Schools of economic thought

Compare the perspectives of economics

Ontology

As a first approximation, ontology is the study of "what is". Ontological statements are answers to questions about whether or not something fundamentally exists (e.g. numbers, institutions, or causal relations). Perhaps the most classical ontological question is the following: "Is there a God?" Ontological questions and assumptions are often determined prior to empirical research. They therefore represent a set of beliefs about the nature of the world and so to a certain extent they influence the questions researchers ask as well as the ways in which they practice science.

Which problem is central to the economy?

The answers to this question describe the problem or problems that actually matter when looking at the economy, from the perspective of a particular school of thought.

Scarcity: Natural resources like land, capital, labour or energy are scarce and therefore the economic problem lies in the processes of their distribution.

Change: Economic organizations are constantly evolving, the dynamics of this process are the distinctive aspect of economics.

Dominance: Power and domination of one group over another in material as well as social terms are the driving forces of economic phenomena.

Uncertainty: The future is uncertain and our knowledge about this is fallible. Therefore, the beliefs we hold about the future in order to deal with uncertainty and changes in these beliefs are the central determinant of the economy.

From which “thing” should inquiry start if we want to acquire knowledge about the economy?

The answers given by each perspective reveal which "thing" they deem to be most important. The "things" analysed range from the small (individuals) to the very large (systems). That does not mean that, for example, a systemic perspective denies the existence of individuals, but that according to such a perspective, systems are more important than individuals when it comes to the economy.

 

Micro: Individuals and their motivations, relations, and actions are in focus.

Meso: Groups and organisations (or institutions such as social norms), firms, sectors, specific markets, as well as subsystems like the financial system shape the economy.

Macro: Systems and structures such as the environment or capitalism are in focus.

What fundamental assumptions are made about human beings?

Many perspectives have a distinctive view on how humans behave in an economic context and whether such behaviour is rooted in human nature or is influenced by external factors.

Do “things” and actors have an existence independent of their context?

Some perspectives assume that things or actors relate to each other only by external links, others that the context surrounding a thing or an actor might also influence the internal constitution of the actor.

Atomist: Things like individuals, groups or institutions have an independent existence. Their motivations, actions and beliefs come from within themselves. Their identity and essence does not change due to environmental alterations.

Middle: Actors exist as independent entities. Yet there are mechanisms at higher levels, like the context, which influence these actors. An abstract analysis therefore has to respect both individual essences and those contextual elements which can be identified as crucial.

Contextual: Things are always relational and interdependent. Therefore, there is no way to conceive of them as independent of their context. Without interactions with the structure and other actors they would be fundamentally different.

Is time made up of a succession of identifiable states or is it a dynamic process?

This question asks whether it is more appropriate to conceive of time in terms of states (e.g. t 1, t 2, …) and then compare and relate them, or whether time is a continuous process, one which is not reversible and where there is constant change and no convergence to a fixed point.

 

Static: Time is a succession of states, which can be identified.

Middle: Both static and procedural elements are present in time.

Dynamic: It is of primary importance to think in a procedural way, things are constantly changing and evolving in time.

Epistemology

Defined narrowly, epistemology is the study of knowledge and justified belief. As the study of knowledge, epistemology is largely concerned with questions like: What are the necessary and sufficient conditions of knowledge? What are its sources? What is its structure, and what are its limits? Put differently, epistemology addresses what we can know and how we can arrive at knowledge. The way in which researchers answer these and other epistemological questions determines which assumptions they make regarding the nature of their knowledge claims about the world and the confidence they assign to these statements.

Can we see the real world and talk about it or only about the interpretations we make of it?

Answers to this question relate to the issue of whether science can refer to (ontologically) real objects and to what extent interpretation and already existing theory matter when doing science.

Realism: there is a real world independent of human conceptions and we can observe and describe it.

This definition of realism differs from the realism-instrumentalism dichotomy regarding assumptions that have been debated in economics following Milton Friedman's 1953 Essays in Positive Economics concerning the relation between the real world and assumptions in theories and models.

Middle: There is a real world, but also a discursive world. It is the latter in which scientific access to the real world takes place. The relationship between the two is interdependent and complex.

Constructivist: What we can observe and talk about in the (social) sciences are simply interpretations produced by ourselves, as observers. These interpretations give meaning and thereby create the world. Hence, the task of science is to understand those realms of meaning.

Does the perspective apply a certain mode of thought in general terms or study a focused object?

This question is concerned with whether a perspective wants to apply a generalized theoretical framework on many or all aspects of the economy, or whether a specific issue or phenomenon is considered to be very important and thus has to be analysed in depth while using different frameworks and theories.

Perspective Driven: A consistent way of thinking about economic interactions, e.g. in terms of incentives, equilibria or relations of production, is deemed to be a good procedure for getting insights about different objects. It is assumed that this particular way of thinking is capable of yielding valuable insights into all kinds of economic and social phenomena.

Contested:  Both tendencies are present. Particular objects are of interest, but a certain way of thinking is thought to be useful as well. There is a degree of conflict between those who try to move the perspective to one of the two categories.

Object Driven: A particular object is deemed to be very interesting and decisive for economic understanding. Hence, the object is analysed from a wide array of different ways of thinking.

Methodology

Methodology refers to the question of how to determine what counts as justified knowledge. Often, methodological discussions establish a set of rules or conditions that have to be met in order for something to be considered scientific. A certain methodological standpoint often advocates specific research methods over others, since they are perceived to meet the requirements for knowledge in a more satisfactory and appropriate way than alternative forms of inquiry.

Which methods are there and are they qualitative or quantitative?


The graphic lists different methods used in economics.

How does a perspective predominantly formulate its hypothesis?

Hypotheses are proposals for explaining or understanding a certain phenomenon. They can be derived from already existing theory, e.g. by logic, from empirical observations or from a combination of the two.

Deductive: New hypotheses are logically derived from a set of axioms and established laws.

Middle: Axioms, empirical observations and conceptualizations are intertwined and the researcher goes back and forth whilst developing the hypothesis (associated concepts are abduction, retroduction, dialectics).

Inductive: Empirical observations and generalizations based on observations lead to new hypotheses.

How are hypotheses appraised?

Question 1: How can we generate and evaluate a theory or a hypothesis at the abstract level?

Answers to this question illustrate the importance that different perspectives attach to logical coherence, formalism and long chains of reasoning when judging whether a hypothesis is scientific or not. Perspectives that reject these standards as criteria for science choose to engage in a broad variety of practices and reasoning, even though these might appear to be contradictory in the light of classical logic.

Formalistic: The hypothesis can be derived from axioms in a logical way. There were no logical mistakes made.

Middle: Formalistic logic as well as other forms of reasoning are applied.

Broad reasoning: Non-formalistic techniques such as counterfactuals, thought experiments, deconstruction, changing conceptualizations and fuzzy sets, heuristics, storytelling, etc. are applied in order to assess the validity of a hypothesis in a more crude and less exact manner.

Question 2: How can we relate a theory or a hypothesis to reality?

This question assesses how empirical observation is conceptualized by different perspectives. Some perspectives have very clear cut rules on how to collect and make sense of empirical observations and data. Others use ways that are less specified and methods may vary depending on the nature of the research.

Standardised and prescriptive methodology: Empirical testing is carried out in a standard and prescribed way, which can be justified by reference to both the philosophy of science and scientific practice. A prominent example is the scientific method.

Middle: A combination of standardized ways of relating theory to the world and non-standard instruments is applied.

Idiosyncratic: An adequate way of referring to reality depends on more research as well as on the researcher and the phenomenon studied. This category refers to descriptive methods which are only defined in very broad terms such as semi-structured interviews, genealogy, counterfactuals and discourse analysis.

Axiology

Which axioms does the perspective have and which terminology does it use?

Axioms in the understanding advanced here refer to central themes that guide research. As such they are unlike hypotheses or theories that are developed in accordance with empirical observations and tested against empirical data. Instead, they are more like hunches or heuristics that guide the formulation of hypotheses.

 

Our understanding is derived from the work of Imre Lakatos, who considers heuristics as the preanalytic 'hard core' of a paradigm. Terminological expressions on the other hand are not self-evident statements but rather certain codes and concepts that are typically employed within a perspective.

Values

Which policies or ideals are associated with the perspective?

Ideals refer to normative convictions which describe the things considered ‘good’ in the realm of economics. Politics or policies on the other hand are concrete measures that are considered to bring the economy into a normatively better state. In practice, statements and opinions often include both values and policy suggestions.

Discover the perspectives of economics

Behavioral Economics
Behavioural economics deals with observing behaviour and economic decision making behaviour.
Austrian Economics
Austrian economics focuses on the economic coordination of individuals in a market economy. Austrian economics emphasises individualism, subjectivism, laissez-faire politics, uncertainty and the role of the entrepreneur, amongst others.
Neoclassical Economics
Neoclassical economics focuses on the allocation of scarce resources. Economic analysis is mainly concerned with determining the efficient allocation of resources in order to increase welfare.
Marxian Political Economy
Marxian Political Economy focuses on the exploitation of labour by capital. The economy is not conceived as consisting of neutral transactions for exchange and cooperation, but instead as having developed historically out of asymmetric distributions of power, ideology and social conflicts.
Feminist Economics
Feminist economics focuses on the interdependencies of gender relations and the economy. Care work and the partly non-market mediated reproduction sphere are particularly emphasised by feminist economics.
Institutionalist Economics
Institutional economics focuses on the role of social institutions in terms of laws or contracts, but also those of social norms and patterns of human behaviour that are connected to the social organisation of production, distribution and consumption in the economy.
Post-Keynesian Economics
Post-Keynesians focus on the analysis of capitalist economies, perceived as highly productive, but unstable and conflictive systems. Economic activity is determined by effective demand, which is typically insufficient to generate full employment and full utilisation of capacity.
Complexity Economics
Complexity economics focuses on interactions and interdependencies between individuals and structures in economic systems. Those are systems of organised complexity. High importance is given to the analysis of networks.
Evolutionary Economics
Evolutionary economics focuses on economic change. Hence processes of change such as growth, innovation, structural and technological change, as well as economic development in general are analysed. Evolutionary economics often gives emphasis to populations and (sub-)systems.
Ecological Economics
The core idea of ecological economics is that human economic activity is bound by absolute limits. Interactions between the economy, society and the environment are analysed, while always keeping in mind the goal of a transition towards sustainability.