Companion to Building Block 8: Economic Theories
“[I]f you know economics and nothing else, you will be a bane to mankind, good, perhaps, for writing articles for other economists to read, but for nothing else.”Friedrich A. Hayek (1991, p. 38)
At the end of the 19th century and beginning of the 20th century most social science disciplines, among them economics, became institutionalized within academia (Backhouse & Fontaine, 2010; Ross, 1992). In doing so, it became necessary to define and demarcate the various fields. A stereotypical but largely accurate description of these definitions is given by Wallerstein (2003): Anthropology studies the non-western world. History studies the past. Modern western societies are divided among three disciplines: political science studies politics, sociology studies civil society, economics studies the economy.
While these definitions perhaps never quite covered what scholars in these respective disciplines studied, they became increasingly unsatisfactory from the 1970s onward. Anthropologists today no longer confine themselves to studying the non-western world. Sociologists study all of social life, not only what is called civil society. Many economists no longer only study the economy, many began to apply ‘economic’ methods to virtually every topic within the social sciences (Keizer, 2015).
As a result, the fields of study of the different disciplines substantially overlap with each other. Economists are no longer the only ones systematically studying the economy: many other social scientists have begun to do so as well. Many subdisciplines exist outside the discipline of economics, but still focus on the economy. Five of these seem particularly relevant here: economic history, economic sociology, economic geography, economic anthropology and political economy.
Besides these subdisciplines, many other disciplines, such as psychology, law and biology, have also contributed to economic thinking. Furthermore, not only academics are relevant for economic thinking; policymakers, journalists and other non-academics have also developed new insights. However, we focus here on these five subdisciplines because they are clearly identifiable fields focused on systematically studying the economy and have good materials that can be used for teaching purposes. The other types of insights mentioned here would certainly add value to economics education as well, but their implementation lies beyond the scope of this book.
We believe that these five subdisciplines should be incorporated into economics education, because they contain valuable insights in how economies work. As explained in the Philosophy and Pluralism, we argue that economics education should be organized around studying the subject-matter of the economy and in doing so use all valuable analytical tools. Therefore, when teaching economic theory, the focus should be on ideas about the economy, whether or not these currently have their home inside the economics discipline. Who developed an idea should not matter. What matters is whether an idea helps us understand the economic world.
What would this mean for economics education? It implies interdisciplinary economics should become a basic tenet of programs. This can be done in various ways. First and most straightforward, individual courses could be given on insights into economic processes developed by non-economists. As we also demonstrate in the Example Curricula, this could mean separate courses on economic sociology, economic anthropology, economic geography, economic history and political economy. Today, some faculties of sociology, anthropology, geography, history and political science already provide such courses to their own students. Occasionally, economics students are also allowed to choose such courses as free electives. Unfortunately, this often does not happen as economics students are not made aware of the existence of these courses. We, therefore, advise economics and other social scientific faculties to collaborate more and integrate courses at the intersections between the disciplines into their own programs. In other words, that economics and sociology departments, for example, collaborate by teaching courses together to students of both disciplines, or by letting sociologists teach courses on economic sociology to economics students and vice versa.
Another way to incorporate interdisciplinary economics in programs is to include insights from the subdisciplines in courses on economic theory. As we suggest in Pragmatic Pluralism, in a course on labour economics one could include insights, for example, developed by economic sociologists using social network analysis. Getting a job is not only a matter of having skills and education, but also who you know and especially the more ‘weak’ relationships with acquaintances. A course on labour economics would thus be strengthened by including insights from other disciplines.
Finally, another place to include these subdisciplines are courses on the history of economic thought. Rather than only covering what economists have been thinking over the last centuries, one could also include the histories of these subdisciplines that have focused on studying the economy (see also Building Block 4 and Rethinking the History of Economic Thought).
To facilitate the integration of interdisciplinary economic insights, we now provide a brief overview of each of these five subdisciplines. These overviews include some knowledge of their history, the main different approaches within them and some good teaching materials.
Economic sociology has been an important part of sociology since its origins. Many of its founders, such as Auguste Comte, Karl Marx, Émile Durkheim, Max Weber, Georg Simmel, and Vilfredo Pareto, wrote extensively on the economy. In fact, most of them can be regarded as both a sociologist and economist (and often philosopher, historian and political scientist as well). After the formation of the discipline of sociology, most sociologists, however, ceased studying the economy, causing the subdiscipline of economic sociology to move to the background.
This rigid division between the two fields came about as a sort of truce, where both economists and sociologists agreed not to study each other’s fields. The origins of this truce are associated with Talcott Parsons and Lionel Robbins in the 1930s. Economists would solely focus on the means to achieve given ends, while sociologists studied those ends and the values people have. According to this logic, institutional economics was no longer considered to be proper economics, and economic topics should no longer be studied by sociologists. But with the partial disappearance of institutional economics and economic sociology, large parts of the economy fell outside the scope of any field of study.
This changed again in the 1980s. The truce to not study each other’s fields was broken because of a revival of economic sociology and the rise of the imperialism of neoclassical economics (e.g. Granovetter, 1985). Since then, economic sociology has emerged as one of the main fields within sociology and as such it has produced multiple new approaches and insights. The main approaches within economic sociology are social network analysis, neo-institutional economics and field theory, the cultural approaches, and performativity theory. These different approaches analyse how markets are socially constructed with the help of state structures, social relations, and cultural norms, or in other words how they are embedded in society. There is, for example, a strand of research that investigates how the lifestyles and morals of people shape what they do, and do not, buy.
- The handbook of economic sociology by Neil J. Smelser & Richard Swedberg, most recent edition from 2010. This extensive and yet accessible book for non-sociologists, provides an impressive and useful overview of the field of economic sociology.
- Principles of Economic Sociology by Richard Swedberg, from 2003. An insightful introduction into economic sociology, with chapters devoted to different theories and topics, such as firms, markets, consumption, law and gender.
- The Sociology of Economic Life by Mark Granovetter and Richard Swedberg, from 2011. This informative collection of classic and recent influential essays in economic sociology, focusing on theoretical foundations, markets, firms and the historical development and varieties of capitalism.
- Society and Economy: Framework and Principles by Mark Granovetter, from 2017. A useful introduction into economic sociology with chapters on mental constructs, trust, power and social institutions.
The main idea of economic geography is that economic theory cannot ignore space because it fundamentally shapes economic activities. Economic geography has its origins in 19th century Germany with location theory, which can be seen as an intellectual predecessor of neoclassical economics. Location theory tried to predict where economic activities would take place by using the assumptions that individuals were rationally maximizing their utility and firms maximize their profits. As such, they developed models to calculate what the optimal locations would be for certain economic activities. As a key figure of location theory, and because of its relation with neoclassical economics, the German economist Johann Heinrich von Thünen (1783-1850) is often included in histories of economic thought.
More recent insights developed within economic geography are, however, rarely included in discussions on economic thought. Especially since the 1970s, the subdiscipline has developed new ideas. It became more diverse with Marxist (also called political economy), feminist, cultural, regulationist, and evolutionary approaches. These insights can add great value to the understanding of issues such as relations between why innovation hubs exist and how they emerge, how processes of urbanisation and immigration work and what their economic implications are, and how capitalism expands geographically and creates spatial inequalities through uneven development.
There have also been new neoclassical approaches to economic geography, often called new economic geography, new trade theory, or geographical economics. These scholars, such as Paul Krugman, focus on how forces of agglomeration can be explained by allowing for market imperfections in neoclassical models. Key imperfections in this line of thinking are monopolistic competition and economies of scale, which result from forward and backward linkages that trigger further investment in specific places.
In sum, economic geography is a highly pluralist and interdisciplinary subdiscipline, as it often connects different theoretical approaches and insights from various disciplines such as geography, economics, political science, sociology, and history.
- The New Oxford Handbook of Economic Geography by Dariusz Wójcik, from 2000. An impressive collection of essays on economic geography, with chapters focusing on different regions, theoretical approaches, and the topics of innovation, firms, work, finance, the environment and development.
- Economic Geography: A Critical Introduction by Brett Christophers & Trevor J. Barnes, from 2017. A useful introduction into economic geography, with attention to its conceptual foundations, history, different theories and methods, and application to topics such as globalization, finance, urbanization, nature and technological change.
The subdiscipline of economic history has strong roots in the English historical school of economics, with scholars such as William Whewell, Richard Jones, Walter Bagehot, Thorold Rogers, and William Ashley. The English historical school of economics argued for an inductive approach to studying economies, and were opposed to the deductive approach used by various classical political economists, such as David Ricardo. In doing so, they made important contributions to the development of empirical and statistical methods. They were, however, largely unable to actually make the discipline of economics more inductive, especially when the deductive neoclassical approach became increasingly dominant. But while they were considerably pushed out of the discipline of economics, they were able to help create the subdiscipline of economic history inside history departments. Today, economic history can be found both inside economics and history faculties, and it often functions as a bridge between the two disciplines.
The current field of economic history has various strands, such as Marxian economic history, cliometrics, the Annales school, and new institutional economic history, each with their own ideas and history.
From its inception, history has featured prominently in Marxian thinking. Economic historians were, however, for a long time discouraged from using and building on Marxian ideas for political reasons. Nevertheless, an important Marxian strand of economic history did develop which investigates how the histories of economies can be understood with the help of historical materialist methodology.
In the 1960s, cliometrics arose out of the application of econometrics to economic history. The approach derives its name from the ancient Greek goddess of history called Clio. To this day, this strongly mathematical approach to studying history is an important branch of economic history. More recently, a partially overlapping group of scholars from different disciplines, such as political science, history and economics, has begun studying legal rules and social norms through a neoclassical lens of utility maximization. This approach is often called new institutional economics.
Another key intellectual contribution came from the Annales school which originated in France in the early 20th century. It consists of a highly diverse group of scholars that have tried to combine economics, sociology, geography, and history. In doing so, it changed historiography by focusing on long term structural developments, the lower social classes and collective mentalities. The Annales school inspired approaches such as world system theory and the regulation school, which are also important within economic history.
- The Routledge Handbook of Modern Economic History by Robert Whaples & Randall Parker, from 2013. This useful collection of essays introduces students to economic history by discussing its methods, different economic sectors, and the topics of growth and the workforce.
- Routledge Handbook of Global Economic History by Francesco Boldizzoni & Pat Hudson, from 2016. This impressive collection of essays introduces students to the economic histories of the different world regions.
Economic anthropology arose as a subdiscipline after the second world war, to a large extent out of the work of Karl Polanyi, whose work aimed to understand non-Western and most past societies. Polanyi (1944) argued that the dominant neoclassical economic theory was not very helpful for these purposes, because these economies were not centred around market exchange.
Building on the ideas of two founding fathers of anthropology, Bronislaw Malinowski and Marcel Mauss, Polanyi further developed the idea of reciprocity and how crucial it is for economic life. Furthermore, Polanyi argued that the concept of ‘free’ markets is mistaken because all economic relations, including market ones, are embedded in social institutions. To understand an economy, one thus also has to look at the cultural values, and the social and political relationships in which it is embedded.
This position became known as substantivism, as it focused on the substance of economic activity without presupposing that it would take any specific form. In the first decades of economic anthropology, there was a competing branch, called formalism. These anthropologists argued that neoclassical theory universally applies to all human beings and societies in world history, putting the form of the market at centre stage.
Since the 1970s, the debates inside the subdiscipline changed as new topics and ideas rose to prominence. In particular, Marxist, feminist, and cultural (sometimes called anthropological) approaches have become prevalent in the subdiscipline. And rather than focusing solely on the non-Western world, anthropologists started to also study western economies at their cores, such as in their financial centres. In doing so, they connect discussions about financialization and financial crises to the long history of money and debt in human societies.
The role of culture in economic life is often given a lot of importance. As such, economic anthropologists have a particular interest in how the material and cultural dimensions of human life interact with each other. Rather than regarding the value of things as objective facts or subjectively determined by inborn tastes of isolated individuals, many economic anthropologists focus on how value is culturally constructed through local cultural practices and norms, as well as marketing and advertising by profit seeking companies. These cultural understandings of value are often interlinked with power relations in society, and for this reason economic anthropologists analyse how gender, class, racial and ethnic relations influence consumption, work and trade patterns.
- Economic Anthropology: History, Ethnography, Critique by Chris Hann and Keith Hart, from 2011. This useful introduction into economic anthropology helps students understand how the field emerged and evolved, and what its different strands and key insights on different world regions are.
- A handbook of economic anthropology by James G. Carrier, from 2012. This impressive collection of essays covers the many strands of economic anthropology, from literature on different regions and economic mechanisms to different topics, such as agriculture, industry, consumption, culture, and the financial crisis of 2008.
The name political economy has been used to describe many different things. It used to be the name for what we today consider as economics: the field that studies economic processes. Many Marxian scholars have kept on using the name, while the mainstream discipline switched from ‘political economy’ to ‘economics’. More recently, it has also been used to describe normative economics and public choice theory, which uses neoclassical assumptions to study politics and government bureaucracy. Here, however, we refer to the subfield within political science called political economy that studies the interaction and interrelatedness between politics and the economy.
Marxian approaches have always been an important inspiration for the subdiscipline of political economy. However, in the 1970s international political economy arose out of the understanding that the mainly militaristic focused realist approach within the subfield of international relations missed the importance of international economic connections and organisations. Another important branch is comparative political economy, which arose mainly out of the varieties of capitalism debate.
Currently, political economy forms a loose and diverse subdiscipline, with approaches ranging from institutional political economy to cultural (often called constructivist), feminist, neoclassical (often called rational choice), and Marxian political economy. It focuses on the shifting power relations between states and private sector companies, the institutions and ideas that shape policies and thereby also economies, and how ‘the rules of the game’ evolve and are contested both at the national and international level.
- Comparative Political Economy: States, Markets and Global Capitalism by Ben Clift, from 2014. This useful introduction into comparing political-economic systems, helps students understand the different theoretical approaches, and topics such as corporate governance, finance, states and social welfare.
- Introduction to International Political Economy by David N. Balaam & Bradford Dillman, from 2018. This accessible and brief book introduces students to the international interplay between the economic and political on topics such as trade, finance, globalization, and security.
Backhouse, R. E., & Fontaine, P. (2010). The history of the social sciences since 1945. Cambridge University Press.
Granovetter, M. (1985). Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91, 22-45.
Hayek, F. A. (1991). The trend of economic thinking: Essays on political economists and economic history. Routledge.
Keizer, P. (2015). Multidisciplinary Economics: A Methodological Account. Oxford University Press, USA.
Polanyi, K. (1944). The Great Transformation. Farrar & Rinehart.
Ross, D. (1992). The origins of American social science. Cambridge University Press.
Wallerstein, I. (2003). Anthropology, sociology, and other dubious disciplines. Current Anthropology, 44(4), 453-465.