Economic Methodology and Paradigms

Economic Laws- not solely descriptive - but they deal with patterns of uniformity combining these patterns of uniformity into a coherent system.are:

a. conditional (prerequisites for validity) --x happens if Y

b. Subject to social organization--laws under market system not applicable under barter

c. used to predict the outcome of human action

C = f (Y) if Y increases C increases

Economic Theory puts the patterns of uniformity together (Laws) into a coherent system.


a. Deductive - from rules of logic and mathematics

b. Objective - positive--what is


are accepted examples of scientific practice which include:
- laws - theory - applications and institutions

together - these provide models for traditional scientific research

Paradigm shift or challenge:

1. The work was sufficiently unprecedented to attract an enduring group of adherents away from competing models.

2. the work was sufficiently open-ended to leave particulars to practitioners.

anomalies - paradigms shifts - puzzle doesn't fit somehow

Light - Plato and Aristotle to Newtonian physics
Ptolomy and Copernicus - often hard to see a new way or to think outsideof given structures.

In economics look three paradigms.

A. Conservative -

1. Prefer market solutions to solve allocation, distribution and regulation problems (even stabilization)

2. share general contempt for collective action

3. therefore - government choice is coercive, undesirable, and destructive of Individual Freedom


a. Markets should prevail - individuals decide what to purchase firms decide what to supply.

b. Assumes the existence of ideal or optimal market: 1. fair 2. few externalities 3. product information is abundant 4. competitive market structure

c. Government has a minimal role the scheme
- Classical liberal - law, army and public service

d. equal opportunity

e. minimizes importance of externalities and market power -

- a distortion-

1. imposes taxes, regulation, now worth price

2. markets assumed competitive

3. freedom and individualism

B. Liberal Paradigm - fuzzy

1. Share market view -

2. Argues that markets may fail - advocate government reform as a remedy

3. Government has the potential to more accurately reflect the allocation and
distributional preference of the society

remedial correcting occasional flaws

(radicals see markets as inherently flawed)

- intermediate position

a. political compromise to divergent groups

b. perceive and respond to market failures

c. propose solutions to improve markets not eliminate them.

d. accept capitalist belief profit motive should be the primary motive stimulating producers to expand or contract production.

1. reforms by government redirect profits - do not replace them

a. consumer protection

b. w-p guidelines

c. anti-trust


e. child labor laws

4. Sensitivity to market failures so scrutinize existing income and wealth distribution carefully

groups have disadvantages

5. Highlighted externalities and market power ass situations to be altered (market failures)

C. Radical or Democratic Socialist Paradigm

Central belief of economists applying this paradigm is the fundamental inequity of

a. Property

b. Income

c. Wealth distribution

1. Markets viewed with distrust

a. reflect maldistribution of resources

b. perceived as inherently concentrated

(many flounder/few survive)

c. market shaped by demand - some have no vote

d. government instrument for wealthy - don't automatically support

government action (Liberals well intention but naive)

2. Government decisions superior to unplanned market

3. Argue that distribution is shaped largely by external or environmental

factors beyond the control of the economic system

Not impressed with profit motive's ability to transform individual selfishness into social welfare

Inequity - unfair distribution

4. C + L = Equal Opportunity - vs equality of condition

Wealthy able to take advantages - poor are not "Paper freedoms" - poor lack money to attain them
(not absolute equality)

Paradigms disagree with the degree of inequality that is desirable