Philosophy of Economics: A Contemporary Introduction is the first systematic textbook in the philosophy of economics. It introduces the epistemological, metaphysical and ethical problems that arise in economics, and presents detailed discussions of the solutions that have been offered.
Throughout, philosophical issues are illustrated by and analysed in the context of concrete cases drawn from contemporary economics, the history of economic ideas, and actual economic events. This demonstrates the relevance of philosophy of economics both for the science of economics and for the economy.
This text will provide an excellent introduction to the philosophy of economics for students and interested general readers alike.
Table of Contents
Chapter 1. The Why, What, and How of Philosophy of Economics Part 1: Interpreting Economic Theory Chapter 2: Explaining Economic Phenomena Part 1-A: Rationality Chapter 3: Rational Choice Theory Chapter 4: Game Theory Part 1-B: Causality Chapter 5: Causation and Causal Tendencies Chapter 6: Mechanisms Part 1-C: Models Chapter 7: Models, Idealisation, Explanation Part 2: Methodology Chapter 8: Measurement Chapter 9: Econometrics Chapter 10: Experiments Chapter 11: Evidence-Based Policy Part 3: Ethics Chapter 12: Welfare and Well-Being Chapter 13: Markets and Morals Chapter 14: Inequality and Distributive Justice Chapter 15: Behavioral Economics and Nudge Bibliography
Julian Reiss is Professor of Philosophy at Durham University. He has a degree in economics and finance from the University of St Gallen and a PhD in philosophy from the London School of Economics. His main research interests are methodologies of the sciences, philosophy of economics, and science and values. He is the author of Error in Economics: Towards a More Evidence-Based Methodology (2008), Philosophy of Economics: A Contemporary Introduction (2013), and some 40 papers in leading philosophy and social science journals and edited collections.
'Economists can no longer avoid the agenda of problems in the philosophy of economics, if they ever could. Equally, political and moral philosophers ignore economics at their own intellectual peril. Julian Reiss takes us on an insider’s tour of the most important issues in this domain, teaching economists and philosophers what they need to know about how each of their disciplines have an impact on the other. For completeness, currency and clarity, Philosophy of Economics: A Contemporary Introduction cannot be beat.' – Alex Rosenberg, Duke University, USA
'Julian Reiss’s Philosophy of Economics: A Contemporary Introduction is far and away the best text on the subject. It is comprehensive, well-organized, sensible, and clearly written. It is the first text that I’ve ever been eager to use in teaching the subject. I expect that everyone interested in philosophy of economics, whether with a background in philosophy or with a background in economics, will learn a great deal from Reiss’s masterful treatment.' – Daniel M. Hausman, University of Wisconsin-Madison, USA
'Economic science has changed enormously over the last two decades, seeking fruitful collaborations with scholars working in other disciplines. An important site of exchange lies at the border between philosophy and economics. Julian Reiss’ book provides a wonderful critical survey of the debates that have flourished around the turn of the millennium, and will become a standard reference point for teaching and research in the years to come.' – Francesco Guala, University of Milan, Italy
'An enormous range of topics are included in this book, with a full one third of the book covering ethical, social, and political issues. ...The end result is that Reiss’s book allows for tremendous flexibility in designing different courses. For example, it would be easy to develop courses that involved nearly all philosophy of science issues or ones that were mostly normative issues around economics, with any mix in between. I also think Reiss’s text can work as the sole book for a course or be used along with other articles to expand on the discussion Reiss provides. The book certainly provides much material that can usefully be expanded upon in lectures. There is nothing out there that rivals it for teaching a course on philosophy of economics, and it would be a good tool for certain kinds of courses in political philosophy or philosophy and public policy.' – Harold Kincaid, University of Cape Town, South Africa in Erasmus Journal for Philosophy and Economics
Julian Reiss is Professor of Philosophy at Durham University. He has a degree in economics and finance from the University of St Gallen and a PhD in philosophy from the London School of Economics. His main research interests are methodologies of the sciences, philosophy of economics, and science and values. He is the author of Philosophy of Economics: A Contemporary Introduction published in the “Routledge Contemporary Introductions to Philosophy” series.
Philosophers since Aristotle have asked questions and offered opinions about economics, broadly defined. But during the 20th century economics developed into a field which was, as Julian points out in the beginning of his forthcoming work, “hostile to philosophical reflection.” Economics became a science: economists began to see in “the economy” a space made up of empirically observable facts interpretable by the assumptions, methods, and models familiar to students enrolled in Econ 101 classes. In recent years, though, certain economic realities—the financial crisis, e.g.—have challenged those assumptions, methods, and models. A writer for the Economist described the consequence of recent challenges to the science of economics: “OF ALL the economic bubbles that have been pricked [since 2008], few have burst more spectacularly than the reputation of economics itself.”
Julian’s book introduces readers to the field in which many of those challenges are now being articulated. Questions of ethics, of the nature of human rationality when faced with economic decision-making, of the verifiability of economic models—these questions and more are all now being asked anew about economic practices and decisions. This interview hopes to open those questions to all curious readers. Those seeking more comprehensive—but still widely accessible explanations—can of course turn to, Philosophy of Economics: A Contemporary Introduction.
1. Could you give a brief description of the field of philosophy of economics so that it makes sense to non-philosophers, and identify some of the core issues the field takes on?
The philosophy of economics concerns all the questions every economist ought to think about but normally doesn’t because they are regarded as unimportant or unfashionable by the profession. They are about the – moral, methodological, metaphysical – foundations of economic science. Here is an example. Economics is, as is well known, based on a theory of rational choice. This theory assumes that people have stable and transitive preferences over all available alternatives. An economist qua scientist will take the theory as given and explore its consequences. An economist qua philosopher – a philosopher of economics – will challenge its fundamental assumptions. Does rationality really require the existence of stable, transitive and complete preferences? Do people as a matter of fact have such preferences, and how can we know? If not, might the assumption nevertheless be innocuous and useful for explaining economic behaviour and predicting future events?
In the book I divide the philosophical issues raised by economic science into three broad kinds. The first is concerned with the foundations of economic theory. Issues here concern the nature of rationality, whether people do and ought to act rationally as portrayed by the theory, whether there are any economic laws, what’s the nature of causal relations, of mechanisms and so on. The second is concerned with methodology. Methodologists, unsurprisingly, study the methods employed by scientists in order to address their questions. They ask how these methods work, about their presuppositions and the range of questions they can address. Important methods economists use are the measurement of economic indicators (such as inflation, unemployment and GDP), regression methods, economic experiments and randomised field experiments. The third is concerned with the ethical aspects of economics. Whether economic science can and should address ethical issues is particularly contentious among economists. Philosophers are less reserved and ask, for instance, about the nature of well-being, whether or not a given distribution of economic resources is just, whether there are any moral limits to the market and whether or not the government should make decisions for its citizens if doing so improves their well-being.
2. How did philosophy of economics develop? Are there any key figures or contributions that all readers should be aware of?
There are two ways to answer this question because the philosophy of economics is at the same time an ancient and a very recent discipline. It is ancient in that the world’s greatest economists beginning with Aristotle were also or mainly philosophers, and many of their contributions should be classified as contributions to the philosophy of economics rather than the science of economics. Understood in this broad way, Aristotle, Adam Smith, David Hume, John Stuart Mill, Karl Marx, William Stanley Jevons, John Maynard Keynes, Amartya Sen and many others are all among the key philosophers of economics.
On the other hand, with the increasing specialisation and professionalisation of academic disciplines that occurred in the nineteenth century, economics was separated from philosophy and developed, especially after the Second World War, a mainstream paradigm that was hostile to philosophical reflection. At the same time, philosophers of science were mainly interested in natural science and thus tended to ignore economics and other social sciences. It is only in the last 30 or so years that we can once more experience a mutual interest and exchange, and witness the development of academic institutions that focus on the intersection of economics and philosophy. In that sense, then, the discipline is a novel one. There are now a number of professional philosophers of economics in this narrower sense. I was personally greatly influenced by the work of Nancy Cartwright, Mary Morgan and Daniel Hausman, but there are of course others.
3. Has the recent economic crisis harkened in an important, perhaps transformative, moment for philosophy of economics?
It has indeed. Not so much in challenging fundamental beliefs philosophers of economics hold but in bringing methodological issues to the attention of economists and thereby opening entirely new ways of doing philosophy of economics. We now hear Paul Krugman publicly complain that many economists ‘mistake beauty for truth’, Joseph Stiglitz accuse his colleagues of ‘murdering the American economy’ by using bad idealisations in their models and Daron Acemoglu proclaim that ‘The financial crisis is an embarrassment for economic theory’. Many of the issues they are raising, for instance about the unrealisticness of assumptions in economic models, have been discussed by philosophers of economics for many years. But they have tended to do so for the most part in isolation from economic practice (which has no doubt been partly due to the resistance of economists to engage in philosophical debate). With some luck future work in philosophy of economics will be done in closer collaboration with economists, motivated by practical concerns, and relevant to economists’ day-to-day work.
4. Do you think that the changes you mention in (3) will have a lasting impact on the direction of philosophy of economics?
Yes – if the criticisms of Krugman, Stiglitz, Acemoglu and others are taken seriously by economists, and philosophers of economics stop asking abstract-philosophical questions and turn towards economic practice.
5. In what ways does philosophy of economics puncture holes in common economic assumptions?
One has to distinguish between valid criticism of economic assumptions and their uptake by economists. The arguments philosophers of economics have given to the effect that economists cannot ignore engagement with ethics, that the revealed-preference theory is untenable, that new causal relations cannot be established without making strong causal background assumptions and many others are compelling. And yet, they continue to be ignored by many, if not most, professional economists. Philosophers find this situation lamentable, and understandably so. To some extent we have to blame ourselves. Not only do philosophers tend to address issues at too high a level of abstraction, they also often use specialist jargon that is difficult to understand outside the profession. We have to learn to communicate better, to focus on issues that are practically relevant, and, if possible, to work on these issues jointly with economists. Unless that happens, there might be numerous philosophical holes in theory, but they might not affect the way economics is practiced.
6. What can philosophy learn from economics?
A number of things. Let me focus on two areas here, one where economics has already had a great influence on the way philosophy is practised, and another where there is still room for improvement. The use of models, especially mathematical models, has proven extremely fruitful in economics. Models create parallel worlds within which claims can be established rigorously. Having to build a model and to derive claims within its confines demands of the modeller to be exact in certain ways, to make implicit background assumptions explicit, to use the same concepts from the beginning to the end of a derivation and so on. While certainly not unexceptionable, these are virtues in many contexts. Formal tools such as mathematical modelling, the proof of representation theorems etc. have become more popular in recent philosophy, and economics has often been an especially important source of inspiration. John Broome’s books can be regarded as paradigmatic of this kind of work. I do not think that this is the only good way to do philosophy, but it unquestionably has a lot to speak for it.
The other area concerns aims. Economics is, no doubt, in part a policy science. That is, economists confidently use their tools to make policy recommendations on a broad range of subjects. And, for better or worse, their voices are heard. Philosophers of science generally, and philosophers of economics are no exception, tend to take a more Aristotelian, contemplative stance towards science and society. But they shouldn’t. Philosophical issues of economics are of great practical importance. This is most salient in the area of ethical aspects of economics but true throughout. Methodological issues are often interwoven with ethical ones. As philosophers of economics we shouldn’t leave the political field to economists (and philosophers specialising in other areas such as ethicists) but ourselves take a stance and think harder about the applied areas of economics.
7. Does economics require prior formal education in philosophy? If so, how does this affect the discipline’s position in the academy? Along these lines, perhaps, does the philosopher of economics have a double-pedagogical role: to explain adequately the philosophical issue and explain the economic issue under discussion?
I don’t think economics necessarily requires prior education in philosophy, but some philosophy (along with other humanities such as history) should be part of the economics curriculum. There’s a deplorable tendency of economics departments to shut down courses in the history and methodology of economics, and with them departmental research groups. This would be a bad idea even if economics was a body of incontrovertible truths. But it isn’t. Foundational assumptions in economics can and ought to be challenged constantly. As social practices evolve, as societal goals and values change, and they constantly do, traditional assumptions become outdated and need to be revised. Philosophy and history are necessary to understand these developments, and they can help economists to become more reflective and better grounded scientists.
8. Does philosophy of economics address problems that would warrant interest from students and scholars outside of philosophy?
At least some of the problems philosophy of economics are of very broad interest. Think of the moral limits of the market. Should there be markets in kidneys or blood? Do tuition fees affect the way university education is conceived by students? Is paying money to skip the queue morally problematic? These are issues that affect almost anyone. Or consider paternalism. Should the government intervene so people eat more healthily? Is eating healthily really good for us? What if it is good for some but not for others? (As an aside, the book talks about foie gras in various places.) Philosophy of economics isn’t a purely academic discipline.
9. How do economists and philosophers view the field of economicsdifferently?Has there been much recent dialogue between philosophers and economists? If so, what was the goal or the result?
When I teach philosophy to economics students I often notice an unease they have with the way philosophers regard almost any ‘truth’ as tentative, subject to future revision, local, and relative to a context at hand. I’d go on and on, say, about how great a philosopher David Hume was and how important his insights about causation, only to show, at the end of the lecture, how he got it (almost) all wrong. They find that frustrating. This way of thinking should not, however, be altogether unfamiliar to economics students because models, which as I noted above are all over the place in economics, are tentative, erroneous, local, purpose-driven constructs. This is not, however, how models seem to be taught in economics departments.
This, then, is one important difference, and there are many more. These differences often make communication across the disciplines and therefore dialogue difficult. I was recently made fun of at an economics conference for using the word ‘ontology’ and for making a point about causality by quoting Mill. The economist in question said that he didn’t understand ‘ontology’ and Mill was better on liberty than on causality. This was perhaps an extreme case, but it shows that economists and philosophers of economics have some way to go to establish fruitful dialogue.
On the other hand, there are many reasons to be optimistic. More and more philosophers of economics have dual backgrounds these days, PhD theses are jointly supervised and we see some collaboration on research projects. It is just a matter of time that economics and philosophy of economics draw more closely together.
10. How does philosophy of economics affect assumptions and research in other fields like moral philosophy and moral psychology?
I wouldn’t say that philosophy of economics affects these other fields but rather that parts of moral philosophy and moral psychology constitute branches of philosophy of economics or at least that the boundaries between the fields are very fluid. Take well-being as an example. Well-being is clearly a core concern of moral philosophy. But it is also important to welfare economics. So shall we say research on well-being is moral philosophy when done by a moral philosopher (such as James Griffin or Roger Crisp), economics when done by an economist (such as Partha Dasgupta or Angus Deaton) and philosophy of economics when done by a philosopher of economics (such as Dan Hausman or Michael McPherson)? That doesn’t make sense. A researcher interested in well-being will build on results in all three fields, and his or her work will be relevant to all three.
11. You write in the Introduction to Philosophy of Economics: A Contemporary Introduction that “Philosophers of economics are philosophers whose work focuses on the theoretical, methodological and ethical foundations of economics.” Does philosophy of economics itself operate according to a standardized theoretical/methodological/ethical foundation or does that depend on the particular philosopher? Are there philosophical approaches to economics-related issues (i.e., John Searle’s work on social ontology) which are not considered philosophy of economics proper because they do not adhere to such a standardized foundation, if it does in fact exist?
Philosophy of economics in the narrow sense is a young discipline, so little if anything is standardised. Philosophers of science often distinguish the epistemic and metaphysical aspects of science, i.e., the ‘How can we know?’ and the ‘What is there?’. This division leaves out ethics, which is important to all science and to economic science in particular. Moreover, economics is based on a theory of rational action, so one has to include rationality as well. In the book I aim to be comprehensive but nevertheless to provide an overall structure and narrative. The division theory-methodology-ethics is the result. What I call foundations of economic theory includes issues concerning rational action but also traditional metaphysical issues such as laws and causality. Social ontology à la Searle could have been included here, but it is largely irrelevant to practising economists, so I left it out. What I call the methodological foundations includes the traditional epistemic issues of philosophy of science but I address them at the more concrete level of particular methods economists actually use. The same goes for the ethical foundations. Many of them have their counterparts in traditional moral philosophy, but in the book they are addressed in the concrete context of welfare economics.
12. How are the more “pop cultural” philosophy of economics texts—the work of Malcolm Gladwell, for example—received by philosophers of economics?
There is clearly an interest in this kind of literature among philosophers of economics. I remember very early in my career I attended a conference, organised by philosopher-economist Kevin Hoover, where Sylvia Nasar, author of A Beautiful Mind (a popular book about the life of John Nash) gave a keynote. My former colleague at the Erasmus Institute of Philosophy of Economics, Jack Vromen, organised a great conference on the ‘economics made fun’ genre (work such as Freakonomics, The Armchair Economist or More Sex is Safer Sex) a few years back. My own book ends with a chapter on Nudge. Nudge is, of course, also a serious policy proposal, but the book is certainly very popular and some of its ideas (or expressions – think of the image of a parent elephant ‘nudging’ its baby elephant) have become part of pop culture.
13. What do you consider to be the future of philosophy of economics? What are the most pressing questions facing the discipline today?
If we continue to do good philosophical work but in a manner that is relevant to economics, is taken up by economists because it helps to address their concerns, and that can contribute to sound economic policy making, we’ll face a bright future.
14. In your opinion, what philosopher of economics has had the greatest impact on the discipline in the last 100 years?
Without a doubt Amartya Sen.
15. And finally, a more lighthearted question: given their concern with the behavior of individuals in certain economic situations, do philosophers of economics gamble? Why or why not?
There must be some ways to exploit humans’ decision-making follies, but philosophers tend to be too well behaved to actually do it, or even consider doing it for that matter. Seems like a good idea to me though, so off I go.