The Handbook for Economics Lecturers

An example of how heterodox criticisms can be valuable in the process of critical teaching involves consumer theory. This may be studied at either introductory or intermediate level. Particularly in the latter case, the treatment often involves noting the assumptions underpinning indifference curve analysis, including rationality, transitivity and completeness. The assumptions are covered in most textbooks. A lot can be gained by critically examining the assumptions. Heterodox texts can be crucial in this regard. For example, Himmelweit, Simonetti and Trigg (2001) discuss whether the assumptions hold in reality. Significantly, they examine experimental evidence which throws doubt on the assumptions (Becker, 2004, cited above, also notes this example). In so doing, the authors introduce students to a body of work of growing importance in economics.

Another piece of heterodox work which is accessible to lower level undergraduate students is Tomer's (2001) critique of 'economic man'. Tomer examines 'economic man' from a particular psychological perspective. Economic man is self-interested, rational, separate from his environment, unchanging and unreflective. Tomer argues that economic man applies to only a minority of humans, for a small portion of their lives. Again, the orthodox concepts are interrogated - and understood - and an alternative body of theory is introduced.

Consumer theory is a particularly rich area for drawing on heterodox critiques and enriching the teaching of orthodox material. Veblen's concept of conspicuous consumption allows the assumption of independence of preferences and prices made in orthodox consumer theory to be questioned. Galbraith's thoughts on advertising (1958, 1967), which echo some contemporary mainstream work by, for example, McCloskey (1994) on rhetoric, and Mullainathan and Shleifer (2005) on finance, are an engaging and accessible source for evaluating advertisements. A similar approach can be taken throughout the module.

Tables 1a and 1b show suggested content and key questions for introductory and intermediate level microeconomics modules.

Table 1a: Introductory Micro module ('orthodox-plus')

Topic Heterodox angle
What is economics? Question positive/normative distinction; note variety of definitions of economics
S&D and markets Note: markets as institutions
Demand curves Note: up-sloping demand; question law of demand; Veblen; Figure 10: biscuit experiment
Elasticity How do firms calculate elasticities? Can they? Do demand curves exist?
Production and costs Does the law of diminishing returns hold? Question shape of average cost curve; Figure 7: paper aeroplanes
Profit maximisation Goals of the firm? Mark-up pricing
Factor markets Workers getting their marginal product? Marx
Structure-Conduct-Performance Stress barriers to entry. Austrian school
Market failure Question distributional fairness
Government intervention Political arguments for intervention; distribution; Figure 6: Kemp/Wunder market game

Table 1b: Intermediate Micro module (orthodox-plus)

Topic Heterodox angle
Consumer theory Tomer on economic man; Galbraith on advertising; Example 5: TV watching exercise; persuasion; experimental evidence
Household choice theory Critique of Becker; altruism; cooperative and non-cooperative equilibria (Himmelweit et al.)
Analysis of choice under risk Problem of non-probabilistic uncertainty? Question the value of the expected utility hypothesis under uncertainty
Analysis of long-term decision making Assumptions made? Discounting and the environment?
Isoquant theory Figure 5: Brokken and Bywater (1982)
Labour markets Query about exploitation; labour market discrimination
Market structure and efficiency Austrian critique; contestability; monopoly capital
Game theory Limitations of? Implications of game theory for conventional theory?
Price discrimination Question informational assumptions
General equilibrium analysis Institutional analysis of markets; question assumptions; social markets (Himmelweit et al.). Figure 6: Kemp/Wunder game

Both the introductory (Table 1a) and intermediate (Table 1b) modules look standard in their list of topics, except, perhaps, for the addition of household choice theory. The emphasis remains on communicating the key orthodox concepts, but this is assisted by employing the heterodox angle. Of course, given time constraints and the abilities of the students, the content will vary, as will the extent to which one can engage with the critical literature. However, note that in many cases, the critical literature will assist in learning the key concepts. Two examples of this are shown in Figures 5 and 6.

Figure 5: The Brokken and Bywater (1982) article on cattle feed

The authors ask whether in the case of cattle feed isoquants are convex. The extent and depth to which this is explored is the choice of the instructor. For example, in a one- lecture/one-seminar model, it is quite feasible to devote half a seminar to the article. The students are asked to read it beforehand and therefore should have some understanding of it but, in the seminar, points of confusion can briefly be clarified. Most of the time is taken drawing out the implications of the article for economic theory. For instance, discussion focuses on the value of the convexity assumption. This assumption resonates with students from studying indifference curves, and it is useful when the students consider general equilibrium analysis later in the module. The author has found that by reading the article, students deepen their understanding of isoquants, learn about a practical case, and are exposed to empirical analysis and techniques. The article also provides the opportunity to discuss the nature of assumptions, models and theory more broadly.

 

Figure 6: Kemp and Wunder market game

A simulation developed by Kemp and Wunder demonstrates how an apparently conventional classroom experiment can enhance knowledge of orthodox concepts whilst being enriched by a heterodox perspective. The game essentially runs as follows: scarce factors of production (including, importantly, entrepreneurship) are allocated equally amongst individual students, except that land is allocated on a first come, first served basis. No capital is distributed, because it must be produced through labour. Students must trade their labour and land (if they have any) in order to (get capital and) produce enough for material subsistence. Any surplus can be spent on luxury goods. The winner of the game is the one who accumulates the most commodities (goods). Money is introduced through the State (played by the instructor) purchasing privately owned factors of production.

Like the majority of these market experiments, this one attempts to demonstrate the functioning of competitive markets and their outcomes. However, there are some differences from the ordinary. For example, entrepreneurial units are introduced to the game, allowing inventions to enter the market and either succeed or fail. This introduces a dynamic element to the game. This can be interpreted as a heterodox augmentation of the game: dynamics and entrepreneurialism are key tenets of Austrian economics. All production involves capital, but capital must be developed, showing that it does not merely exist as if on trees.

The game attempts to demonstrate several important concepts. First, it shows how resources, market interaction and politics work to produce and distribute resources throughout the community. The role of the State in allocation decisions is significant in this regard. The first two of these notions are conventional, and the third a little more controversial but in principle can lead to a treatment of market failure in terms of, for instance, rent seeking. Further, it could prelude a discussion of the role of legal systems in conditioning economic activity. That could be said to reflect a Commonsian tradition within institutionalism, as well as the recent literature by, for example, Posner.

Second, the game aims to demonstrate the role of innovation on economic development and performance. Again, this is something of a departure from a standard microeconomics module and suggests an Austrian influence.

Third, the game demonstrates how initial allocations affect final allocations. As Kemp and Wunder report, a crucial element of the game is that students are required to discuss their feelings about it. In particular, they are encouraged to give their opinions about:

  1. the workability of the economic system;
  2. what they considered to be their important learning experience;
  3. whether they felt that the system was just;
  4. whether the simulation changed any of their attitudes about economy and society.

This process of reflection is a significant element of the educational process.

To make space for the inclusion of heterodox perspectives in an orthodox module, something must be omitted, but what? This is significant precisely because an objection to the above proposal is that key concepts are omitted. There is no single model for an introductory or intermediate microeconomics module, so it impossible to state categorically whether the modules in Tables 1a and 1b match such a standard. However, the author would argue that in terms of topics and concepts covered, they do. Comparing the module structures to the Economics Benchmarking Statement reveals no relevant omissions. What may be sacrificed is some detail, for instance in some of the technical details of the concepts being studied. Salemi (2005) argues that for an introductory economics module, some standard diagrams - he cites cost curves - can be omitted in favour of more reinforcement and application of key concepts. His approach is similar to arguing that 'threshold concepts' - concepts which once understood change the way the person thinks (see Meyer and Land, 2005) - should be targeted in order either to underpin higher level study or give a basic summary of economics for a non-economist. The same argument could also be applied to the extent of mathematics used in a module.

In the cases of Tables 1a and 1b a few comments can be made on omissions. For example, in Table 1a, possibly some of the time normally allocated to deriving long-term cost curves, repeatedly calculating elasticities or practising the perfect competition diagram will be sacrificed. However, the concepts and key implications of those topics would be retained.