmodernist epistemology as applied to economic theory.

In his review of the book, Varoufakis launches into a devastating attack on Postmodernism as any sort of viable epistemology or method for economic science.

His critique is taken from an earlier article (Varoufakis 2002c), and an online version of this with its comments on Postmodernism can be read here. I quote below from the online article, as well as referring to the full review.

Now admittedly I do not know whether Mr Varoufakis continues to hold the views he expressed in his 2002 paper, but they are still excellent criticisms, and I have not seen anything that would lead me to think he has repudiated them.

First, Varoufakis notes how Postmodernism shuns any group of people who believe that they have found objective truths, since such experts are deemed to be “privileging” their own “metanarrative” at the expense of other people’s narratives (Varoufakis 2002a: 389).

Although Varoufakis sees some merit in many of the papers in Postmodernism, Economics and Knowledge (2001), including what looks like a very interesting one by Philip Mirowski (2002), nevertheless his verdict on Postmodernism is damning.

Varoufakis notes that strong and effective advocates of neoclassical economics have existed for years and long before Postmodernism (Varoufakis 2002: 392). The Postmodern method demands an utter rejection of the view that modern capitalist economies can be regarded as coherent systems, since this would be a “metanarrative” (Varoufakis 2002a: 392). The question arises (though Varoufakis himself does not pose it): how is that compatible with Post Keynesian economics?

Worse, according to Varoufakis, the Postmodernist method has “no future” (Varoufakis 2002a: 393).

Why? Varoufakis argues as follows:

“… despite its considerable oeuvre, postmodern criticisms of economics are doomed to shrivel and be absorbed by mainstream economics; the predator turning into unsuspecting prey. I risk this prediction for two reasons.

First, postmodernists allow economics to parade as equally scientific as the natural sciences (albeit on the grounds that no discipline is truly scientific). They are right of course to think that all theory resembles religion, since it also seeks to give meaning to the practices and expectations of whole communities. However some theories are capable of transcending religion and approaching objectivity better than others. Nature’s habit of working independently of our beliefs about it means that the natural scientist can devise experiments which have the power disinterestedly to discard falsity and thus forge knowledge and progress. Society, on the other hand, is corrupted to the very marrow of its bones by our collective beliefs about it, and can therefore provide no objective test of social theory (the latter being part of the very web of beliefs that society is made of). Thus social theory, unlike thermodynamics, is condemned to remain untestable, and stuck in the realm of opinion. Economics valiantly attempts to extricate itself from this fate with a touching commitment to mathematics but, sadly, it only ends up as a religion with equations.

Postmodernity errs in thinking of this as the inevitable failure of all Modernist enterprises. It lambastes economists’ churlish reliance on an Outer Wall of Algebra and an Inner Wall of Statistics but overlooks their success at never even coming close to the nature and the dynamics of contemporary capitalism, thus shielding the latter from rational criticism. But such is the fate of all idealisms which give language an existence independent of the material conditions of social life and reproduction. If only postmodernist critics understood theology and mathematics a little better! Perhaps they would have recognised in economics the greatest proof that Modernity is saturated with its negation.

Which brings me to the second part of the argument: Postmodernity not only lets neoclassical economics off the hook but, more worryingly, reinforces it copiously before dissolving into it. Consider what the postmodern rejection of metanarratives means at the individual level: It means the loss of any capacity to scrutinise one's private urges rationally on the basis of some collectively constructed notion (or metanarrative) of the Good. Stripped of those capacities, the individual fragments into a community of selves, a bundle of ordinal preferences, and ends up with no one self whose preferences those are. In this Empire of Ordinal Preference the only possible data that social theory can go to work with are the differences in individual whims and freely chosen identities. These data are then, courtesy of their ordinal properties, impossible to compare across persons (for this would require a metanarrative) or procure a view of capitalism as a system. Thus in a fully-fledged postmodern schema, social relations are confined to interplay, voluntarism, tolerance and exchange; society is the playground where the latter unfold; and discussions of the General Will, exploitation and developmental freedom make no sense. Does this all sound familiar?

If it does the reason is that neoclassical economics went down that alley decades ago. ….

For Oscar Wilde the supreme vice was shallowness. For Postmodernity this is the New Jerusalem. Its playfulness allowed it to thrive in the friendlier waters of literary and cultural studies at a time when ‘margins’ were becoming central and classical stuffiness was going out of fashion. But now postmodernists have entered shark-infested territory. Neoclassical economics, another purveyor of shallowness, threatens to bend them to its will, gain strength from them and subsequently reinforce hierarchies more oppressive and totalising than those the postmodernists set out initially to dismantle.”
Varoufakis, Yanis. 2002. “Postmodernism: Conspiring with the Orthodoxy,” 10 June
http://evatt.org.au/news/postmodernism-conspiring-orthodoxy.html

Ouch! Varoufakis is saying that Postmodernist criticisms of neoclassical theory, by the intellectual vacuity of Postmodernism, will subtly blend into neoclassical economics.

Varoufakis also commits himself to a reality that has objectivity, and presumably objective truths, to which science can approach in its testable and falsifiable hypotheses and theories.

And, says Varoufakis, current popular and academic movements to reform economics should reject Postmodernism:

“In recent years many dissident voices had to adapt themselves to postmodern-speak in an attempt to be 'included' on the postmodern bandwagon. The PAE [Post-Autistic Economics] movement must release such voices from this obligation. Social criticism of economics must reclaim an awareness that to reject the scientific status of economics is not to reject science in general or to espouse postmodernism.

Indeed irony and ambiguity were utilised, long before Postmodernity, by thinkers eager to come to what a more confident past once knew as the truth. To re-establish irony, ambiguity and indeterminateness in the discourse of economists would be a triumph of the spirit. But it would not be a postmodern turn. For the latter has no monopoly on an appreciation of the radical indeterminacy of social processes (as Hegel would be all too eager to remind us) or the importance of not taking our selves, and our theories, too seriously. On the contrary, Postmodernity undermines itself by offering Modernity’s most awful purveyor another means of extending its dominance. ….

The postmodern turn will be chosen by pseudo-dissidents whose prime interests lie in acquiring a chic image; one that the self-effacing postmodern criticism is good at imparting. The less fashionable option of working towards historically grounded knowledge will appeal to the truly ‘unreasonable’ dissidents; those driven by an unbending commitment to a rational transformation of society.”
Varoufakis, Yanis. 2002. “Postmodernism: Conspiring with the Orthodoxy,” 10 June
http://evatt.org.au/news/postmodernism-conspiring-orthodoxy.html

Bravo! We can add to this John King’s (2002: 195–196) observations that Postmodernist epistemology is incompatible with core Post Keynesian principles, such as objective reality and objective truth, and even something as basic as Nicholas Kaldor’s “stylised facts” about modern capitalist economies.

BIBLIOGRAPHY
Cullenberg, Stephen, Amariglio, Jack and David Ruccio (eds.). 2001. Postmodernism, Economics and Knowledge. Routledge, London and New York.

King, J. E. 2002. A History of Post Keynesian Economics since 1936. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

Mirowski, Philip. 2001. “Refusing the Gift,” in Stephen Cullenberg, Jack Amariglio, and David Ruccio (eds.). Postmodernism, Economics and Knowledge. Routledge, London and New York. 431–458.

Varoufakis, Yanis. 2002a. “Deconstructing Homo Economicus? Reflections on Postmodernity’s Encounter with Neoclassical Economics” (review of Postmodernism, Economics and Knowledge), Journal of Economic Methodology 9.3: 389–396.

Varoufakis, Yanis. 2002b. “Postmodernism: Conspiring with the Orthodoxy,” 10 June
http://evatt.org.au/news/postmodernism-conspiring-orthodoxy.html

Varoufakis, Yanis. 2002c. “Why Critics of Economics can Ill-afford the ‘Postmodern Turn,’” Post-Autistic Economics Review 13 (May 2): article 1.

John Quiggin on Apriorism in Austrian Economics

John Quiggin has an excellent post here on the apriorist method in Austrian economics:

John Quiggin, “Austrian Economics and Flat Earth Geography,” John Quiggin, July 28th, 2014.

Also posted here:
John Quiggin, “Austrian Economics and Flat Earth Geography,” Out of the Crooked Timber, July 27, 2014.

One minor point here is that John Quiggin says that apriorist praxeology was “also endorsed, in a more qualified fashion, by Hayek.”

Actually, Hayek rejected Mises’ apriorism and adopted a – more or less – Popperian method for economics.

We know this because Hayek said so explicitly in a letter to Terence W. Hutchison dated 15 May, 1983. In this, Hayek stated:

“I had never accepted Mises’ a priorism. .... Certainly 1936 was the time when I first saw my distinctive approach in full clarity – but at the time I felt it that I was merely at last able to say clearly what I had always believed – and to explain gently to Mises why I could not ACCEPT HIS A PRIORISM”. (quoted in Caldwell 2009: 323–324).

In fact, in 1937 Hayek had published an article called “Economics and Knowledge” where he criticised Mises’ apriorism; Hayek also appears to have moved closer to Popperian ideas on methodology in later years:

“I became one of the early readers [sc. of Karl Popper’s Logik der Forschung, 1934]. It had just come out a few weeks before …. And to me it was so satisfactory because it confirmed this certain view I had already formed due to an experience very similar to Karl Popper’s. Karl Popper is four or five years my junior; so we did not belong to the same academic generation. But our environment in which we formed our ideas was very much the same. It was very largely dominated by discussion, on the one hand, with Marxists and, on the other hand, with Freudians. Both these groups had one very irritating attribute: they insisted that their theories were, in principle, irrefutable. Their system was so built up that there was no possibility – I remember particularly one occasion when I suddenly began to see how ridiculous it all was when I was arguing with Freudians, and they explained, ‘Oh, well, this is due to the death instinct.’ And I said, ‘But this can’t be due to the [death instinct].’ ‘Oh, then this is due to the life instinct.’ … Well, if you have these two alternatives, of course there’s no way of checking whether the theory is true or not. And that led me, already, to the understanding of what became Popper’s main systematic point: that the test of empirical science was that it could be refuted, and that any system which claimed that it was irrefutable was by definition not scientific. I was not a trained philosopher; I didn’t elaborate this. It was sufficient for me to have recognized this, but when I found this thing explicitly argued and justified in Popper, I just accepted the Popperian philosophy for spelling out what I had always felt. Ever since, I have been moving with Popper.” (Nobel Prize-Winning Economist: Friedrich A. von Hayek, pp. 18–19).

So Hayek lumped in apriorism in economics with Marxism and Freudianism!

It is also clear that Mises disliked Popper and Popper’s approach to epistemology in his seminal book Logik der Forschung (1934; later published in English as The Logic of Scientific Discovery, 1959):

“Popper was familiar with the early [sc. socialist] calculation debate – Polanyi’s seminar discussed it – but not much taken by it. He knew of Mises and his circle, but it is unlikely that he read Mises closely. He strongly disliked subjectivism and libertarianism. He ‘first met Mises early in 1935 in Vienna, owing to his interest in my first book. . . . Both he and I were aware of a strong opposition between our views in the field of the theory of knowledge and methodology. Mises saw me as a dangerous opponent.’” (Hacohen 2000: 478).

So it could not be more clear: Mises saw Popper “as a dangerous opponent”; but Hayek, rejecting apriorism, essentially endorsed Popper’s views on epistemology and method.

Nevertheless, Quiggin’s point that Misesian apriorist praxeology as a method for economics is untenable is right.

Mises needed synthetic a priori knowledge and a type of Kantian epistemology to justify his praxeology, but the arguments for synthetic a priori knowledge are unconvincing and must be rejected. Misesian praxeology does not yield universally and necessarily true empirical statements about economic reality.

Furthermore, not even the human action axiom can be known a priori: it is clearly a synthetic a posteriori proposition.

In addition, the very idea that Mises in Human Action succeeded in deducing all his theories by deductive logic is manifestly untrue, and Misesians and Rothbardians have never answered the challenge of George J. Schuller to set out Human Action in a formal symbolic form in which all axioms, premises, and deductions are shown formally and proven.

Even modern Kantians have rejected Mises’ attempt to ground his praxeology on Kant’s epistemology.

There has also arisen amongst modern Austrians a feeble and ignorant belief that Mises was not really using a synthetic a priori epistemology. This is simply untrue, as I have shown here and here, and even if it were true and praxeology were simply analytic a priori, then it would follow logically that praxeology cannot give necessary truth about the real world.

Further Reading
“Limits of the Human Action Axiom,” February 28, 2011.

“Hayek on Mises’ Apriorism,” May 23, 2011.

“What is the Epistemological Status of Praxeology and the Action Axiom?,” July 27, 2013.

“Barrotta’s Kantian Critique of Mises’s Epistemology,” July 28, 2013.

“David Friedman versus Robert Murphy,” August 4, 2013.

“Mises Fails Philosophy of Mathematics 101,” August 30, 2013.

“Bob Murphy All At Sea on Geometry and Economic Epistemology,” August 31, 2013.

“Mises’s Non Sequitur on synthetic a priori Knowledge,” September 2, 2013.

“Hoppe’s Caricature of Empiricism,” September 10, 2013.

“Hoppe on Euclidean Geometry,” September 11, 2013.

“Robert Murphy gets Mises’s Epistemology Wrong,” September 13, 2013.

“Hoppe on Euclidean Geometry, Part 2,” September 14, 2013.

“Mises on Kant and Praxeology,” September 15, 2013.

“Mises was Confused about the Analytic–Synthetic Distinction,” September 15, 2013.

“Schuller’s Challenge to Misesian Apriorists has never been answered,” December 7, 2013.

“Mises versus Ayer on Analytic Propositions and a priori Reasoning,” March 16, 2014.

“David Gordon on Praxeology and the Austrian Method: A Critique,” March 13, 2014.

“Why Mises’s Praxeological Theories are not Necessarily True of the Real World,” March 15, 2014.

“Mises and Empiricism,” April 17, 2014.

“Why Should we reject the Existence of Synthetic a priori Knowledge?,” May 23, 2014.

BIBLIOGRAPHY
Caldwell, B. 2009. “A Skirmish in the Popper Wars: Hutchison versus Caldwell on Hayek, Popper, Mises, and methodology,” Journal of Economic Methodology 16.3: 315–324.

Hacohen, Malachi Haim. 2000. Karl Popper, The Formative Years, 1902–1945: Politics and Philosophy in Interwar Vienna. Cambridge University Press, Cambridge, UK and New York.

Hayek, F. A. 1937. “Economics and Knowledge,” Economica n.s. 4.13: 33–54.

Nobel Prize-Winning Economist: Friedrich A. von Hayek. Interviewed by Earlene Graver, Axel Leijonhufvud, Leo Rosten, Jack High, James Buchanan, Robert Bork, Thomas Hazlett, Armen A. Alchian, Robert Chitester, Regents of the University of California, 1983.
https://archive.org/details/nobelprizewinnin00haye