The Handbook for Economics Lecturers

A third way is to attempt to teach a fairly unified heterodox perspective, not based around one school of thought, but by combining elements of different heterodox schools. The main benefit of this is that one chooses the heterodox school which deals best with specific topics. For example, if one wanted to deal with the question of money, one could examine a range of heterodox perspectives on it but it may be equally useful to consider Keynes' work, which is arguably the most important contribution available. One might also discuss the issue of 'macroeconomics' and use that as a reason to discuss the contribution of Keynes to economics. Alternatively, one could use Keynes to talk about uncertainty, or even, at the introductory level, about markets. The Keynesian beauty contest, in which stock markets are compared to a particular type of newspaper competition, in which entrants are asked to pick the beauty contestant whom they think others will choose, is a good example. That story is a good one: it encourages examination of the notions of the market, its efficiency, its outcomes and the market as an institution, rather than as a quasi-natural phenomenon.

Similarly, one might focus institutionalism on consumer theory, Post Keynesianism on distribution, and Austrian Economics on competition (and policy). There is also a rich heterodox literature on production. Smith on the division of labour, Marx on exploitation, and Bowles and Gintis (1985) on work organisation are all excellent sources for discussing actual production processes. It is this third approach which will be discussed here. A sample module outline is shown in Table 2. The module content is applicable to a number of levels. In developing the module outline here, a higher level module is in mind but it is easily employed at level 1 when suitable adjustments are made for background, technical competence and maturity.

Table 2: Heterodox intermediate microeconomics module

Topic Detail
What is heterodoxy? Single unified approach or plurality of approaches?
Theories in microeconomics What is a theory and what makes it good?
Key concepts in heterodoxy Should microeconomics exist? Individualism or social? Class and power. Systems versus atoms. Uncertainty. Equilibrium
Theories of individual behaviour in consumption Behavioural and institutional theory; conception of 'economic man'; Veblen, Galbraith; Example 4: biscuit experiment; Example 5: TV watching
Households as consumption and production units Marx; institutionalists; feminist theory
Firms Why do firms exist? Responses to uncertainty (Galbraith); more effective exploitation (Marxists)
Firms as production units Exploitation; Marx; Sraffa; modern Marxists; ecological implications; Figure 7: paper aeroplanes
Firms and pricing Post Keynesian theories; evidence on pricing and costs
Competition and markets Classical/Marxian 'globules of capital' approach; Post Keynesian monopoly capital approach; Austrian theory
Markets Institutional approaches. 'Real markets'. Keynesian beauty contest. Markets as failing mechanisms. Capital markets and efficiency. How markets and ecology interact. Figure 6: Kemp/Wunder game
Government policy Rationale? Income distribution. Ecological issues.

Immediately, that approach raises the concept of pluralism, which in section 1.1 was offered as a key tenet of heterodoxy. Thus heterodoxy advocates a range of perspectives and does not require that they are consistent. This is an interesting claim in itself. What do students think of it? What do their responses to that question tell us? Thereafter, the focus is on substantive areas. Space precludes a full discussion of these but an exercise discussed in Figure 7 allows us to see the heterodox approach in action. This example is one which could be used in an orthodox-plus module, a parallel perspectives module or a heterodox module.

Figure 7: Production of paper aeroplanes

A useful exercise - which needs to occur in seminars - is to ask students to design a simple product and then its production process. A good example is a paper aeroplane (see Rubin, 2002). Students could form groups - or firms - and be invited to compete with each other on how much to produce. This is an interactive tool that students find enjoyable. Several lessons can be learned from the activity, such as the connection between design complexity and productive complexity, and the possible trade off between complexity and productive volume. In this sense, the paper aeroplane exercise is richer than moving flowerpots or tennis balls. Different students will choose different production methods: some will opt for individuals making entire aeroplanes; or teams; or production lines. If the exercise is done in stages - for example by gradually increasing the number of people involved in the production process - students can reflect on past performance, learn, and make judgements about what is effective. In many cases, students will change their production methods. The results from the different rounds of production, with different amounts of labour employed, could easily be used to discuss marginal productivity (and whether it diminishes) and economies of scale. That could then lead to the theory of diminishing marginal productivity and of the U-shaped average cost curve. Equally, though, the results could suggest that diminishing marginal returns fail to occur; similarly, diseconomies may not occur.

All of the outcomes described in Figure 7 could be achieved on any module. Indeed, the exercise could be employed on a standard introductory microeconomics module. What is the heterodox value-added? Actually, the exercise illustrates several of the heterodox principles discussed in Figure 2. What if the game produces cost curves which do not form nice U-shapes and instead exhibit economies but not diseconomies of scale? That illustrates a theoretical point but also principle 3, on the unpredictability of economic cases. It also illustrates principle 6 on the fallibility of theories. Further, if different groups produce different results, principle 5 is illustrated: that history and time are important in determining economic outcomes.

In terms of theory, a finding of continuous economies of scale allows the L-shaped average cost curve to then be introduced. That curve has implications for the firm - for instance, it does not have an optimal size and is limited only by the amount it can sell (as Adam Smith noted). The L-shaped cost curve also has effects on pricing. There is a wealth of empirical literature on economies of scale and on the processes by which firms set prices. It is easy to go from the simple example of a paper aeroplane production process into discussion of heterodox pricing theories, such as Andrews' normal cost theory and Means' administered prices. Both of these theories are based on distinct theories of production and industrial organisation. This opens up new avenues for the students. The story of Hall and Hitch and their investigations into pricing offer an interesting case study of real research and an example of the case study method in economics. That illustrates heterodox principle 1, on the importance of methodological understanding.

Heterodox principle 5 stresses the importance of the history of economic thought. The paper aeroplanes exercise allows historical references to be made. One example is Smith's discussion of the division of labour. For example, by examining and reflecting on the data the students have produced, one is led to examine concepts such as the division of labour. To what extent did students engage in specialisation, or did they manufacture complete aeroplanes? What are the implications for the level of production, the firm and - reflecting Smith's own concern - the workers within the division of labour? Do the students prefer to see individually fulfilled workers, or the highest production possible?

The question of the ethics of the firm is then relevant. That reflects heterodox principle 9 in Figure 2: facts and values are inseparable. While that topic cannot be discussed in great depth it is another hallmark of a heterodox approach that questions of value are not banished to a normative box. For instance, can we say what a worker ought to receive from labour? Veblen, for one, says we cannot, except that such questions have social contexts. Marx, on the other hand, argued that workers should receive the fruits of their labours and that when they did not, they were being exploited. Do students agree? What is the potential for exploitation in the production processes they have designed? Marxists Bowles and Gintis argue that production can be increased simply by increasing monitoring and, thereby, effort levels. Were the students producing more aeroplanes because their production methods were more efficient, or were they simply being forced to work harder? That discussion highlights heterodox principle 10, on the importance of power in economics.