Defining Heterodox Economics
Heterodox economics involves the study and analysis of economic principles and theories that diverge from the mainstream or orthodox schools of economic thought. These diverse schools advocate theories, assumptions, or methodologies that contradict or lie outside the dominant Keynesian and neoclassical movements.
Heterodox schools of thought include far-left theories such as socialism, Marxism, and post-Keynesian economics, as well as radical free-market perspectives like the Austrian school. Often, heterodox economists use interdisciplinary methods, drawing from fields like psychology or physics, to address economic questions.
Key Takeaways
- Heterodox economics encompasses a wide variety of theories and schools of thought that differ from Keynesian and neoclassical approaches.
- Although contradicting the mainstream, heterodox theories play a key role in introducing new ideas and challenging established thoughts in economics.
- Theories like the Austrian Business Cycle Theory (ABCT) and Minsky’s financial instability hypothesis gained attention during the Great Recession for providing explanations that mainstream economics failed to offer.
Understanding Heterodox Economics
Heterodox economics refers to numerous branches or approaches that fall outside the current mainstream of economic thought. The only common trait among these approaches is their opposition to mainstream economics, and often, they are also opposed to one another in their fundamentals, research methods, and conclusions.
Moreover, the term is relative to time—as ideas once considered heterodox can become mainstream. For example, the classical economic view of self-correcting economies was mainstream until the 1930s, when it was replaced by Keynesian macroeconomic frameworks.
From Heterodox to Mainstream
Radically heterodox ideas, such as behavioral economics, have been incorporated into mainstream economics and policymaking in recent decades. Many Nobel Prizes have been awarded to work initially considered heterodox but eventually recognized for its influence.
Thomas Kuhn’s concept of a paradigm shift encapsulates how heterodox ideas, initially outside the current scientific paradigm, can entirely replace it. The Marginal Revolution of the 1870s exemplifies this, replacing existing ideas and establishing marginalism as foundational in contemporary economic theory.
Examples of Heterodox Economics
Heterodox theories like Austrian Business Cycle Theory (ABCT) and Minsky’s financial instability hypothesis gained prominence during the Great Recession for providing powerful remedies for crises that mainstream theories struggled to address. Other popular heterodox theories include feminist economics, post-Keynesian, and Marxist economics.
The Influence of Heterodox Economics
Often dismissed in academic circles, heterodox economic theories still influence mainstream economics by challenging orthodox views. The resistance they face doesn’t undermine their role in integrating new approaches into existing paradigms.
Heterodox economics enhances and evolves mainstream economic thinking by questioning established assumptions and methodologies. It compels all economists to reflect on their foundational principles and encourages the adaptation of ideas proven better in practice.
Other Considerations
The pluralism brought about by heterodox theories fosters a multidisciplinary analysis of economic problems. While traditional economics focuses on market-based explanations, heterodox approaches emphasize non-market aspects such as social identity, power relations, cooperative action, and psychological biases. These perspectives often align more closely with everyday experiences and historical contexts than some widely accepted mainstream theories.
By incorporating a more holistic viewpoint, heterodox economics provides deeper insights and alternative solutions for contemporary economic challenges.
Related Terms: behavioral economics, Austrian business cycle theory, Minsky’s financial instability hypothesis, paradigm shift, Great Recession.
References
- Thomas Kuhn. The Structure of Scientific Revolutions.University of Chicago Press, 1962.
