In Defence of Neoclassical Economics

Too often students accept uncritically what they are taught. It is a particularly healthy sign to see a stage one student questioning the content of the ECON 101 course. I am taking the opportunity of the publication of W. B. Anderson's letter to the Chairman of the Economics Department (Salient 28 May 1979), to make some comments in defence of neoclassical economics and, indirectly, to support the teaching of neoclassical economics at stage one level.

First, I should declare my interest. I am an economics honours students and I expect to apply my training on leaving university.

As with most models, there are many facets to the neoclassical model but it will suffice here to distinguish only two. The neo-classical framework of analysis allows the application of a set of methods and techniques which embody marginal analysis of behavioural relations. Thus attention is directed toward the marginal contribution of factors to production, of consumption goods to utility etc. Secondly, the model supplies a body of behavioural propositions. Thus we have a series of dicta: individuals are utility maximisers, firms produce to a point where profits are maximised etc. One of the advantages of the neoclassical model is precisely that tightness and rigorousness which Anderson criticises. This not only makes is suitable for teaching, but it is also this same completeness and testability of the model which has enabled it to dominate economic thought for so long. And indeed this model still reigns supreme. Economic journals are full of extensions, developments of, empirical tests of, and criticisms of neoclassical theories. Given W. B. Anderson's charge of irrelevant assumptions and we may well ask why.

The answer is to be found partly in the nature of the question. It is easy to accuse a model of irrelevancy and much more difficult to support the accusation. After all, the very nature of a theory implies an abstraction from the real world. We need to simplify the world in our models if we are to understand it, otherwise there would be no point making abstractions from reality. Anderson's statement is meaningless unless he/she is prepared to point out specific irrelevancies. (Indeed I would rather read of this than of accusations of Bertram's and Stephen's incompetence which are not supported by my own experience.)

Some of the points we might fairly criticise the neoclassical model on are: The model ignores the unequal distribution of power among individuals in the market place All transactions in the model take the form of exchanges, the possibility of unilateral transfer is not allowed. Furthermore, within the neoclassical model, individuals all compete with each other. There is no room for non-competing groups as one might get in the real world labour market for instance. The framework focuses on the individual as the unit of analysis, no allowance is made for the influence of a group on the decision making of an individual. To the extent that power relations in the market, non-competing groups, and the influence of groups on an individual's economic activity are characteristics of the real world, which affect economic activity, then the orthodox theory is challenged. In responding to these and other challenges neoclassical theorists must either seek to incorporate the missing variables into their analysis or else demonstrate their lack of relevance to the economic processes explained.

It would be impossible to fit all the [unclear: difications] of a model into a one year course at the same time as trying to give students an understanding of the workings of a model. The lecturers may hope that anyone sufficiently interested will continue with economics and or read up on the application of the theory to practice. Let me assure you that stage one students are not being immersed in economic theory that is not to be used again. The neoclassical framework provides a method of analysis a way of thinking which is essential to every economist. If he or she does not accept the model as a useful tool of analysis, then it is at least necessary that he or she be able to understand and counter the argument of the orthodox theorist.

And it is important that the orthodoxy be challenged. Few economists would argue that the neoclassical model is internally in consistant, but some may contend that its application is limited because of the omissions raised above, or for other reasons. In the past, neoclassical economists have responded to these criticisms. To give but one example, despite the prominence of institutionalism in the early post war labour economics literature, neoclassical economics remains the dominant scientific paradigm in the study of wage la determination. Neoclassical retaliation to the critique of the institutionalists has taken the form of human capital theory, labour market search theory and the new microeconomics. These new developments in economics must be regarded as net gains had have succeeded in undermining the institutionalist position. This is done by providing neoclassical explanations of many of the empirical phenomena upon which the institutionalist denigration of the explanatory power of orthodox economics had rested. Surely this must be regarded as a sign of a healthy science.

There is one further point of Anderson's that I should like to take up. Of course, microeconomics (or for that matter, any economics) is not value free. In economics we do not have the possibility of controlled experiment, consequently, we as economists must rely on our interpretation of evidence we see and can deduce. Of necessity this involves judgement and where the subject is 'soaked in moral feeling', judgement is coloured by prejudice. Surely this is present in any social science, can we do any more than to state our colours at the outset?

The neoclassical model rests on a number of assumptions about the real world. These are not above challenge and where challenge has been accurate in the past the onus has been on orthodox theorists to defend or extend their model. This has provided some worthwhile additions to the dy of economic thought. The very [unclear: end rance] of the neoclassical framework and dominance today is surely justification [unclear: e gh] for devoting a large part of a stage on economics course to giving students an [unclear: i derstanding] of this basic framework.

Frances Hammond.

ACCY 204 & ACCY 302 Courses.

I understand that trying to raise the Accounting Dept from its stultifying apathetic lethargy is not too dissimilar from trying to kick-start a Boeing 747 but this Semesters performance has been so abysmal that someone has to make the attempt. So, I challenge Chairman Trow to significantly improve prove the attitude and approach of his I for the second half of the year. I bet he can't do it! And just in case he doesn't know what I'm talking about here's a [unclear: cople] of instances:

ACCY 204

A potentially useful and interesting course completely destroyed by a total lack of interest in, or appreciation of, students' concerns. The first Terms Test was dominated by the output of a mathematics machine which could cover acres of blackboard with complicated formulae before you could say "Beta!". Thus we all scored poorly. The second Terms Test reflected a more practical segment and everyone did much better - or at least we think we did. What happened? After at least 2 (rumoured) attempts to meddle with the exam papers the bloody Accy Dept security was still so slack-that some obnoxious prick was able to flog half the scripts! Prof. Winiata didn't really give a stuff. After all, the bloody sweat and tears we'd put into trying to improve our grades he just calmly informed us that the test would be ignored and even those whose papers weren't stolen wouldn't get them back. Winiata's blase attitude and lack of recognition of the impact of all this on our morale is the biggest kick in the guts I've had since I started passing courses.

ACCY 302

What a bloody abortion. I must admit that the first half wasn't bad, but then lecturing standards dropped dramatically. In my opinion, one lecturer tried for a while, but he was never cut out to be a lecturer and when he realised he wasn't getting through to us he just gave up. He showed us his lecture notes one day. 1½ lines!! He then hummed and harred and coughed and mumbled for about 20 minutes, and then let us go. Unfortunately, this was an [unclear: oft] repreated pattern.

Then we had wilderness for about [unclear: 2] as the course fell apart. We had what [unclear: w] thought were fill-in lecturers from outsiders for a while and then Prof. Oed tells as we were studying Social [unclear: Responsibilil] Accounting. Well! It would have been [unclear: 1 dy] nice to know what the objective was we started! - and how that same Prof [unclear: c ch] at us for not doing assignments when ther we nor our tutors knew what was [unclear: re red] is beyond me.

However, I must admit Prof Oed is [unclear: pr viding] an excellent education for us at [unclear: p] sent. While extolling the virtues of "The Y" behaviour (the importance of human siderations and what the good manager [unclear: n] do to motivate his staff and enable them develop) he is treating the whole class [unclear: st] according to "Theory X"; berating us to not being motivated and suggesting that we need is more and more work and [unclear: mor] thoritarian domination. Prof Trow - [unclear: wh] need is a more genuinely interested and [unclear: c] petent Accy Department. Bet you can't

Hey reader! If you agree with the [unclear: sen ments] expressed above how about [unclear: clippi] this article out and sending it to Trow. It may indicate to him how serious this [unclear: pro lem] is.

Depressed

No doubt you understand why I can't sign my name to this. However I assure [unclear: y] that I am a student and am genuinely concerned about this matter.