Structuralist Economics: Worldly Philosophers, Models, and Methodology

Ravi Baghirathan, Codrina Rada, and Lance Taylor Structuralist Economics: Worldly Philosophers, Models, and Methodology ECONOMICS IS NOT TO BE A SCIENCE OF SOCIETY . . . ITS PURPOSE IS TO help us better understand the capitalist setting in which we will most likely have to shape our collective destiny for the foreseeable future” (Heilbroner, 1999: 310). These words are part of Robert Heilbroner’s manifesto in the last chapter of his classic book, The WorldlyPhilosophers. They reflect aspirations underlying the theories put together over nearly 200 years by the great economic thinkers he reviews: Adam Smith, David Ricardo, Thomas Malthus, John Stuart Mill, Karl Marx, Alfred Marshall, Thorstein Veblen, John Maynard Keynes, Joseph Schumpeter. Their legacy is a quest for “socially as well as economically successful capitalisms.” Beyond their faith in the usefulness of economics, Heilbroner’s worldly philosophers had something else in common. They concen­ trated on structure in the sense of analyzing economic issues within a framework of institutions and agents interacting with each other through mechanisms that themselves complete and make the society a sustainable system. Smith, for example, is concerned with “how is 'Suggestions by Will Milberg and support from the Program on Markets, Equality, and Democracy, New School University, and the Ford Foundation are gratefully acknowledged. social research Vol 71 : No 2 : Summer 200 4 305 it possible for a community in which everyone is busily following his self-interest not to fly apart from sheer centrifugal force? What is it that guides each individual’s private business so that it conforms to the needs of the group?” (Heilbroner, 1999: 54) How does a coher­ ent economic system emerge from decisions of individuals operating within a framework constraining their actions by evolving institutions and rules? The other philosophers asked similar questions from differ­ ent perspectives. At heart, they were structuralists. In this essay, we argue that what today is called “structuralist economics” substantially overlaps with the thought of Heilbroner’s exemplary scholars. Next comes a synoptic look at contemporary struc­ turalist ideas: the significance of economy-wide output-cost decomposi­ tions, income-expenditure balances, and flows of funds restrictions for the determination of macroeconomic equilibrium; the theory of infla­ tion; sectoral influences on overall economic performance; the role of supply constraints such as scarce food; distributive conflict and its effects on inflation and growth; and cycles and finance. We then review the similarities and differences between structuralist and mainstream economic theories in two key dimensions: output determination and inflation. Observations about methodology lead into a summing up of the main characteristics of the structuralist approach to economics. 1. HISTORICAL PERSPECTIVE Many economists chose their profession because they wanted to think through ways to help people live better. The discipline is grounded on this practical desire, a worldly matter. Economics should thereby be situ­ ated in the social context of the system it examines. Context is a main ingredient in structuralist economics, and also is central to the work of Heilbroner’s great thinkers. Likewise, structuralism emphasizes system-wide analysis, aimed at generating proposals for improving economic performance—that is, “policy” broadly construed. In an example discussed later in this paper, one has to be aware of the levels and direction of the financial and 306 social research real economic flows between sectors of the economy in order to decide upon the main factor that drives its growth. Keynes—a quintessen­ tial structuralist—believed that effective demand is the driving force and thereby argued that money-wage reductions would not stimulate output expansion. This diagnosis emerged from direct observation of the mechanisms governing contemporary capitalism, with the Great Depression being defined by the sudden collapse of aggregate demand. Further examples are provided in the next section covering specific structuralist models and their empirical roots. A system-wide approach is also notable in the work of the clas­ sical economists highlighted by Heilbroner (for example, Ricardo’s emphasis on distributive conflict between landowners and peasants, industrialists and workers, affecting the entire economy and society). Marx of course picked up this theme, expanding on the sociological and political implications o f class conflict to construct his own over­ arching theories. Veblen added a theory o f institutions and their dynamics and...