BEHAVIOURAL ECONOMICS, A METHODOLOGICAL ACCOUNT

Behavioural Economics, A Methodological Account

  1. Introduction

Behavioural economics is a combination of behavioural and cognitive psychology on the one hand, and empirical economics on the other. Both strands are weak in theory and strong in empirics. Therefore in combination they have aggravated each other’s weakness, namely lack of the solid theoretical foundation. A last few decades there is a growing influence of neuroscience, offering an explanation of the results of the many experimental results. Neuroscience also lacks a solid theoretical foundation. A particular event cannot be explained by just showing which locality in the brains is at work.

When going back to earlier phases in the development of economics and psychology, we see that both orthodox economics as well as psychological analysis were based on a theoretical foundation. Cancelling these foundations has made the situation worse. Just working on an improvement of them is a better response. In this essay, I will sketch the methodological aspects of both sciences, and show that we need to integrate the economic and the psychic man, and combine the result with a construction of social man. Then this three-dimensional man must be placed in a truly heterodox environment. In this world complexity, very imperfect information and uncertainty rule. Moreover, the different stages in the evolution of our reality show the history of the different motivations, that are the economic, the psychic and the social motivation of man. Then the analysis will be ripe for empirical testing. In the next section we will discuss methodological economics.

  • Methodological economics

Economics as a science starts with Classical Political Economy. It is focused on an explanation of Western economic development in the 18th and 19th century. Although the various authors use different methodologies, they all try to explain the economy, being a subsystem of society. In the end of the 19th century there is growing criticism: it is not science as we know from physics. This critique stimulated economists to search for economic principles, more than explaining the statistics of the economy. The formulation of the principles led to an economics, that must be interpreted as an aspect-system, not a subsystem. Orthodox economics offered us the two laws of Gossen, the law of comparative advantage, the general equilibrium model of Walras, and the optimality principle of Pareto. Because the subsystem economy is not only driven by the economic motive, the principle cannot satisfactorily explain what happens in the actual economy. Social and psychic motives also play a role. In other words, all the results of orthodox economics hold under the ceteris paribus clause.

Neoclassical economists, however, assume that in a competitive market economy the effects of the social and psychic motive are negligible. So, we can use the orthodox-economic  results when explaining a competitive market economy. Heterodox economists in contrast, reject this methodological strategy. They start with a completely different ontology: the world in which man is operating is characterized by its openness, its being an organism, and the independent role of macro-level developments rather than being just an aggregate of micro-economic events, is stressed.

Unfortunately, economists do not debate these issues deeply. Neoclassical economics dominates the scene. Academic education fails to present students a fair account of what is on offer in the world of economics. It makes is almost impossible to search for cooperation with other disciplines, such as psychology and sociology. In the next section we discuss methodological psychology.

  • Methodological psychology

The book by James (1890) is considered as the start of psychology as an independent science. It was a fission of medicine, and perception was the keyword. He saw introspection and, empirical observation as the two primary sources of knowledge. So far medicine did not play serious attention to the mind; it was just the body. But the first psychologists, such as Freud, Jung and Adler developed psychic analysis. They did not aim at the development of a psychic aspect-system like orthodox economists did, but paid also attention to  physiological and social factors. Economic factors were absent, and their therapies were payable for the rich class only.

After WWII psychology modernized, and behaviourism, in combination with cognitive psychology became paramount. Behaviourists considered the mind a black box. Cognitivists saw the mind as a box, filled with information. Good education could prevent serious psychic problems, whatever they might mean. During the sixties and seventies some radical approaches came up, such as the humanist approach. The humanists saw the content of the psyche as primarily determined by societal culture, and the way parents brought their children up. They offered therapies to liberate the self of a person from societal pressures. During the eighties and later the biological approach regained ground, especially through neuroscience. The body, and specifically the brain, is the main determinant of behaviour, not external impulses.

  • The Emergence of Behavioural Economics 

During the second half of the 20th century empirically orientated business economists began to cooperate with behavioural and cognitive psychologists. Simon’s article in the American Economic Review, Theories of Decision-Making in Economics and Behavioural Science (1957) can be seen as the beginning. Neoclassical economists were changing their assumption of perfect information into that of imperfect information. Cognitive psychologists asked them how decision-makers could determine when they have gathered an optimal amount of information. No one can ever know the value of the extra-marginal unit of information. So, optimalization is impossible. Behaviour is just satisficing rather than maximizing. The choices are subjective and influenced by economic, social and psychic factors. Independence of economics as a science is a bad thing – isolated abstraction, thereby focusing on one aspect of reality only, is a bad strategy. People behave boundedly rational, not perfectly rational.  It opened the door for multidisciplinary research, mostly through experiments. As already said, experimental research without having formulated a solid theoretical foundation about the nature of the behaving subject and his situation, leads to nothing. In a heterodox situation, a simple economic optimization is impossible. People must develop institutions about how to select and organize information. Methodology is the discipline par excellence, to clarify how to build effective frames of information, in which significant information is well-organized, and irrelevant information is left out.

  • The Organization of Knowledge

The history of methodology is characterized by a number of debates. The most important were the discussions about:

  • materiality versus ideality. The discussions were about ontology, which is the question what really does exist. It must give content to the question of the nature of a subject and his context. Orthodox economics assumes an economic world: economic man surrounded by a world characterized by scarcity. Heterodox economics considers the nature of its subject as endogenous, and dependent on the context. Materialism says that subject and context are just material. Idealism says that the two are basically mental, and concrete life is an expression of particular ideas, like freedom, democracy, or dictatorship.
  • Induction versus deduction. Induction runs as follows: in The Netherlands in the year 2020 we observe a larger harvest of apples, followed in time by a decrease in the price of apples. For Germany in the same year we observe the same time sequence. Also for France and Spain we note this sequence. Induction: from these observations we conclude that this correlation holds in general. Deduction means the following. Suppose we use the economic man, living in an economic world as our ontology. We logically deduct from it a supply and demand analysis from it. We assume that markets are characterised by perfect competition. Now we deduct from it the theory that says that, ceteris paribus, the price of a currency will rise, as soon as there is an excess demand on that market.
  • Observation versus induction. In the two examples that illustrate induction and deduction respectively, prices and quantities of goods are empirically observed. But the idea of economic man and economic world are not observed, but is the result of internal observation or introspection. The idea of economic man is that our behaviour is motivated by the economic motive only. The economic motive means that we  are always inclined to maximise our utility we derive from consuming goods over a particular period of time. Motives are not material, and cannot be observed empirically. It is something mental, and we understand mental concepts, because of the idea behind it. The ideas behind theoretical concepts have the potential to trigger positive and negative feelings. In other words, ideas set motion.
  • Closed versus open systems. Closed systems are determined systems. The behaviour of a closed system is determined by a particular mechanism. Of course there are influences from outside the system. But these are external factors, which are not triggered by our closed system. If we build a closed system of the Dutch economy, developments in the volume of global trade affect the Dutch economy, but not the other way around. The model consists of a series of relationships between variables. In a closed system the coefficients of these relationships ware not affected by external developments. Open systems are organic rather than mechanic, and the coefficients of the relationships of the model are not fixed. Imagine that German wages go up more than was expected, it might affect the wages in other euro-zone economies positively. This might affect the effective demand for consumption goods in the eurozone positively. When analysing the Dutch economy as a closed system, there is no clear mechanism, that is describing its development. In uncertain times countries do best to adjust a little to dominant cycles and trends[1].
  • Aspect-systems versus subsystems. Imagine a whole system, consisting of many elements and many relationships between these elements. Then we can distinguish between a series of aspect-systems of the whole system. This partial system has the same elements as the whole system, but present relationships, which represent just one aspect of the whole system. The orthodox forms of economics, sociology and psychology are aspect-systems. They isolate the economic, the social and the psychic motivation respectively from the other motivations. Orthodox economics is isolated from everything that is typical for sociology and psychology. The same holds for the other two aspect-systems. All relationships in an orthodox-economic model are expressing actions of economic man, who ignores his social and his psychic motivations. Status, fairness, but also uncertainty (= not-risk), irrationality, will-power are not part of the ontology of the economic model. The whole system can also be divided in a series of subsystems. If the Faculty of Economics offers industrial economics, agrarian economics and public economics, these courses are about subsystems of the whole system ‘economics’. They select a number of elements, but the relationships have the same nature – economic nature, for instance.  
  • Static/dynamic analyses and historical-evolutionary analyses. In static analyses there is no time. A more sophisticated variant introduces time lags between cause and response, making it to a dynamic analysis. But the coefficients in the relationships do not change under the influence of important historical events. In human sciences coefficients do not only express characteristics of human nature. Quite often they reflect particular institutions, and differ across countries and different periods of time
  • Micro- versus macro approaches. A typical micro model explains behaviour by formulating a paradigm about the behaviour of the smallest unit: an subatomic particle in physics, a molecule in chemistry, a cell in biology, an individual person in economics, a small group in sociology, and a psychic element in psychology. Explanation of behaviour on a higher level of analysis can be found by aggregating the results for the smallest unit. In orthodox economics – a typical micro approach – economic theory is about an individual subject, mostly persons. For an economy as a whole Walras formulated his General Equilibrium Theory of a free market economy. For sociologists society as a whole is the macro level. For psychology it is the individual person, sometimes living in a group or embedded in a body, which is the macro-level. Now and then psychology is applied to society as a whole: people are depressed, for instance; the Eastern part of Germany is often interpreted as psychically depressed. Also many African countries, being the scene of very serious conflicts over a long time, are psychically ill. Israel and Palestine make the same impression. Macro approaches, however, start with an explanation of the behaviour of the whole of an economy, or society, or person. Marx and Keynes are illustrative for heterodox economics in this respect. According to Keynes an economy as a whole can become (economically depressed. Economic activities on more specific levels of analysis are negatively affected. Some sectors and some groups of people are affected differently. This inequality can arouse social conflict, leading to strikes and riots in the streets. Now man is not just economic, but definitely also social. Long enduring economic depressions can make many people psychically depressed. So, developments on the micro level of analysis are explained by developments on the macro level.
  • Quality versus quantity. Orthodox economics is qualitative. It is an aspect-system, not a subsystem. Neoclassical economics takes the economic orthodoxy as its theoretical foundation for empirical research. Then orthodox statisticians take the concepts consumption, investment, unemployment, inflation, recession, profit, income and production and develop empirical indicators. Empirical researchers take these indicators for granted, and calculate numbers. This is a big step: from quality to quantity. Under the pressure from the government statisticians has made decisions, such as: families do not invest, governments do not invest, they just consume. A recession is not based on a theoretical concept, but on an empirical definition. In this case there is no criticism possible – it is a definition! Many goods cannot be measured, and do not count. Destruction of capital goods do not count as a negative investment. When people consume more health care services, costs are presented as costs, not prices, and not increase in utilities. The same with education: the total costs were rising, so the government cut expenditures. It led to higher rentability, ceteris paribus the number and quality of the educational services. Of course, the quality of the services did not stay the same. Econometricians say that economics is a quantitative science – this is a serious ontological mistake. Quality and quantity are related to each other. Only is we can establish the quality of a good, we can quantify how many of these goods are produced or consumed. An elstar apple is not the same as a jona gold apple– their prices cannot be compared. Their market prices are not necessarily a correct expression of their scarcity. So, be careful when interpreting calculated quantities.
  • The logical structure of knowledge

In the period after WWII the most prestigious philosopher/physicist was Karl Popper. The empirically orientated scientists saw him as their hero. But also the heterodox and qualitatively orientated people could accept him. How come? He considered falsification of (empirical) hypotheses as the core activity of science – not verification, as promoted by empiricists. But falsification can only take place if an empirical hypothesis is derived from a theory, which is derived from an analysis, which is derived from a paradigm. Lakatos took this view as the starting point of his hard-core versus protective belt approach. Kuhn, who was a scientific historian, saw a long-term trend in science. During a particular period one paradigm dominates the scene. Most scientists are doing normal science; that is the improvement of the specification of theory and hypothesis. But if the normal science do not show progression and must admit that they have no answer to many anomalies, competitive paradigms might enter the arena, and try to improve their results, in comparison with the established paradigm.

Even today this trio – Popper, Lakatos and Kuhn – are paramount in the methodological discourse. Some people work on the improvement of the specification of the empirical hypothesis, others search for better empirical indicators of theoretical concepts, and there are people, who has lost faith concerning the relevance of the paradigm in power. They work on a new paradigm, which could mean a revolution in particular disciplines.

Taken together we can distinguish between four stages in knowledge development:

  •  Paradigm construction. It is about the nature of the subject, who behaves. For instance, economic man in economics, social man in sociology, and the psychic man in psychology. It also formulates the nature of the environment of the subject. In orthodox economics it is the static/dynamic and mechanical world of the free economy. The system, describing this world, is closed, and more general parts of the system are just aggregates of smaller systems. The mechanical and closed system can be described by mathematical methods. In the same way we can construct a social and a psychic world[2]. Heterodox approaches are based on an organic, historical/institutional and open system. A heterodox system is based on a typification of the situation in general. Analysis are made on different levels: macro-, meso- and micro-level. On the individual level ‘man’ appears to have a nature (economic, social, psychic), which depends on ‘the’. In some contexts man becomes more pro-social and rational; in other situations man is more anti-social and irrational.
  •  An analysis is made on the basis on the paradigm chosen. In economics, a distinction is made between buyers and sellers, between agrarian and industrial markets, etc. In orthodox economics the question whether markets and market economies are stable systems is key. The answer is: when micro-prices are flexible, the system as a whole is stable. In the heterodox world the market price mechanism is only one of the important ‘mechanisms’. Moreover, the rationality and sociality of people are not constants, but important variables. Also governments are relevant in keeping society fair and efficient. In Keizer (2015) many heterodox approaches are discussed from a methodological point of view – also the sociological and psychological views.
  • The analysis makes it possible to formulate a very large number of theoretical propositions, altogether presenting a theoretical framework. A typical economic theory says: in case of excess demand on a particular market, the price tends to go up. A typical sociological theory says: if two groups consider each other as a rival, increasing strength of rival A will lead to a stronger solidarity between members of group B. A typical psychological theory says: members of weak groups are more desperate and militant than members of strong groups.
  • If the theory is a serious attempt to explain the empirical world, the theoretical concepts require an empirical indicator. If a theory talks about unemployment, for instance, economic statisticians must search for ways to measure unemployment. If a person visits a psycho-therapist, and she diagnosed the client as being depressive, she must know, which signals indicate ‘depression’. If a sociologist tries to empirically test his discrimination theory, saying that in today’s Belgium a large number of women are discriminated, he must have empirical indicators of ‘discrimination’.

If an empirical test fails, the researcher has a whole series of opportunities to improve his theory. May be the empirical data are incorrect (1), may be the data are not an indication of the theoretical phenomenon (2), the theory is not a perfectly logical implication of the analysis (3), the analysis is not a perfectly logical implication of the paradigm (4), and last but not least the paradigm is badly formulated (5). Hardly any scientist is prepared to ask himself this last question. A paradigm has the characteristic of an axiom: it is obvious, evident, no doubt about it.  In physics the principal subject is the sub-atomic world. In chemistry it is the molecule. In orthodox economics and sociology it is the individual person, who is of an economic and of a social nature, respectively. In heterodox economics and sociology it is economy and society, respectively. In orthodox psychology it is the structure of the self, and in heterodox psychology it is the individual person, in the context of his body and his social environment. In the next section we discuss the essential methodological characteristics of sociology.

  • The Methodology of Sociology

We have seen that there are three primary motivations, namely the economic, the psychic and the social motivation. The first concerns the relationship between a human and his natural environment. The second is about the relationship of a human with his self. The third refers to the relationship between humans. Our reality is complex, and analyses and models are necessarily complex too. To start simply, the orthodox strategies focus on one aspect of behaviour, and build an aspect-system. The heterodox strategies, however, assume that complexity makes people uncertain, which cannot be mitigated by gathering much information. Complex models are replaced by simpler models, based on simple rules of thumb, or traditional rules. Tradition is seen as a source of wisdom. Many generations have developed many techniques to tackle problems, why should we know better? Other strategies are the set-up of Big Data systems. Advanced computer technology can use these data to find out which correlations are promising. Artificial intelligence is able to build computers or even robots, with software, which can take our important decisions: empirical correlations, combined with a number of moral rules can lead us to a highly efficient and fair society.

In the history of sociology we see radical and conservative perspectives. Famous Classical Sociologists are Marx, Durkheim, Weber and Parsons, each with their own mix of paradigmatic elements. Marx considers social conflict as an essential conditions for progress. Durkheim, however, considers compromises and mutual understanding as necessary elements in a society that flourishes. Weber discovers that history shows increasing rationality, although value-rationality is increasingly replaced by instrumental rationality. Parsons, like Weber an economist, started with a functionalist about macro-systems. Then he went on with the construction of meso- and microsystems and systems on a personal level. Then he moved from the construction of subsystems to that of aspect-systems. For systems to survive, holds that every primary aspect must meet particular standards. The economic aspect is about the minimum amount of scarce resources, that is necessary to survive, the social aspect is about the necessary minimum of integration and cohesion, the psychic aspect is about the degree a system has clear-cut goals. If the psyche is out-of-balance a person has difficulty to establish what he truly wants to achieve. At last Parsons distinguishes a political aspect, which is related to the degree of control of the system.  When Parsons brought the different systems together, he had showed the interrelationship between the behaviour of micro-, meso- and macro-systems – an achievement economists never reached (Parsons, 1937, 1951, 1978).

A very good example of heterodox sociology is Lindenberg (2015a, 2015b, 2015c). He links his evolutionary sociology with social psychology and neuroscience. In earlier work he was more orthodox, and linked rationality with morality, on a rational social choice foundation. Later he turned to the evolutionary approach. Through time people have learned to elaborately think about their relationships, and become aware of their goals. Dependent on the situation they are more hedonic, or focused on gain. Because we all grow up in a family setting, we are social beings sensitive to group norms. The beauty of his approach is that goals – he does not speak of motives! – are dependent of the social situation. Solidarity is weak in case of a hedonic or gain-driven culture. Moreover, self-regulation operates as a complement as well as a substitute for social control. A problem with his heterodox approach is the lack of a set of behavioural restrictions. Orthodoxy stresses scarcity, irrationality, morality as major constraints. It makes sense to find out how these restrictions play a role in an evolutionary and historical approach.

  • The paradigm of behavioural economics 

Lakatos (1970) makes a distinction between hard core and protective belt. The hard core consists of the paradigm, which is a description of the nature of the subject and his environment. Every research programme is characterized by this core. It is his essence, and will not be changed during the research. On the basis of this hard core many assumptions are made, analyses are built upon it, and theories are derived from it. If the hard core is meant to be realistic, empirical hypotheses can be formulated. These steps are called the protective belt – it should protect the hard core from falsification. If the empirical results are bad, the paradigm cannot be blamed; only the protective belt.

Behavioural and cognitive psychologists began to collaborate with economists, who heavily criticized neoclassical economics. Simon (1957) criticized in particular the idea of ‘an optimal amount of information’. As we discussed already, neoclassical economists applied the orthodox-economic laws of Gossen, saying that in a search for information the marginal benefits will decrease over time, while the marginal costs will increase. When they become equal, we have reached the optimal amount of information. Psychologists reacted as follows. Subjects do not operate in a typical orthodox-economic world environment. The real world is not determined or stochastic, but open. It is not mechanical, but organic, and subjects are uncertain rather than that they can calculate risks. When deciding to stop gathering information, they apply institutions, like rules of thumb or habits. It gives them feelings of satisfaction: “this is the way we do it”. This heterodox ontology leads to realistic estimations of behaviour rather than to a set of abstract assumptions, which are part of a large quantitative model. When their model is quantified and tested, and the results fit a number of statistical criteria, they accept the model as realistic – even if many assumptions, part of the model, are unrealistic. They do ‘as if’ they are correct.

As already said, the whole of assumptions fulfil the role of ‘protective belt’. Neoclassicals claim to have verified that subjects are economic, rational utility maximisers, living in a stochastic world.  According to Lakatos it is not practical to change this paradigm in case of falsification of the model. There are many assumptions that can be more realistic. It makes the model necessarily more complicated. However, I would plea for making the model, including the paradigm, more realistic. Science is too important to accept non-sense correlations. Paradigms should not be reduced to dogma’s. They are unavoidably subjective. Scientists must get used to the idea that humans can never produce perfectly objective knowledge. It means that a group of scientists, which dominates the scene, should never ignore or even exorcise critics. Science in the hands of powerful people will definitely be abused.  

Unfortunately, behavioural economists do not like philosophy and analysis; they believe in the hard core of the behaviourist methodology. Introspection is an unreliable epistemology. They only assume that subjects react on incentives from the outside. Their responses must be correlated to the incentives. In this way they produce empirical laws. In the behaviourist research practice we see that this methodology fails time and again. Keizer (2015) gives many examples of it. Just as matter of illustration we mention an example from Ariely (2009, 2012). He draws the conclusion from experiments that women who complaint about lower wages compared to men doing the same work, are irrational. Ariely does not define and analyse the concept (ir)rationality, and ignores the social aspect completely. My conclusion is that because of a bad ontology and epistemology, bad conclusions are drawn.

This example is typical for behavioural economics as we know it. In Keizer (2015) many sociological and psychological approaches are discussed. In the end it leads me to give the following advice to behavioural economists:

Define the concepts economic, social, psychic, rational, moral and logical carefully. Notice that orthodox economics is based on the ontology of economic, rational, non-social man, living in a world inhabited by many other economic men. Orthodox sociology is based on the ontology of social, rational man, living in a world inhabited by many other social men. They are all member of a series of groups, and every group is united by a common culture. Orthodox psychology, in contrast, is about psychic, irrational and non-social man living in a world inhabited by many other psychic men.

When we construct a heterodox research programme on human behaviour, we should first integrate the three men: economic, social and psychic man. Then we place this integrated man in a typical heterodox context. This world is not mechanic, but organic; not closed but open; not static/dynamic, but historical/evolutionary. Some analyses will start with a very small unit of behaviour: individualism. Others will begin with a whole of units: holism. Orthodoxy tends to start with a very simple picture of man and his world. Heterodoxy tends to start with a simple picture of the whole of man and his world. Both tend to make the explanation -step-by-step – more complex.

We plea for a pluralist view on paradigms. It means that also the content of the paradigm should be part of the evolution from simple to complex. Keizer (2015) offers an integrated man, operating in a simple world, inhabited by many other integrated men. This development is just in its beginning, but show promising thought experiments. In the next section we will discuss why there is barely any progress in the change in ‘man’’, while an increasing number of scientists are open to more heterodox environments.

  • Modernization of knowledge

When describing human history we can use the distinction between pre-modern, modern and postmodern. In the Western world the modern period began in Italy during the 14th century. Scientists began to refute religion as a reliable source of knowledge – not the church but the university! In premodern times, however, behaviour was heavily influenced by the religious tradition. Some plants and animals were declared sacred, priests were dictating many rituals, and simple production methods, such as hunting animals and gathering edible plants offered people the resources needed for their survival. Regularly gods were beseeched by offering valuable goods, sometimes even children. Modernity means: people cannot become rich by praying, but by working hard and search for productive innovations. ‘We have to do it ourselves’. So, the world view changed gradually. Science changed: less introspection and more empirical research, less philosophy and more materialism. We see these trends in economics: from a dominant orthodox economics, based on economic man to econometrics, which is barely based on a theoretical foundation. No introspection anymore; just the research for empirical laws. We see these trends also in psychology. About hundred years ago psychic analysis flourished. Nowadays behaviourism and cognitive science rule the discipline. Psychology books, used by educational scientists, are about cognition; there is no place for emotion[3].

It is this modern view that channels scientists’ thoughts. Texts can be logical or illogical. But emotions are uncontrollable, and make the world unreliable. By following modern education, and develop technologies, which control our processes, the world would become a better place.

Large sums of money are spent on neuroscientific research. Behaviour is linked to brain processes. Pills must restore malfunctioning of the brain. Psychiatry is meant to treat serious mental diseases, and psycho-therapists are dealing with fashionable complaints of modern people. In earlier times religion and the wisdom of the ordinary people was sufficient. Nowadays there is ample room for evolutionary processes: those cannot breathe in a modern world have a  disadvantage in comparison with the typical modern man.

Orthodox psychology, as formulated in Keizer (2015) is an essential part of a heterodox analysis of integrated man. In this approach the mind is considered as an aspect-system. The other aspect of a personal system is the body. During thousands of years there is an ongoing debate about the mind-body problem. Famous scientists, who contributed to that discourse are Aristotle, Descartes, Locke, Hume, Russells, Eddington, Chalmers, Tononi and many more (see Dainton, 2014). Descartes has become known as a dualist (mental and physical world are separated)[4].  Hume, Russells and Damasio are well-known monists. At the moment monism rules the scene. Neuroscience offers the leading programme: “we are our brain”, which is a clear ontological choice. The mind does not exist; we are just conscious of the material world around us. In scientific models we can reduce our explanations to the body: physical problems have physical causes. When we feel pain it is a signal that there is something physically wrong. Psycho-therapy is meant to focus the attention of people on the material problems, and suggest that food, sleep, sports, and education is the best medicine. Previous solutions, such as bible reading and praying, or ‘deep analysis, while laying down on a sofa’ are wastes of time.

  1. Postmodern knowledge    

Postmodern critique to modernity: “there is no such thing as a Grand Narrative, there are just many subjective knowledges”. The modern idea of an objective system of empirical knowledge, making the world to a predictable and controllable whole, is flawed. It is a construction of human subjects about interpreted ‘objects’. There is no ‘end of history’. History is an ongoing conflict between persons and groups, and they will never reach a consensus about what is true, at the most compromises between some groups.

We cannot cancel the inner world of persons from our views and models. That world is the core of human science, and different paradigms can be constructed to model that core. Introspection and inner communication (self-reflection) are the epistemological tools. An ongoing discourse between persons, who trust each other, can lead to a common view on psychic problems. Small groups can offer help to their members in the formulation of personal strategies. Where-ever they live and work, they can profit from their self-knowledge, and self-respect: they have become open-minded and empathetic. In other words, they function as beacons in rough times.

When the analysis is restricted to the material world, we cannot talk about richness and fairness. Some people do never become wealthy enough – they do not see themselves as rich. The same with social recognition – it’s an idea and a feeling;  as long as there are other people higher in the ranking, some people are unhappy about that. If they reach the top, they are afraid of loosing that position. In other words, Needs and their satisfaction – core economic and social concepts – are mental issues. It makes mental analysis to a necessary complement of the physiological analysis.

  1. A pluralist approach

Knowledge appears a subjective human construction. It holds for all sciences, but for human sciences in particular. All subjects can construct their own narrative, persons as well organisations. The mind, the economy and society are the locations, where people meet themselves, other people, and their natural environment. Analyses and theories can be developed about human behaviour. That we built  a Babel Tower was a mistake. The reason why that project failed, is the same as why the current modern dream will fail. China might be the most modern-progressive example. Humanity in the form of systems of production for all who obey the Communist Party. Humans as more or less productive machines. They are not allowed to express their own views and preferences. Protests are not interpreted as a signal that things go wrong. Lower-ranked people are not allowed to criticise practises. The country is on his way to the ‘Big Brother is watching you’ situation.

The opposite of the modern idea of control is the pluralist idea of democracy. It means that every person counts; every person is free and responsible for ‘the situation’ within reasonable constraints. During the last few centuries much literature has been published about the meaning of the concepts just mentioned: democracy, freedom, responsibility, reason, meaning, concept. Citizens must be equipped with knowledge, and skills to bear responsibility. The modern trend of excluding the mind from the framework of research is very much in contradiction with the democratic values, as professed with the mouth. Universities must begin with a Great Transformation of the knowledge structure they offer. All disciplines must be based on duality with respect to the relationship between the material and the immaterial aspect. Both monism and dualism are out-of-date. The close interaction between the two aspects of our reality must be recognized in the paradigms.

In the second place, systems analysis as a discipline offers the distinction between aspect-system and subsystem as the most basic distinction. In modern research the aspect-system has disappeared. To be short, every system can be characterised by a series of aspect-systems, and by a series of subsystems. By ignoring the difference between these two types of systems, serious mistakes make scientific work useless. A whole system has several aspect-systems, of which the elements are the same as in the whole system, but the relationships are just one aspect of the relationship in the whole system. Take the whole system ‘economy’, and derive from it the economic aspect-system. Then we have abstracted from the other two primary aspects of the relationships in the economy, that are the social and the psychic aspect-system. Orthodox economics is the economic aspect-system of the economy as the whole system. Typical social variables, such as rivalry and solidarity, do not play a role; its focus is on cooperation and competition. The psychological variables, such as mentality and the degree of rationality, are abstracted. There is just one mentality, that is the maximisation of utility by consuming goods. From a social aspect we can interpret the consumption of goods as an attempt to show one’s social status.

When reading textbooks physics we see that the concept of materiality is relatively narrow. Physical laws are about the material aspect, while abstracting from their context. Some physicists broaden their definition of materiality (= physical world) by accepting (electrical) charge and magnetic field as physical. But if a magnetic field is material, why not positive and negative social relationships and – inside the mind – the ongoing inner communication between the various elements? Sexual behaviour ia generally accepted as ‘materialistic’, but attractiveness is subjective and immaterial. What is the cause and what is the consequence: behaviour leads to feelings of attractiveness, or the other way around?

In the third place, many subsystems, such as business administration, public administration, political science and anthropology, are interpreted as applied sciences. But what do they apply? What is their theoretical foundation? Did they formulate a paradigm, derived from it an analysis? A year ago the Nobel Prize for Economics was given to two authors, who had published widely in the field of poverty economics. But all their experiments were done without any theoretical foundation, and their conclusion with respect to education was not based on any source – only the result of some conversations with people in the field (Banerjee, Duflo, 2011).  

Partial analysis holds true under the ceteris paribus clause, and cannot be used as a foundation for empirical research. As long as we do not have a complex and integrated analysis, we must develop many different partial analyses, and compare the different results from the various perspectives. At the moment the organisation of science looks like a conservative-corporatist structure. In every discipline there is a small group, which establishes the rules of the game. Those who accept the rules, compete with each other for the prestigious positions. Mainstream economics is ruled by the idea of empirical research. Its quality is determined by the quality of the quantitative methods used. Fundamental critique is very unwelcome. Critics are treated like whistle-blowers, who bring messages with inconvenient truths. If the whistle-blowers persevere, they are exorcised like scape-goates, who are sent to the desert, where they will soon die.  

The Great Transformation begins with a radical change in the way research budgets are distributed, and the way full-professorships are formulated. Diversity must be the rule. Fundamental critique must be promoted. Meanwhile educational programmes must be multi-disciplinary rather than a set of zero-disciplinary empirical studies. PhD-students should not be attracted by full professors with their projects. Good students develop their own projects and apply to the professor of their choice. Scientific staff: who has the courage to start this innovative approach?

  1. Conclusions

 Behavioural economics started as a combination of behavioural/cognitive psychology and empirically orientated economics. Both were weak in theory and strong in the empirical stage. Later, neuroscience began to play a role. But also this discipline is weak in theory: there is no mind, no social and no economic context. As we have seen orthodox economics is not meant to offer a theoretical foundation for empirical research. It is about an aspect- rather than a subsystem. It is just about economic man. It means that behavioural economics needs a realistic man as theoretical foundation. Keizer (2015) offers an extensive discussion of a series of psychological perspectives. It is the function of psychology in the whole of human sciences, to deliver a logic of the psyche. The same holds for sociology. After a thorough discussion of many sociological approaches the conclusion is: we need a social logic. Keizer constructs a psychic aspect-system, where a person is maximising his self-respect, under the constraint of will-power. The social aspect-system is about social man. He is maximising his status, derived from his group memberships, under the constraint of morality. If we integrate the three types of man, and we construct an environment on the basis of the integrated aspects, we get an integrated orthodox world. It is determined, and allocation and distribution are ruled by a couple of mechanisms. The world, based on a constant motivation of economic, social and psychic nature, is focussed on wealth, status and self-respect. This orthodox world must – step-by-step – be transformed into an open and undetermined organism, based on a statement about the relevant macro-situation. It might be a balanced situation or characterised by economic depression, severe ethnic and religious conflicts, and many psychically depressed people. Heterodoxy is characterised by a historical and institutional view rather than a static/dynamic approach. The micro-situations are strongly affected by the macro-situation. The motivation structure shows three primary motivations, and a series of derived motivations. Keizer (2015) gives a series of examples; a source of inspiration was the work by the economist Parsons (1937, 1951, 1978).

The last few decades we see some flexibility in the paradigm concerning the ontology of the situation. Both orthodox- as well as heterodox-orientated scientists accept increasingly the evolutionary idea of historically developed institutions. Physics shows these influences a hundred years already. So with sociology. But mainstream economics increasingly accepts these influences for about three decades. Evolutionary psychology is the latest loot to the evolutionary tree. Remarkable fact is the absence of a man – like economic man or social man. If orthodoxy creates an integrated man, how come that the heterodox development in terms of evolution does not have an essential characterization of it?

Here we see the influence of modernity in human science. During about seven centuries there is an ongoing debate about several duals. This article discusses many of them shortly. Section 5 mentioned materiality versus ideality, induction versus deduction, empirical observation versus introspection (internal observation), closed versus open systems, sub-systems versus aspect-systems, static/dynamic versus historical/institutional evolutionary analysis, micro- versus macro-approaches, and quantity versus quality. Many centuries of rivalry, and domination of one or the other side. Knowledge construction as a battlefield, with money and status as the rewards. The modern position is characterised by materiality, induction, empirical observation, closed systems, micro-orientation, and a focus on quantity. This can be clarified by memorizing the origin of modern science. The early modernist were rioting against clerical authorities in Western-Europe. Galileo, Newton, Hobbes, Descartes, Locke, Hume and Kant were examples to be followed. Many of the persons just mentioned were Christian believers, but presumed a type of deity. God has created a harmonious, natural whole of systems. When he was ready, he went on doing other things. Its our task to discover the mechanisms, that keep the world turning.

The conclusion is that we don’t need any religion or ideality, or soul and mind. We are aware of the physical world and we can apply the findings of the natural scientists. Some philosophers are still thinking about thinking, but true science does not wait for their results. Churches still talk about the hereafter, but that’s not science, but speculation. The founding father of sociology is Comte, who wanted to stick social science to empirical research. That would improve government policy advice. Institutional economists began to criticize mainstream Classical Political Economy, and later neoclassical economics, both more or less based on economic man. Institutionalists were discriminated, and their literature was forbidden at many universities until about the 1990’s. Nowadays discrimination primarily takes place via the dominating textbooks from Anglo-Saxon origin. As already said, about two decades ago evolutionary psychology began to play a role.

Evolution analysis has played the role of the devil, by criticizing the biblical ideas about the creation of our reality. This might have led to a minor role for the construction of man, as the theoretical foundation of evolutionary theory. Human nature is malleable, and depends on the situation. Humans always adapt to their circumstances. If not, they do not survive. An important question is about the exact content of the concept ‘circumstances’. Is it the productivity of land? Is it the productivity of our production techniques? Over time we see an expansion of the content. It is also about the productivity of the body, including the brain. To stop wondering about the meaning of ‘I’, or ‘Self’ neuro-scientifically orientated people say: ‘we are our brain’ rather than we have a brain. Mentality is something endogenous. By training to get the body in good shape, we learn that perseverance kills the game. Old school solutions, as praying, are a waste of time. Nowadays modern science has killed God, and our origin was just a spontaneous physical reaction, creating much noise: Big Bang.

After so many centuries of modern thought we can conclude that modernity did not solve the most serious human problem , namely rivalry. Goals are set by people themselves. And technology offers the means necessary to achieve the goals. But the ongoing rivalry (not competition) is a major source of destruction. Social rivalry leads to discrimination and the exorcise of members of different groups and of strangers. Psychic rivalry is about the permanent inner imbalance: the true self and the actual self are not accepting each other. Short-term satisfaction is a main barrier to lasting satisfaction. The most important instrument in the hands of the actual self is the denial of inconvenient truths – like ostriches are doing. The interaction between these two rivalries are the principal barrier to the fulfilment of the modern dream.

Human science should develop an analysis, that can serve as a point of reference for political purposes. The free person, who recognises his responsibilities must be placed at the centre, being the hard core of a scientific programme. It suggests that the dream of sustainable peace, justice and prosperity can only be fulfilled if technology is also applied to the production of scarce rationality and scarce morality. The ‘production’ of meaning is centre-stage. Democratic religion could offer an alternative to old schools religions, which are so often instruments in the hands of the powerful to manipulate the poor. 

 Literature

Ariely, D. (2009), Predictably Irrational, Second Edition, New York: Harper, Collins Publishers.

Ariely, D. (2012), The (Honest) Truth about Dishonesty, New York: Harper Collins Publishers.

Banerjee, A.V., Duflo E. (2011), Poor Economics, A radical rethinking of the way to fight global poverty, Public Affairs.

Dainton, B. (2014), Self, London: Penguin Group.

Damasio, A. (1994), Descartes’ Error, London: Penguin Books.

Gagné, R. A. et al. (1993), The Cognitive Psychology of School Learning, Second Edition, New York: Harper Collins College Publishers.

Girard, R. (1978), Things Hidden Since the Formation of the World, Stanford: Stanford University Press.

James, W. (1890), The Principles of Psychology, New York: Dover (reprinted in 1950).

Keizer, P., Multidisciplinary Economics, A Methodological Account, Oxford: Oxford University Press.

Lakatos, I. (1970), Falsification and the Methodology of Scientific Research Programmes. In: I. Lakatos, R.A. Musgrave (eds.), Criticism and the Growth of Knowledge, Cambridge: Cambridge University Press.

Lindenberg, S. (2015), Sociology of Groups, in: James D. Wright (editor-in-chief, International Encyclopedia of the Social & Behavioral Sciences, 2nd edition, Vol.10, Oxford: Elsevier. Pp. 434-440.

Lindenberg, S. (2015), From Individual Rationality to socially embedded self-regulation. In: Emerging Trends in the Social and Behavioral Sciences, Robert Scott and Stephen Kosslyn (eds.). Hoboken, NJ: John Wiley & Sons.

Lindenberg, S. (2015), Social rationality and weak solidarity: A coevolutionary approach to social order. In: Order on the Edge of Chaos: Social Psychology and the Problem of Order. Edward J. Lawler, Shane R. Thye, and Jeongkoo Yoon (eds.) (pp. 43-62). Cambridge: Cambridge University Press. 

Parsons, T. (1937), The Structure of Social Action, New York, McGraw-Hill.

Parsons, T (1951), The Social system, New York: The Free Press.

Parsons, T. (1978), Action Theory and the Human Condition, New York: Free Press.

Simon, H. (1957), Theories of Decision-Making in Economics and Behavioural Science, American Economic Review, 49, 252-283.


[1] The distinction between closed and open systems is not identical with the distinction between a closed and an open economy.

[2] Physical philosophy shows that most physics textbooks are orthodox physics in the same way as neoclassical textbooks are orthodox (Dainton, 2014). In Keizer (2015) we find an extensive treatment of orthodox sociology and psychology. While orthodox-based neoclassical economics dominates the economics  scene, is orthodox sociology just one of the approaches, and orthodox psychology barely exists. Organic, historical/institutional and open system

[3] The Maastricht University is famous because of its innovative educational system. The textbook about learning processes, that was used over a very long period, was orthodox-cognitive. There were no emotions involved in the learning process. Very unrealistic, very much a ceteris paribus analysis, wile suggesting that real-life was the study object. See Gagné, R. et al. (1993).

[4] Close reading of texts by Descartes shows that he was not a dualist at all. He emphasised that mind and body are two different aspect-systems, not two different subsystems. They are not empirically separated as Damasio (1993) is suggesting; only analytically distinguished. He recognized the permanent interaction between the two systems. This is called duality, not dualism.

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Blijven de inkomens achter of niet?

In de NRC van 16 april jl. interviewt redacteur Milo van Bokkum een aantal economen over de vraag of de inkomens (van werknemers?) achterblijven bij de economische groei. Verschillende analyses blijken significante verschillen op te leveren. Aan het eind van het artikel wordt gesuggereerd dat het zin heeft om met elkaar te praten, om tot een consensus te komen – een gezamenlijke keuze voor een bepaalde definitie en berekening van de verschillende inkomensaandelen. Mijns inziens is dit ongewenst.

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Mentaliteitsverandering: hoe doe je dat?

Pieter Omtzigt Op dit moment is Pieter Omtzigt de meest populaire Nederlander. Hij werkt hard, heeft een uitstekende dossierkennis, en houdt vol, ook als de gevestigde macht hem op vele manieren dwars zit. Hij brengt offers om dienstbaar te zijn aan de burgers. Dat geeft hem meer voldoening dan burgers willens en wetens in de kou laten staan.

Zijn onlangs uitgebrachte boek “Naar een nieuw sociaal contract” biedt een veelheid van schandalen, waarin ambtenaren en politici ernstig disfunctioneren. Omtzigt neemt de principes van de rechtsstaat als meetlat: personen zijn gelijkwaardig aan elkaar, en de bekende trias politica tracht diverse machtsbolwerken in balans te houden.

De laatste weken hebben de media hiermee volgestaan, met de kinderopvangtoeslag als dieptepunt. Maar de aanbevelingen van Omtzigt zijn daarbij weinig of niet aan bod gekomen. De meeste van zijn voorstellen zijn structureel van aard. De wetten moeten door rechters ook getoetst worden aan de grondwet, de regionale invloed van kiezers moet worden verbeterd, en de rol van de kwantitatieve modellen van het CPB moet worden verkleind. Om structurele maatregelen effectief te laten zijn, dient er ook een mentaliteitsverandering plaats te vinden. Hij noemt echter geen maatregelen die dit kunnen bewerkstelligen. De slogan ‘mensen moeten zich aan de wet houden’ is te simpel. Deze weg hebben we al zo lang bewandeld. Iedereen weet dit, maar toch vindt er erosie van onze rechtsstatelijke instituties plaats. We hebben een expliciete analyse van het fenomeen ‘mentaliteit’ nodig. Alleen dan kunnen we een mentaliteitsbeleid voeren.

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UNABOMBER ECONOMICS

UNABOMBER ECONOMICS, A CRITICAL COMMENT

Author: Piet Keizer

Preface

The UNABOMBER is the man, who send 16 mailbombs to people, who worked for a university or an airline company in the period 1978-1995. The FBI set up the largest search operation in her history. At 24 April 1995 the man – Ted Kaczynski – send a Manifesto to the New York Times, and asked for publication. In exchange for it he promised to stop sending mailbombs. Title: The Modern Industrial Society and its Future. The New York Times and the Washington Post decided to publish it. His brother David recognized the text of the manifesto, and went to the FBI. At 3 April 1996 he was arrested when he was at home in his cabin in the woods of Lincoln, Montana. Although his publication is available on internet and can be printed for free, there is not much debate about the content. In this essay I take his text seriously – it appears a very important topic, now more than ever.

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MODERN ECONOMICS, SOLUTION OR PROBLEM

Modern Economics, solution or problem

Introduction

Poverty and inequality are large and growing. Geopolitical threats abound. The environmental problems seem uncontrollable. It looks like we live on a volcano, which sounds to become active. It might take another series of decades before a great collision. But we are obliged to the generations to come, to tackle our problems on a more fundamental way, not just by symptom relief.

For economists it means that they must carefully formulate the foundations of their economic science, and see what might be improved. When studying the history of economic thought, we see that the principal debates always ended in winners and losers, as if science is a battle, not ongoing conversation. In this essay, I will show that economics today is the result of a process of reduction, thereby making models or frames, in which important aspects are ignored. This appears typical for a so-called modern approach. Focus on the material and empirical, and abstract from the metaphysical aspect. ‘Social’ means the aggregate of individuals, ideality is just about fantasies, a human is his body, cognition is separated from esoteric emotions, and the mind can be reduced to the brain. In this way humans are reduced to machines.

About a few decades many tasks are fulfilled by robots, which are taking the decisions. That’s the way we try to get rid of our fallible subjectivity. The big problem is that the inseparable is separated, and the inspiration does not play a role in our life and in our solutions to the problems.

First I’ll present some cultural history, showing the reductionist trend. Then I’ll discuss the reduction in economics, and in human science in general. In the end I draw some conclusions in terms of what to do.

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Goudzwaard en het Bijbelse Paradigma

Goudzwaard en het Bijbelse Paradigma

  • Inleiding

De bijbel is één van de meest verkochte geschiedenisboeken ter wereld. Het zou raar zijn als daar voor economen niets bijzonders in staat. Goudzwaard heeft het talent om praktische maatschappelijke problemen vanuit een bijbels paradigma te belichten, en de resultaten ervan te vergelijken met die van het moderne paradigma. Het levert een fraai beeld op, die meer aandacht verdient dan het tot nu toe krijgt.

We zullen eerst weergeven hoe Goudzwaard een reeks van maatschappelijke problemen bespreekt, en laat zien hoezeer ze samenhangen. Vervolgens bespreken we zijn interpretatie van het moderne paradigma. Hij laat zien hoe de gelovigen in de moderniteit de oplossingen zoeken voor de tegenwoordige vraagstukken. Daarna gaan we in op zijn kritiek op moderniteit vanuit bijbels perspectief. Hierdoor krijgen de maatschappelijke vragen een andere duiding, hetgeen leidt tot een andere politiek ter reductie van die problemen.

Praktische oplossingen, die we in de bijbel vinden, zijn plaats- en tijdgebonden. Maar we kunnen nieuwe oplossingen bedenken voor de problemen van vandaag op basis van het bijbelse paradigma: altijd hoop houden dat de liefde overwint.

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Bible versus capitalism

Bible versus Capitalism

  • Introduction

Even Christian theologians discuss matters of economy and society. They use the bible as a source of wisdom. The first Testament is about the origins of our reality, and about the history of the Jews. The second Testament is about the redemption offered by Jesus, in the name of God. In a earlier article I discussed the contributions by the theological economist Goudzwaard (Keizer, 2020). He observes that Western societies suffer from modernity – ni Dieu, ni Maitre. Humans are rational and able to get their situation increasingly under control. In contrast to the typical modern approach, Goudzwaard uses the Biblical wisdom to interpret global economic, social and political developments.

Another theological economist is Duchrow. He uses a different framework to interpret biblical texts, and reach different conclusions (Duchrow, 1998). Goudzwaard encourages people to make justice, peace and love to their absolute goals. Duchrow agrees with that, but also notices that global capitalism is a totalitarian system, that must be transformed by political action. In section 2 and 3 we discuss Duchrow’s analysis of global capitalism and the biblical alternative. Then we will criticize it from Goudzwaard’s perspective. Next to that, I will offer my ideas about the topic. We end up with some conclusions.

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Keynes’s filosofie zijn lessen in praktische economie

Inleiding

Onze recente geschiedenis kent twee grote depressies: de dertiger jaren van de 20ste eeuw, en de jaren tien van de 21ste eeuw. Beiden werden bestreden met behulp van klassiek-economische politiek; beide keren werkte deze politiek pro-cyclisch. Klassieke economen beschouwen een vrije-markteconomie als een stabiel systeem. Als de overheid zich nu beperkt tot het garanderen van eigendomsrechten, dan zal het systeem door middel van het prijsmechanisme altijd een tendens naar evenwicht vertonen. Als dit aanpassingsmechanisme veel tijd vraagt, moeten de burgers de discipline opbrengen om niet om overheidsingrijpen te roepen. Gaat het langdurig fout, dan kan dit alleen het gevolg zijn van een teveel aan overheidsingrijpen. In 1929 en 2008 was dit het geval, en moest de rol van de overheid kleiner worden.

Keynes had in 1929 al heel wat theoretisch en praktisch werk achter de rug. Hij was van mening dat in tijden van depressie prijsflexibiliteit het probleem verergeren. Een vrije-markteconomie, eenmaal in depressie, is niet in staat om algemeen evenwicht te bereiken. Continue reading

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Hervormingen in coronatijd

Hervormingen in coronatijd

De EU-economie bevindt zich in een crisis als gevolg van het corona-virus. Sommige landen zijn meer getroffen dan andere. Griekenland is nauwelijks, en Italië en Spanje zijn erg geraakt. Sommige economieën stonden er goed voor aan het begin van de corona-crisis, andere daarentegen stonden zwakker. Brussel heeft nu drie opties: (1) ieder land voor zich. Dat is een gevaarlijke weg. Landen als Rusland en China staan klaar om in het gat te springen. Daar is Europa niet mee gebaat. (2) de EU is solidair en financiert alle landen naar de mate waarin ze getroffen zijn met behulp van giften. Ook dit is gevaarlijk. Het maakt de interne verdeeldheid groter. (3) De EU verstrekt landen in nood voorwaardelijke leningen. Dat lijkt de gulden middenweg – maar de hamvraag is natuurlijk: welke voorwaarden? In het politieke gesprek duikt nu het woord ‘hervormingen’ op. In het afgelopen decennium heeft dit begrip een specifieke betekenis

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The Practical Significance of Keynes’s Philosophy

The Practical Significance of Keynes’s Philosophy

Introduction

During the 2010’s economics as a science has been heavily criticised. Eighty years ago the same happened. The First Great Depression of the 1930’s was a shock for the establishment of the academic profession. Hayek – a famous Austrian free market defender was embarrassed. His antagonist Keynes, however, was not surprised at all. In 2008 exactly the same happened: the academic establishment was shocked by the Second Great Depression of the 2010’s. The textbooks showed that mainstream economics had invented a strategy to stabilise the free-market economy by means of a sound monetary policy, executed by an independent central bank – and it did not work that way!

Many countries, such as the USA and the BRIC-countries reacted pragmatically or even opportunistically: ‘government intervention should prevent a total collapse; later we will see how we pay back government debts’. The eurozone, however, opted for a pro-cyclical policy: severe cuts in government expenditures and a liberalisation of the labour market. A wage decline was the result, aggravating the depression. Even today not any of the leaders of the eurozone admits that this strategy was counterproductive.

This article shows that the philosophy of a particular scientific programme has a decisive effect on the outcomes and on the effectiveness of policies that are derived from it. Knowledge of the paradigm, analysis and theory of the various and different programmes within economics is a necessity for developing a well-deliberated policy. Given the classical dominance in Northern eurozone, universities need to introduce competition between the different schools of economic thought. In the next section we discuss the main topics in the philosophy of science, namely ontology, epistemology and methodology. Then we apply it to Keynes’s economics, and compare it with the philosophy of the classical approach. It is obvious that the policy debates of the last ten years would have profited, if the economic and political participants had studied economics in a multidisciplinary way.

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