The Handbook for Economics Lecturers

In this section, a parallel perspectives approach is outlined. Section 4.2.1 presents some general discussion of the distinction between orthodox and heterodox economics, based on a model of ten competing principles. The two sets of ten principles are presented in Table 3 below and are offered as a useful teaching device. In that discussion, particular focus is placed on the purpose of economics, the methods of economics, and the role of values in economics. Section 4.2.2 then goes on to discuss a particular Introductory Microeconomics module structured around parallel perspectives.

4.2.1 Contrasting orthodox and heterodox principles

At whichever level a parallel perspectives approach is applied, a crucial first step is to get students thinking comparatively as early as possible and about fundamental issues. A useful device to assist that process is to employ Table 3, adapted from Knoedler and Underwood (2003). The principles shown there are not meant to be exhaustive but are an example which individual tutors can adjust according to their modules. The principles shown apply well to a microeconomics module.

Table 3: Ten Things Every Student Should Learn

(adapted from Knoedler and Underwood, 2003)

Orthodox (Side A) Heterodox (Side B)
1. Economics is the study of choice under conditions of scarcity. 1. Economics is about the social processes of providing for people's needs, not merely choices and scarcity.
2. Economic actors are motivated by rational self-interest to maximise their satisfaction from consumption (based on a given set of preferences). 2. Both scarcity and wants are socially defined and created.
3. Economics, practised correctly, is a 'positive science' premised upon value-free, objective knowledge. The role of the economist is to engage in the science of 'positive' analysis of the economic processes described above. 3. Economics is not 'value-free' and ideology shapes our analyses and conclusions as economists.
4. The history of economic thought is a specialist subject inessential for the study of contemporary economic theory. 4. The history of economic thought is critical to the study of 'basic principles' of economics.
5. The individual - understood as an entity separated from others - is the principal unit of economic analysis. 5. The individual should be understood, but as complex and connected to others - and as a means to understanding the operation of the whole economy.
6. Economies and markets tend to equilibrium. Equilibrium is a foundational concept in economics. 6. Although equilibrium can be a useful concept, economies generally do not tend to equilibrium; indeed, there may be no equilibrium to tend to and thus, economics should focus on dynamic processes rather than equilibria.
7. The market values (prices) established in a 'free market' economy are the critical guide to economic efficiency. Anything that 'distorts' free market values reduces efficiency, thus imposing costs on society. 7. Valuation is a social process.
8. Although a free market is believed to be the ideal way to achieve efficiency and maximum social welfare, there are many failures in the market requiring intervention by government. 8. Markets are social institutions which could never work as posited by the orthodox theory. Many of the failures described by orthodoxy are essential features of markets.
9. Distribution of wealth and income rests on marginal production of individuals, determined by their characteristics. 9. Distribution is shaped by membership in groups according to race, gender and class, and the relative power exercised by those groups.
10. The natural world, the source of all energy and materials and the repository for all waste, is not a necessary (complementary) element in production. 10. Ecological literacy (economy-ecology interface, unity between biophysical first principles and economic sustainability) is essential to understanding the economic process.

One useful way to employ the table is to print it on two sides of a sheet, with the orthodox principles as side A, the heterodox side B. This resource has been used successfully at Principles level (footnote). It is one of the first resources given to students. They may immediately read it all - and if this stimulates their thinking that would be desirable - but it may also introduce too much early confusion. Thus it may be better just to have students refer to it as directed by the instructor. The initial segment of the module must be devoted to creating the impression of a division and making students comfortable with that. For beginning students, without preconceptions, it is straightforward to argue that there are simply two competing views, and then to explain them. Certain points from the ten things sheet are desirable and indeed necessary to establish the orthodox/heterodox distinction.

(Footnote: In terms of its content, some points about the sheet should be noted. In general, it presents a workable set of heterodox principles: it is similar to the principles listed in section 1.1. However, Knoedler and Underwood come from the institutionalist tradition and some of their alternative principles will reflect that. Nevertheless, the tables can be tailored to reflect a particular perspective, or to suit the needs of a particular module. For example, number 7 on the heterodox side, 'valuation is a social process', is quite vague. It probably reflects the concern expressed in a number of institutionalist texts and modules about instrumental valuation (the notion that value is ascribed only in terms of its consequences). However, it could also be interpreted as reflecting the Marxist labour theory of value and the (social) determination of the surplus. Or it could be explained via the Keynesian beauty contest, in which social-psychological factors determine share prices.)

The first issue to discuss is 'What is the prime focus of economic analysis?' Immediately students see the standard scarcity view contrasted with other views. As Table 3 shows, a heterodox economist might regard the economic problem as one of social provisioning - of needs, not wants. By questioning whether their wants are indeed unlimited, and whether their resources are scarce, students understand better what the orthodox postulate of scarcity means, and how it applies to real-world situations. Some students may reject the scarcity postulate as static and too geared towards selfish satisfaction; for others though it will resonate with their own budget management concerns.

After discussing the purpose of economics, the author finds it useful to consider the methods of economics. As outlined in section 1.1, heterodox approaches contrast with textbook models in their recognition of history. Orthodox models tend to be framed in logical time, which is reversible. This is clearly unrealistic and excludes much apparently significant historical detail. However, students quickly realise that models must exclude. That leads into a contrast between abstraction and idealisation. Abstraction is the ignorance of some factors in order to focus on the essence of a phenomenon. Idealisation is the creation of idealised entities which deviate strongly from reality. Abstraction is necessary in economics because of the complexity of the world. However, arguably, idealisation is more common in orthodox models. Thus, economic man is a device which does not represent any real humans. However, that may not matter in terms of good theories. With some students, it may even be possible to discuss Friedman's (1953) view of theories as predictive devices.

Point 3 on the sheet is also essential for the parallel perspectives approach. It concerns the positive/normative distinction. The orthodox side A presents the positivist view that analysis should be value-free and objective. It is relatively simple to ask students whether they think this is a desirable aim and, if so, whether it is possible. Having the students read Stretton (1999: ch. 5) on ideology assists that discussion. For Barone (1991) it is a major benefit of parallel perspectives that they allow value bases to be made clear and evaluated. In so doing, he argues, parallel perspectives stop sneering and encourage healthy conversation and co-operation.

Stretton's (1999) book also facilitates the consideration of the role schools of thought play in economics. His early discussion of the development of economics is useful because it hints at point 4 of ten things, on the role of historical context, but also establishes that there are several schools of thought out there and that they are worthy of consideration. Indeed, Stretton's approach is to examine briefly the history of economic thought, examine Smith and the classical growth model first, and then to show how the neoclassical economics took on only one part of the classical approach, namely distributional concerns. By reading these extracts from Stretton, students learn:

  1. that there are several perspectives on economics;
  2. about key figures in the heritage of economics;
  3. that current theories are the latest in a long line of theories, some of which they develop, others they reject or change fundamentally

Some of the distinctions in Table 3 may appear rather stark but that is intentional. The stark distinctions serve as a vehicle to bridge them. For example, take point 8. In fact, perhaps no orthodox economist would argue (as strongly as that) in favour of the notion of free market capitalism, and perhaps many heterodox economists would not subscribe to the notion of a completely managed capitalism. In reality, there is more of a continuum of views. However, the two extremes serve as an entry point into a discussion amongst the students of markets and the role of government. This would most likely occur later in the module (see Table 4a). It allows the free market view to be put across, examined and then contrasted with the view that all markets are institutional creations and therefore managed (which would also be evaluated). When those notions are presented simply, they become accessible to students. A case study such as the marketisation of health care is topical, relevant and an effective vehicle for understanding and discussing the two views as presented. Such a discussion could then lead on to more complex considerations and theories - for example, the new institutionalist approach.

4.2.2 Module descriptions

Once the initial distinctions have been established, it is possible to move into a discussion of various economic concepts. That is where a discussion of module structure becomes relevant. Table 4a shows a module structure (plus readings and selected activities) for an Introductory Microeconomics module taught over one semester at a US college. Table 4b provides a contrast between the structure of a parallel perspectives module and a conventional module.

Table 4a: Introductory microeconomics module (parallel perspectives)

Topic Heterodox resources (orthodox resources assumed readily available)
Introduction to economics
What is economics? How is economics done? Some views on economics
Stretton, Chs. 1-3, 5, 7
Orthodox and heterodox perspectives on economics Heilbroner, Teachings from the Worldly Philosophers (TWP), Chs. I-II, pp. 333-336, 208-211, 219-235, 297-330
Stretton, Chs. 7-10
Heilbroner, The Worldly Philosophers (WP), Chs. 1-2, 10
Demand
Basic principles of demand; elasticity
Heilbroner, WP, Ch. 8
Heilbroner, TWP, Ch. V, pp. 247-263 Agia, et al, Chs. 7-10
Stretton, Chs. 19-27
Veblen
Figure 10: biscuit experiment
Demand and advertising
Informational advertising vs. persuasive advertising
Example 5: TV watching exercise
Firms and production
Costs, revenues and production
Agia, et al, Chs. 11-14, 42
Stretton, Ch. 31-35
Smith, Book I, Ch. 1
Heilbroner, WP, Chs. 3, 6
Heilbroner, TWP, pp. 73-86, 90-95, Ch. IV
Marx, Karl (1867) Capital, Vol. 1, Chs. 1 (sections 1, 2 and 4), 7
Figure 7: paper aeroplane experiment
Firms and competition
Competition, monopoly, oligopoly and mergers
Agia, et al, Chs. 15-19
Profits
Mechanics of profitability
 
Profits
Consequences of profitability
 
Markets
Supply and demand analysis
Heilbroner, WP, Chs. 3, 9
Heilbroner, TWP, pp. 55-98, 235-238
Stretton, Chs. 40-42
Market experiment
Markets
The free markets approach. How free are 'free markets'? Do markets work? Stock markets
Agia, et al, Chs. 1-6, 20-27, 41
Stretton, Ch. 36-9
Keynes, Chs. 12 and 19
Figure 6: Kemp/Wunder
Markets and government
Various views on the market-government relationship. Public goods, etc.
Agia, et al, Chs. 36-40
Heilbroner, WP, Chs. 5-6, 10
Heilbroner, TWP, pp. 98-105, 275-296

Table 4b: Parallel perspectives module contrasted with a standard module (introductory microeconomics)

Parallel perspectives Standard
Introduction to economics
What is economics? How is economics done? Some views on economics
Introduction to economics
What is economics? How is economics done?
Orthodox and heterodox perspectives on economics Markets
Supply and demand analysis
Demand
Basic principles of demand; elasticity
Demand curves
Demand and advertising
Informational advertising vs. persuasive advertising
Elasticity
Firms and production
Costs, revenues and production
Production and costs
Firms and competition
Competition, monopoly, oligopoly and mergers
Profit maximisation
Profits
Mechanics of profitability
Factor markets
Profits
Consequences of profitability
Structure-Conduct-Performance:
Perfect competition
Markets
Supply and demand analysis
Structure-Conduct-Performance:
Monopoly
Markets
The free markets approach. How free are 'free markets'? Do markets work? Stock markets
Market failure
Public goods and externalities
Markets and government
Various views on the market-government relationship. Public goods, etc.
Government intervention

One benefit to the teacher of such a module is that allows flexible thinking about the order of topics. A teacher could in theory adopt the conventional ordering of topics and begin with markets. The students learn the supply and demand diagram in order to grasp the concept of scarcity and its relation to price movements. Indeed, the first time the author ran the module, that was the path chosen. However, it is unnecessary to teach supply and demand first; moreover, that order is in many ways strange. For instance, we know that markets are where buyers and sellers meet yet we discuss markets well before buyers and sellers are discussed. Further, in a traditional introductory microeconomics module, we begin with markets and often end with them, i.e. through market failure and the role of government. It may make more sense to group those topics together.

Alternatively, we treat the level 1 micro in the same way as we do at level 2: we begin with the consumer rather than with the market. One way of introducing the topic of demand is to run an experiment. That experiment is discussed in Figure 10.

Figure 10: Chocolate chip biscuit experiment

One student volunteers to eat chocolate chip biscuits. They are asked to eat a biscuit and to rate the satisfaction they get from it as ten, as a standard by which to gauge further biscuits. They are then asked to eat successive biscuits. The objective is to test the principle of diminishing marginal utility. In most cases when the author ran this experiment, the resulting marginal utility curve was anything but smooth, but about half the time it was generally downward sloping. The students are then asked to consider what the results mean for the theory that demand curves are smoothly downward sloping. Some students will respond that as an approximation it is good enough. Others will simply argue that the results refute it. For example, the heterodox concern with history, discussed already, and concern that ceteris paribus is an unreasonable assumption, brings into question the ability to plot a demand curve at all. These objections in turn are countered, for example, by the argument that the demand curve need not be fact, but is illuminating. The ground for this discussion has been set by the discussion of economic method earlier.

The biscuit experiment is useful in another way. It illustrates the usefulness and difficulties of classroom experiments. In a typical American classroom, the invitation to eat biscuits would invariably be accompanied by a query as to where the milk was, given that usually biscuits and milk are eaten together. The author had to explain that the milk might corrupt the experimental conditions and could not be allowed. The fact that eating biscuits without a drink may cause less satisfaction for successive units was significant to the experiment. Some students also picked up on the fact that chocolate chip cookies were being used. Chocolate chip cookies can never, of course, be assumed identical: the obvious variable being the volume of chocolate in each biscuit. Good students realise that the experimental results may simply reflect the chocolate content of successive biscuits. Further discussion can illuminate that students' responses to the results may be conditioned by their prior beliefs about orthodox/heterodox and concepts such as ceteris paribus. The biscuit experiment is therefore a good exercise in any microeconomics module, but it is particularly effective in a parallel perspectives framework because it follows from and leads into differences between the orthodox and heterodox approaches.

At level 1, it is possible to discuss constrained maximisation, even without the formal framework or indifference curve analysis. By introducing the orthodox approach first, in which maximisation is a key element, the notion of constrained maximisation is intuitively more understandable. Similarly, though, by being made aware of heterodox objections, the student is already primed to criticise the notion. As shown above, they are thus able to raise objections to the demand curve itself.

The discussion of demand may lead into a discussion of the formation of preferences. Again, at introductory level, there need be no detailed discussion of the assumptions underlying demand theory. However, it is possible to state that choice is a product of prices, preferences and income; and that preferences are unexplained in the orthodox approach. Students may ask what the sources of preferences are. Stretton's (1999) book highlights several factors, including the law, peer groups, families, religion and other traditions. This discussion leads into a heterodox theory of persuasion. At this point, as above, a discussion of Veblen can be slotted in, and students will become familiar with the concept of conspicuous consumption. At higher levels, one can examine at length heterodox critiques of the orthodox model of the consumer. However, at introductory level this is not necessary. Nevertheless, one can take the simple contrast that in the orthodox approach, advertising is informative, and in the heterodox approach, advertising is persuasive. This can lead to an interesting lecture and classroom discussion of a selection of advertisements. A way of exploring advertisements is to give students an assignment which involves watching television. It is assumed that students would enjoy this. The assignment is described in Figure 11.

Figure 11: Television watching assignment

The essence of the assignment is that students watch a specific 30-minute commercial television programme and note its time, channel and content. They then note all the advertisements shown during the programme. From that list they are then asked to infer what audience the programme's advertisers believe is watching it and what message(s) the advertiser is attempting to send. They are then asked to analyse in detail one of the advertisements in a similar way to that done in class. This is often the subject of a student presentation.

Further, the analysis of advertisements can be a good examination or test question: present the students with an advertisement (or several) and ask them to analyse it from an orthodox and heterodox perspective and to contrast the two. The student should first be able to explain the essential points about the orthodox and heterodox perspectives on the consumer. Thus, their retention of the material is assessed. But their understanding can also be tested. The student should be able to identify what about the advertisement is informative and what is persuasive. Further, the student should say how the advertisement seeks to persuade and which social norms or pressures are being appealed to by the advertisement.

That form of assignment illustrates the key elements in assessment using the parallel perspectives approach. First, ascertain that the material has been understood. Second, apply the knowledge to an issue. So far, so conventional. Third, ask the students to compare the two approaches; and fourth - perhaps most difficult of all - ask them to reach a reasonable, argued position on the merits of the theories. Another way to do this is simply to ask the students to write a paper on which theory of the consumer is best. The weak student will merely express their understanding of the theories. A better student will be able to compare the theories and identify their weaknesses. A good student will understand what is meant by 'best' in the context of a theory and reach a clear conclusionwhich weighs up the pros and cons of each approach. This assessment method might be called 'opinion essays', but essentially, the essays are reasoned arguments towards a particular view. The student's ability to present a clear structured argument and, where necessary, evidence, will be crucial.

The pattern of the module described so far continues throughout. From Table 4a, we can see that the next topic covered is the firm. The paper aeroplane exercise (Example 3) above is useful here. Again, as with the biscuits experiment, it can be used simply to test an orthodox precept. It can also be useful as an experimental method for discussion by the students. Further though, as outlined above, the experiment leads into a discussion of production, costs, prices and profits. Orthodox U-shaped average costs can be compared with their heterodox L-shaped counterparts. Marginalist pricing can be compared to mark-up pricing. At higher levels, more detailed treatments of full-cost and normal-cost pricing theories can be undertaken. Again, the students' understanding of the topic can be assessed by an essay in which they are asked to reach a position and construct an argument for it. It may be the case that as in Salemi (2005), less detail is presented on cost curves; however, their critical analysis means that the concepts are being reinforced. Again, private study allows for practice and revision of key diagrams or formulae.

The treatment of market structure in this module is less detailed than in an orthodox module. Nonetheless, those concepts are covered. Furthermore, the length of time discussing profits, their origin and their effects, is an stimulating and useful addition. The students exit with a much broader concept of profit and of the firm in its social environment than otherwise would have occurred. As noted already, the structure of this module is different from a standard introductory framework because, thus far, there has been little if any formal discussion of markets. Markets is the final main topic covered. Again, the basic supply and demand analysis can be considered. This could even be applied, in a very basic way, to labour, which is a topic not covered in the module although usually it would be. Now, of course, students are more primed to be critical of markets and to enquire whether the supply and demand formulation is correct. Some students may even question the notion of equilibrium. This is another crucial concept in economics, which is often taken for granted: economists think in terms of equilibrium - why? Students who have already questioned ceteris paribus may be less likely than others to merely accept the importance and validity of equilibrium. Once again, the student is encouraged to interrogate that concept in order to understand and justify its use.

The market exercise (Figure 6) discussed above may be useful at this point in the module. To reiterate, that exercise can be run as a simple game of seeing markets clearly. However, with the additional heterodox material, students can see that the process towards equilibrium is complicated by a number of factors. The questions raised in the game about the role of the State, the institutional features of markets and the distributional (and other) outcomes of markets lead nicely into a comparison between the free market approach and its criticisms, and into a discussion of market failure and the role of government. It is even possible to cover general equilibrium, if only conceptually, at this point, because the students have seen the necessary component parts, such as perfect competition; but they are also more likely to understand the use of a model such as general equilibrium and to be able to reconcile its apparently fantastic assumptions with the need to model, because that issue has already been covered several times. The heterodox value added can also be shown in a discussion of market failure, which to many heterodox economists is a misnomer, since many of the so-called rigidities in markets are in fact features which make markets function. An example is long-term contracts. Students are able to see an orthodox model in which long-term contracts are a distortion, but also understand from a heterodox perspective that such contracts may be a response to uncertainty. That thought process could then lead into a consideration of risk. If done at level 1, the discussion may be necessarily brief.