Review of Population and Social Policy, No. 10, 2001, 155–181

Two Responses to the Failings ofModern Economics:
the Instrumentalist and the Realist
Tony LAWSON*

Abstract
Realist and instrumentalist approaches are compared in the context
of looking to overcome the problems of modern economics. It is argued that thefailings of the modern discipline can be resolved only by way of adopting arealist orientation.

1. Introduction
Here I contrast instrumentalist and realist projects in modern economics, as is myremit. But I do not do so in a purely abstract fashion, out of context. Rather, I
examine and compare these two projects as possible resources for dealing withthe somewhat unhappy situation in which the modern discipline of economics
finds itself. My concern is with the illumination of social reality. And this is an
endeavour in which I believe the modern academic discipline of economics, andin particular its hugely dominant mainstream component, are rather less thansuccessful. In what follows I examine how instrumentalists and realists might,
and do, respond to this situation. I adopt this strategy because many who think
about methodological issues seem to suppose that the two positions, whatever
their philosophical differences, amount to much the same thing in practice. I
intend to show this is not so. Although my primary purpose is thus to demonstrate that the two approaches part company—and show how—I will also indicate why I regard the realist response as the more sustainable.
1.1. The Context

There is little doubt that the modern discipline of economics is in a state of somedisarray. Or at least this is true of its hugely dominant modern mainstream
component. By the latter I simply mean that which is concerned in a central way
with formalistic modelling of some kind. Why do I suppose that formalistic
modelling is the essence of the modern mainstream? Notice that as substantive
fashions come and go, the mainstream orientation is held to continue intact.
This is the paper presented at the Symposium on Economic Theory, Tokyo, March 21, 2000.
* Lecturer, Cambridge University.

[ 155 ]

156

Tony LAWSONThere is no basic shift in its membership, or in the selection of journals or lecture
courses regarded as core. And the one feature that endures, and is continually
recommended (see Kirman 1989) throughout the project’s various, clearlynominal, transformations, is an adherence to formalistic modelling. Indeed, formany modern economists, economics is the formalistic modelling of social
phenomena—there are no alternative (non-modelling oriented) traditions (seee.g., Gee 1991; Strassmann 19941).
As I said, if the formalistic modelling project, or the deductivist enterprise it
sustains (see below), is constitutive of the modern mainstream position, it is also a
project that is not in a particularly healthy state. Although rarely revealed in opening
chapters of introductory text-books and the like, the problematic nature of modern
mainstream economics, continually emphasised by opponents of that project ofcourse, is often acknowledged even within the mainstream tradition itself, especially,
but not only, when its leading proponents provide reflective overviews of the discipline in presentations prepared for special occasions. On such occasions, it is seemingly readily admitted that the mainstream project is, for example, poor at forecasting(e.g. Kay 1995); unrealistic (Hahn 1994); arbitrary (Leontief 1982), without clear direction (Rubinstein 1995; Kirman 1989); riddled with inconsistencies (Blaug 1980;
McCloskey 1986; Leamer 1978, 1983; Hendry, Leamer and Poirier, 1990); in crisis(Bell and Kristol 1981), and; basically in a state of disarray (Wiles and Routh 1984).

1

Strassmann has captured the situation well in the course of promoting a feminist alternative
approach to economics:“To a mainstream economist, theory means model, and model means ideas expressed inmathematical form. In learning how to “think like an economist,” students learn certain criticalconcepts and models, ideas which typically are taught initially through simple mathematicalanalyses. These models, students learn, are theory. In more advanced courses, economic theories are presented in more mathematically elaborate models. Mainstream economists believe
proper models—good models—take a recognizable form: presentation in equations, with mathematically expressed definitions, assumptions, and theoretical developments clearly laid out.
Students also learn how economists argue. They learn that the legitimate way to argue is withmodels and econometrically constructed forms of evidence. While students are also presented
with verbal and geometric masterpieces produced in bygone eras, they quickly learn that
novices who want jobs should emulate their current teachers rather than deceased luminaries.
Because all models are incomplete, students also learn that no model is perfect. Indeed,
students learn that it is bad manners to engage in excessive questioning of simplifying assumptions. Claiming that a model is deficient is a minor feat—presumably anyone can do that. What isreally valued is coming up with a better model, a better theory. And so, goes the accumulated
wisdom of properly taught economists, those who criticize without coming up with better models
are only pedestrian snipers. Major scientific triumphs call for a better theory with a better modelin recognizable form. In this way economists learn their trade; it is how I learned mine.
Therefore, imagine my reaction when I heard feminists from other disciplines apply the term
theory to ideas presented in verbal form, ideas not containing even the remotest potential formathematical expression. ‘This is theory?’ I asked. ‘Where’s the math?’” (1994, p. 154).

Two Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

157

Thus, for example, on examining the record of 34 forecasting groups in the
United Kingdom, including the most quoted ones, Kay (1995) admits:“Economic forecasters do not speak with discordant voices; [keeping an eye
on each other] they all say more or less the same thing at the same time.
And what they say is almost always wrong. The differences between forecasts are trivial relative to the differences between all forecasts and what
happens” (p. 19)
Leontief puts things rather more forcefully:“Page after page of professional economic journals are filled with mathematical formulas leading the reader from sets of more or less plausible but
entirely arbitrary assumptions to precisely stated but irrelevant theoreticalconclusions...Year after year economic theorists continue to produce scoresof mathematical models and to explore in great detail their formal properties; and the econometricians fit algebraic functions of all possible shapes toessentially the same sets of data without being able to advance, in any
perceptible way, a systematic understanding of the structure and the operations of a real economic system” (Leontief 1982, p. 104).
And Rubinstein, in a paper celebrating the award of the Nobel Memorial Prize
to John Nash, worries how modern economic theory is to be interpreted, andeven about its purpose and direction:“The issue of interpreting economic theory is, in my opinion, the mostserious problem now facing economic theorists. The feeling among many of
us can be summarized as follows. Economic theory should deal with thereal world. It is not a branch of abstract mathematics even though it utilises
abstract tools. Since it is about the real world, people expect the theory toprove useful in achieving practical goals. But economic theory has notdelivered the goods. Predictions from economic theory are not nearly as
accurate as those by the natural sciences, and the link between economic
theory and practical problems, such as how to bargain, is tenuous at best.
Although I have never heard an economist seriously claim that the Nashbargaining solution is a good predictor of bargaining in real markets, thissolution is a standard tool in modelling interactions among negotiators.
Economic theory lacks a consensus as to its purpose and interpretation.
Again and again, we find ourselves asking the question ‘Where does it
lead?’” (1995, p. 12).

158

Tony LAWSONIn the following pages I compare different responses to this unfortunate situation. It is clear that at the heart of the noted problems lie questions about choiceof method, so that serious reactions are bound to be methodological is someway. Here I want to compare two types of methodological resort: the first,
which appears to carry a good deal of favour amongst modern mainstream
economists, albeit often only implicitly, can be termed instrumentalist; thesecond, almost entirely avoided by modern mainstream economists, I designate
realist. My aim is to draw out significant differences between these approaches
and to indicate why I regard the latter to be the better grounded and more
useful. I will define my various categories and terms in the course of considering the types of response I have in mind. It is the instrumentalist reaction that
I turn to consider first.

2. Instrumentalism in Modern Economics
I understand by instrumentalism the thesis that theories are to be interpreted
merely as practical tools or instruments for some purpose other than causal
explanation. That is, although the construction of theories, or hypotheses ormodels, etc., serves some practical purpose or aim, this does not include ornecessitate giving true accounts of the structure of the world. The qualification isessential. We all use theories as instruments of some kind, even if we wish to
give a causal explanation of observed events. In this sense we are all instrumentalists. Instrumentalism is used as a label when the role of the theory as an instrument is limited in some way, to some practical activity other than describing thestructure of reality.
It is the case that not everyone who adopts an instrumentalist orientation admits
explicitly to it, of course. Here I must do some reconstructing. And given that mosteconomists appear not to be especially reflexive about their positions—indeed
many seem to oppose methodological reflection on principle—it is obvious that, in
imputing to them a philosophy-of-science orientation, I must operate a principle ofcharity. I must consider their seemingly strongest position(s). Of course, it is always
essential to treat one’s opponent charitably anyway.
Several variations on the instrumentalist theme are conceivable, and indeed inevidence. The most common statement of purpose found in modern economics
is that economic (formalistic) theories are instruments for generating (presumably
successful) predictions of actualities, the actual course of events or states ofaffairs. I include under this head the goal of accommodating such actualities
after, as well as before, they have occurred.

Two Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

159

2.1. Instruments That Are Neither True Nor False

Within this form of predictive instrumentalism two sub-groupings are to befound. The first, and more traditional version, at least within philosophy, but theless common of the two in modern economics, has it that theories, in serving as
instruments, are neither true nor false. This conception is discussed, for example,
by Popper and Shionoya and, according to the latter, acted upon by Schumpeter
in his interpreting of economic theory. Thus, Popper writes:“By instrumentalism I mean the doctrine that a scientific theory...should beinterpreted as an instrument, and nothing but an instrument, for the deduction of predictions of future events (especially measurements) and for otherpractical applications; and more specifically, that a scientific theory should
not be interpreted as a genuine conjecture about the structure of the world,
or as a genuine attempt to describe certain aspects of the world. The instrumentalist doctrine implies that scientific theories can be more or less useful,and more or less efficient; but it denies that they can, like descriptive statements, be true or false” (1983, p. 111–112)
And Shionoya concurs:“...we should understand the central claims of instrumentalism broadly as
the view that, first, with regard to the role of theories they are merely tools,
and second, with regard to the cognitive status of theories they are regarded
as neither true nor false” (1990, p. 194)
On one occasion Schumpeter explicitly refers to hypotheses as instruments:“Economic theory...takes [certain hypotheses, etc.] for granted...Now
hypotheses of this kind are also suggested by facts—they are framed withan eye to observations made—but in strict logic they are arbitrary creationsof the analyst. They differ from [explanatory hypotheses]...in that they do
not embody final results of research that are supposed to be interesting fortheir own sake, but are mere instruments or tools framed for the purposesof establishing interesting results [apparently meaning known empiricalfacts]” (1994 [1954], p. 15).
Shionoya himself notes the following two passages, amongst others by
Schumpeter:

160

Tony LAWSON“The absolute truth of our hypotheses does not matter. Hypotheses do notbelong to a part of results we have to defend, but are simply methodological auxiliary means whose value can only be judged from their fruitfulness.
The role of hypotheses is merely formal; even if it were proved that they arethemselves true, nothing would be gained from it for our laws”(Schumpeter, quoted in Shionoya, 1990, p. 206).
“It is extremely important for a proper understanding of our theory and,eventually, every theory to be aware of this arbitrary character of a theory
and not to seek in it an expression of some ‘absolute’ truth...It is a methodfor description and nothing else; and as such it must be judged and organised for good or evil...A theory consists only of a measure which simplifies
description and prevents it from becoming hopelessly complicated...If one
realizes that only the goal justifies a theory, namely that only the result
warrants it, then many objections and claims blocking our path will be
removed” (Schumpeter, quoted in Shionoya, 1990, p. 206).
2.2. Instruments as Not (Necessarily) True

In truth, it is not obvious to me that these quotes by Schumpeter are entirely
consistent with the idea that theories cannot be regarded as true or false, as
opposed merely to allowing that falsity does not matter. In any case this brings
me to the second, and by far the most common, version of instrumentalism inmodern economics. This is the idea that theories can be considered to be either
true or false, but that their being true is not essential to the enterprise; typicallytheir simplicity or economy or efficiency as instruments for generating predictions is considered of primary importance.
Philosophical traditionalists may not wish to consider this a form of instrumentalism. But in that theories so interpreted are accepted merely because they serveas limited-task (non-explanatory) instruments, and the truth status of such theories is considered to be irrelevant to achieving the adopted task in question, I
think this perspective can be accepted as instrumentalist, given our not unusual
understanding of this position. In any case, in order to strengthen my opponents
hand as much as possible, to give it greater flexibility in its response to failure, I
shall here include such responses under the instrumentalist head.
Certainly, the interpreting of such a position as instrumentalist is a common
enough practice amongst economic methodologists. Thus, for example, the entry
on instrumentalism in the recent Handbook of Economic Methodology contains
the following statement:

Two Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

161“A moderate version of instrumentalism says that theories do possess suchsemantic properties [as referring or being true or false], but that these properties are irrelevant, the relevant being pragmatic. According to this version,
it does not matter even if the terms of a theory fail to refer to anything real(even though they might so refer) or if the claims of a theory are false (eventhough they might be true). Reverential and veristic success—even if
possible—does not add to the value of a theory. Only the pragmatic virtuesof theories matter. Methodological instrumentalism of this sort incorporates
semantic realism about reference and truth” (Mäki 1998, p. 254).
The best known example of an economist who makes explicit statements insupport of such a position is Friedman (1953), of course. Although Friedman’s
methodological essay is sufficiently inconsistent to sustain a number ofcompeting interpretations (see for example, Hausman 1998, p. 192; Shionoya
1990, p. 208), some of its better known features do lend themselves to an instrumentalist reading. For example, Friedman suggests that a false theory can be
more useful than, and is to be preferred to, a true one; and states the purpose heattributes to a theory as follows:“the ultimate goal of a positive science is the development of a ‘theory’ or‘hypothesis’ that yields valid and meaningful (i.e., not truistic) predictions
about phenomena not yet observed” (1953, p. 6).
Moreover, whether or not Friedman is consistent in this, numerous economists
appear to suppose that he has sufficiently justified their own acknowledged-tobe-fictitious or superficial theoretical claims. In any case, the prominence of theories not held as realistic, and indeed admitted as at best superficial, is evident.
Lucas provides another example:“To observe that economics is based on a superficial view of individual andsocial behaviour does not seem to me to be much of an insight. I think it isexactly this superficiality that gives economics much of the power that it
has: its ability to predict human behaviour without knowing very muchabout the make up and lives of the people whose behaviour we are trying
to understand” (Lucas 1986, p. 425).
Quite often, especially amongst econometricians, the acknowledgment thattheories and/or models are false, yet possibly good instruments, is coupled withthe assessment that the derivation of true theories or models is, in any case,
impossible. Behind such a stance appears to be an acceptance of something like

162

Tony LAWSON

a correspondence theory of truth. Econometricians seem especially fond of
repeating the quip that a true model would be as useless as a map drawn to thescale of 1 to 1. This is a misconception of the nature of truth, of course, as I haveargued at length elsewhere (see especially, Lawson 1997, chapter 17). Here,though, the point remains that, however good or bad the reason, numerous(perhaps almost all) econometricians appear to conclude that models can be
empirically adequate and useful, yet inevitably false.
Thus, for example, Hendry (1983, p. 70), suggests that “A ‘true’ model is virtually a self-contradiction as it would have to be as complicated as whatever it is
supposed to represent.” Elsewhere he elaborates:“I take it as self-evident that economic behaviour is sufficiently complex andevolutionary that it is not helpful to talk about economic theories being‘true’ or of inferences yielding correct results...By their very nature, models
are inherently simplifications and inevitably false” (Hendry 1986, 30–1).
And more recently McAleer (1994) repeats this view whilst illegitimately tying
the term “abstraction” to falsity: “Models are abstractions from reality and, assuch, there are no true models” (p. 324). Further on he adds: “Econometricmodelling is not intended to arrive at the truth, but an adequate representation of
the data” (p. 328). And so on.
2.3. Changing the Goal Posts Entirely

A further distinction that can be drawn within the instrumentalist camp is
between those who interpret theories as instruments for (if not necessarily exclusively) predicting, including accommodating, actual phenomena or the ‘facts’,and those who assign an altogether quite different purpose to them. Somemodern ‘theorists’, for example, view economic modelling merely as a form oflogic, accepting only the aim of examining the deductions which admitted-to-be
absurd assumptions condition.
Hahn’s understanding of modern economic theory, for example, can sometimes be interpreted as falling into the latter category. Certainly, Hahn sees his
project as different to that of the predictive instrumentalist. Referring explicitly toFriedman and his followers, Hahn writes:“The economists I have been discussing might be taken to be engaged in
the following programme: to enquire how far observed events are consistent
with an economy which is in continuous Walrasian equilibrium...[Even if thisprogramme was successful]...it would not be true that we understood theTwo Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

163

events. For we would not understand how continuous equilibrium ispossible in a decentralised economy and we do not understand why a world
with Trade Unions and monopolies behaves like a perfectly competitive one.
Theorising in economics I have argued is an attempt at understanding and I
now add that bad theorising is a premature claim to understand.
What has happened in this instance is that ‘as if’ prediction methodology
has taken over. Recall Friedman’s example...” (1985, p. 15)
Elsewhere Hahn elaborates:“When a mathematical economist assumes that there is a three good
economy lasting two periods, or that agents are infinitely lived (perhaps
because they value the utility of their descendants which they know!),
everyone can see that we are not dealing with any actual economy. The
assumptions are there to enable certain results to emerge and not because
they are to be taken descriptively” (1994, p. 246).
“What a rational expectations theory provides is an understanding of animagined economy which satisfies the assumption. As such it may be ofgreat use. For instance, it allows us to study pathologies which cannot be
traced to expectational mistakes. Or again it leads to an understanding of
how market variables by revealing information to the uninformed reduce (ornegate) the benefits of special information. Or yet again it allows us to grasp
the informational disturbances introduced by an unknown monetary policy.
It is a vulgar misunderstanding of theory and its aims to dismiss Rational
Expectation theorising because of its assumptions” (1985, p. 11–12)
However, with neither the assumptions nor the derivations considered to haveempirical relevance, it is difficult to interpret such projects as being concerned withsocial illumination at all2. The goal posts have been changed so much that we
appear to be involved in a different activity entirely. In particular, if it is shown that
X implies Y, and if X is regarded not as a real possibility, it is difficult to understandthe point of the exercise interpreted as one of (causal) logic, especially as Hahn

2

There are some that claim that although theory and derivations are not empirically grounded;nevertheless, the results do somehow provide insight into reality. Perhaps the best known, andmost developed example of this is formulated by Menger, with his notion of exact laws. This isa theme I consider in Lawson, 1997 (chapter 9) and one that cannot really be examined here.
Suffice it to say, however, that Menger does not succeed in making a case that illumination canin this way be achieved. Rather his argument amounts to little more than a matter of hope andfaith conditioned only by a misunderstanding of certain aspects of natural science.

164

Tony LAWSON

explicitly denies that Y occurs, or that the realisticness of Y is even relevant. In any
case, I have considered the relevance of this approach elsewhere (Lawson 1997,
chapter 9). Because it is not obvious that the concern is with illuminating a worldsuch as that in which we live, I do not further consider this particular project here.
2.4. Instrumentalism to the Rescue?

So how does, or how might, the adopting of an instrumentalist stance provide away of dealing with the problems of the modern discipline noted earlier? As I
have already said, if we adopt the sort of interpretation described by Hahn wechange the nature of the project entirely. The goal is no longer social illumination of any kind. Thus, I do not consider this project further here3.
What about the range of stances I have collected under the head of predictive
instrumentalism? How is, or how might, a turn to instrumentalism, interpreted asa concern with providing an instrument for accommodating data on observables,
be seen as a response to the widely recognised disarray of the modern discipline? For current purposes, I think we can treat together those who view theories as neither true or false and those who believe that the falsity or
unrealisticness of theories is not of primary, if any, significance. Both areconcerned with theories to the extent that they cover the ‘facts about observablesof interest’ irrespective of the nature of any claims, whether or not about unobservables, that figure as parts of the assumptions, axioms, hypotheses, etc.
Now the basic point is that, by adopting such an instrumentalist stance, thetensions within modern economics, and worries about lack of realisticness orarbitrariness of theories, etc., are not so much resolved as dissolved. The puzzles
and tensions and so on, are simply accommodated. Instead of overcoming the
problems, the decision is made to live with them in a relaxed way.
Most obviously, worries about the realisticness of the claims expressed withintheories are rendered unproblematic more or less by assumption or definition.
How about the worry that econometric theory and practice are mutually inconsistent? This mostly turns on the fact that empirical models are generated in ways at
3

Instead of attempting to consider the world in which we live the theory project in question basicallyexamine the logical possibilities of “worlds” we have no reason to suppose could ever come about.
In other words, the problems of the discipline are solved by changing the goal of the project
entirely. It does not matter if our theories are known to be false in this world, the aim is merely to
see what would follow in worlds where they did hold. On this conception, the disarray of the discipline might be said to be in the eye only of the beholder concerned with accommodating the facts
as recorded, with covering actual observations. However, as I have already said, because suchapproaches are not concerned with illuminating our social reality, because they change the goal of
the enterprise entirely, and because I am here concerned only with projects oriented to being usefulin our world, I shall not concern myself further with these purely logical exercises here.

Two Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist165

odds with the methodological theory. But, as such methodological theory is typically premised on the idea that the aim is to assess any theory or hypothesis tosee if it is false, and as the truth status of any theory is now interpreted as, atbest, irrelevant, it does not really matter that the methodological injunctions are
bypassed. All that is required is a model that accommodates the data.
Furthermore, if theories are merely instruments, it does not matter either thatthey appear from some perspective as arbitrary, or that in their construction there
is no obvious direction to the scientific enterprise, at least concerning the natureof the theoretical assumptions elaborated. Indeed, most of the apparent problems
identified at the outset are seen to be rendered ultimately non-perturbing. In theend, a predictive instrumentalist might claim, any idea of a crisis arises only
amongst those who do not recognise (or who momentarily forget) the instrumentalist nature of the modern mainstream project. Such an attitude, for example,
seems to be well expressed by Schumpeter:“the crucial point, upon which all depends, lies in the distinction between two
different aspects of the matter: on the one hand, we have the fundamental
arbitrariness of theories, on which their system, rigor, and exactness are based;on the other hand, we have the conformity of theories to, and their dependence on, phenomena, and this alone gives content and significance to theories. If one distinguishes between these moments and places them in a proper
relation with each other, a clear interpretation will arise and thus the difficulties
and doubts which we come across in the usual discussions of these questions
will be effectively overcome” (Schumpeter, quoted in Shionoya, 1990, p. 204)2.5. The Question of Empirical Adequacy

The problem with all this, however, is that even the acceptance of an instrumentalist
stance fails, in the end, to get around one central problem—that of the dearth of
empirical success—that the theories or models of modern mainstream economists
continue to perform badly at the empirical level. Even if running thousands ofregressions facilitates a model specification which accommodates the available
sample data, each model so obtained is almost always found to perform badly outof sample, and is thereby effectively rendered useless. Predictive instrumentalism isa response that neutralises all the usual seeming puzzles or tensions so long as
economic theories can be interpreted as instruments successful at accommodating
the data. Unfortunately, it is not a response that in itself dissolves or renders
unproblematic the failure of theory to fit the data in practice. Rather, it is a response
usually accepted in conditions where this problem has already been solved.
At this point, in the face of empirical failure, the instrumentalist has little recourse166

Tony LAWSON

but to carry on searching for a theory or model that is empirically more adequate.
The methodological injunction can only be, and is always, to try a little harder.
Moreover, if consistent, the instrumentalist cannot really suggest in any systematic way how further searching might proceed. It is true, as already noted, thatsome instrumentalists emphasise certain pragmatic criteria, such as simplicity or
parsimony, or whatever (see Shionoya 1990, p. 212). But these serve not as
substitutes to the criterion of empirical adequacy, but as supplements. The
presumption remains that theories must fit those facts for which they are predictive instruments. Additional pragmatic criteria such as simplicity, parsimony, etc.,
are relevant not to this endeavour but to that of selecting amongst hypotheses
already considered to be empirically successful with respect to the relevant data.
Their purposes is with ranking potential instruments not their identification4.
It must be admitted that there are various economists who, though proclaiming
either that models cannot be true, or that issues of truth and falsity are irrelevant,do nevertheless suggest ways of proceeding in the face of empirical failure.
Usually, their recommended strategies are found to involve one or both of i)adding more variables to the model, and/or ii) digging deeper, searching for regularities at a more disaggregated, micro or atomistic level (see discussion in Lawson
1997, chapter 7). However, such responses tend to be poorly articulated, and, as I
say, from the instrumentalist perspective, difficult to render coherent anyway.
To sum up on the instrumentalist response, it is clear that instrumentalism
does offer a strategy for handling most of the tensions, difficulties or puzzles ofmodern economics. But it does not provide much help with overcoming the
problem of poor empirical fit. Moreover, the methodological consequences itdoes bear in such, or indeed any, circumstances are inherently conservative; thedemand can only be for more of the same. The chief stipulation is to carry on
looking, to search always that little bit harder. The interesting question, clearly, iswhether a realist orientation can take us any further.
4

It is illuminating to consider Shionoya’s assessment of Schumpeter’s strategy in this respect.
Shionoya writes:“In Wesen Schumpeter repeatedly speaks of the ‘results’ of hypotheses and theories;
hypotheses and theories are to be assessed by their usefulness in producing ‘results.’ What,then, are ‘results’? He asserts that fitness to reality is a necessary condition for a theory to be
useful. The fitness of theories to reality refers to the ability of theories to describe, predict, andexplain phenomena...The condition that theories fit or be consistent with observable facts,
however, cannot be the exclusive criterion for ascertaining the usefulness of theories; it is also
important to see how consistent they are with the facts, because...facts allow an infinite numberof mutually incompatible theories. Other criteria must be invoked, therefore to chose among
theories which are all more or less consistent with facts. One may bring in ad hoc criteria suchas simplicity, generality and the like. But Schumpeter is consisting in defining the usefulness ofhypotheses and theories by applying Mach’s principle of economy of thought to the appraisalof theories that are all equally regarded as fitting the facts” (Shionoya 1990, p. 212)

Two Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

167

3. Realism in Modern Economics
I turn, then, to examine the sort of response facilitated by the orientation I shalldesignate realist. Let me first briefly indicate what I understand by the term. In
fact, any position might be said to be a philosophical realism that asserts theexistence of some disputed kind of entity, such as black holes, class relations,
economic equilibria, gravitons, tanon-neutrinos, utilities. Clearly on this definition
we are all realists of a kind, and there are very many conceivable realisms.
In science, in particular, a realist position, i.e., a scientific realism, asserts that
there are ultimate objects of scientific investigation, and that these exist for themost part quite independent of, or at least prior to, our investigation of them.
Now the conception of realism for which I want to argue is closely and explicitly bound up with ontology or metaphysics, i.e., with enquiry into the nature ofbeing, of existence, including the nature, constitution and structure of the objectsof study. Indeed, it is a forthright, systematic and sustained concern withontology, and in particular with elaborating the broad nature of aspects ofnatural and social reality, that explains, in what follows, the term realism being
used in reference to the project and perspective distinguished.
Might it not be said that if we are all realists, no project warrants being distinguished or identified as realist (see Hausman 1998, for an argument of this sort)?
Certainly, predictive instrumentalists are realists of sorts; they are realists about
the phenomena recorded in the observation reports that it is the job of the theoretical instruments to cover or accommodate. And some instrumentalists, as wehave seen, are realist about the theoretical claims sustained—even if prepared toacknowledge that the claims are fictitious. They accept elements of what Mäki
terms semantic realism. Moreover, whether or not instrumentalists are concerned
about it, their methods and criteria always carry ontological presuppositions ofsome sort, and some instrumentalists explicitly acknowledge that some categories
of unobservables refer even if they do not represent (see for example, Nagel
1961). Are we not then all realists, with the consequence that, as Shionoya (1990,
p. 195–196) suggests5, the distinction between realism and instrumentalism isblurred at best?

5

As Shionoya recognises:“Instrumentalism claims that the theoretical (nonobservational) terms of science are not reallyassertions about the world but nonreferring symbolic devices for permitting derivations of statements about observable phenomena. Thus it denies ontological status to theoretical entities andstructures. But some instrumentalists, still holding the thesis that true theories are neither true nor
false, admit that some theoretical entities are real. This is the reason why the difference between
instrumentalism and realism is sometimes viewed as blurred; moreover, this reason why we regard
the response to realism as a subsidiary claim of instrumentalism” (Shionoya 1990, p. 195–6).

168

Tony LAWSONAs I say, I think we are indeed all realists. But it does not follow that the term
realist cannot be used to designate a project, or indeed that it does not makesense to distinguish realists from instrumentalists. We, most of us, occasionallysing, teach, study, clean, joke and so forth, but this does not render meaninglessthe act of referring to some people as singers, teachers, students, cleaners, comedians. The use of such labels indicates that the activity in question is carried out
by the person or agency so designated in an explicit, systematic and sustained
way; this is the distinction expressed when performers are labelled by way ofreference to their activities. And in similar fashion it is precisely an explicit andsustained concern with ontology to which I refer when attributing the realist
label. That is why, in tying realism to ontology above, the endeavour wasreferred to as explicit, sustained and so forth. This commitment is essential to any
realist enterprise. And it is such a commitment that instrumentalists, amongst
numerous others, clearly lack.
I now want to argue that such a realist orientation brings with it various
methodological implications regarding the conduct of economics, and certainly
encourages alternative responses to the current situation, and I believe more
fruitful ones, than the instrumentalist emphasis on ‘more of the same.’
3.1. Realism to the Rescue?

Realists of the sort I am here identifying are concerned to explain the world. And inprinciple there are no phenomena considered necessarily outside the realist
purview. To the contrary, the realist can rest easy only when all phenomena ofimmediate interest are explained and apparent puzzles, or tensions resolved. So far,I have mentioned various surprising or interesting phenomena in passing. And it
seems beholden on any satisfactory realist project concerned with matters raised
here, that an account is developed which has sufficient explanatory power toaccommodate such observations as have been mentioned. Let me briefly enumerate
the various observations made along the way. They can be grouped as three types:i) From the point of view of providing social illumination mainstream
economics is none too successful. Certainly it performs badly in terms ofaccommodating the data. Further, that project is widely perceived as unrealistic, without clear direction and in a state of disarray.
ii) A good number of economists are of the view that the realisticness of their
theories is not a problematic issue, and proceed, in effect, as though theories can serve primarily as instruments of prediction.
iii) Despite any clear articulation, a common response to econometric forecasting
failure is to revise models by including more variables and digging deeper.

Two Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

169

Now how can an explicit ontological orientation hope to make a difference tothe situation? It can so, in essence, by putting a posteriori analysis in place of an
essentially a priori statement merely of hope. Suppose that some tool has beenfound to be useful for some task, say a fountain pen for writing a letter. And
suppose for that reason alone it is offered as a tool for a different task in adifferent sphere, say for the cutting of grass. We know this to be absurd justbecause we know something both of the nature of the grass, and so of the sortof tool which will be useful for its cutting, as well of the nature of the pen, andso of its limitations regarding the cutting of grass. But in analogous fashion, by
way of ontological enquiry we can learn something of the nature of social
phenomena, and thereby also of the sorts of methods that promise to be
successful in illuminating the social domain as well as those which stand little
chance on this. Ontology, then, or so I shall argue, can provide constructive
methodological insight as well as reveal the limits of certain methods adopted
merely on more a priori criteria. For the realist, then, in place of adopting
methods because they are thought to have proven successful in other domains,or are considered essential to all science, or are considered proper according tosome conventionalist criteria, or whatever, the aim also is to develop methods tofit the specific material of the social domain.
3.2. Deductivism

How might we start? Let me first examine the methods of the mainstream anddetermine their ontological presuppositions. I will then suggest that the latterare not particularly characteristic of the social domain, so that it is hardly
surprising that the methods wielded fail. However, I shall argue that the conditions of the social realm are such that economics can be a successful sciencenone-the-less—albeit only if we tailor our methods to insights we can obtain
into these conditions.
I have already argued that the essence of the modern mainstream is themethod of formalistic modelling. Now it is essential to recognise that the sorts offormalistic methods used by economists rest on the deductivist mode of explanation or its associated conception of science. By this I mean only that suchmethods presuppose, as a necessary condition of their application, closed
systems, i.e., those which support regularities of the form ‘whenever event (orstate of affairs) x then event (or state of affairs) y’. These regularities can be ascomplicated as you like—they may involve numerous variables, and perhaps be
associated with non-linear representations—and be deterministic or stochastic.
According to deductivism, event regularities are essential to the scientific or
explanatory process, however interpreted.

170

Tony LAWSON

Now there can be no doubting that deductivism is a central, indeed characteristic, feature of modern economics. As I say, it is essential to all forms of mathematical modelling; it is explicitly posited in seemingly every econometrics text
book and in most papers in this field; and reasonably often acknowledged
explicitly by mainstream theorists as well. Thus, for example, we find Hahn criticising dissenters from the mainstream approach for not realising that the deductivism he recommends is indeed the universal approach:“Opponents of [economic] theory often argue that it is tautologous because
it consists of logical deductions from axioms and assumptions. If one is kindto such critics one interprets them as signalling that they do not care forthese axioms or these assumptions. In any case all theory in all subjects
proceeds in this manner” (Hahn 1985, p. 9).
And Allais supposes the existence of regularities is the phenomenal situation ineconomics, a state of affairs which explains, as he sees it, why economics is ascience resting on the same general principles and methods as natural sciencessuch as physics:“The essential condition of any science is the existence of regularities which
can be analyzed and forecast. This is the case in celestial mechanics. But it
is also true of many economic phenomena. Indeed, their thorough analysis
displays the existence of regularities which are just as striking as thosefound in the physical sciences. This is why economics is a science, and why
this science rests on the same general principles and methods of physics”(1992, p. 25).
Now a condition for the supposed universal relevance, in the social realm, ofdeductivism, and so of formalism, is a ubiquity of closed systems. In fact, thereason for the repeated failure of the mainstream project, I want to suggest, issimply that the social realm is everywhere open, that scientifically interesting
event regularities rarely, if ever, occur.
3.3. A Closer Look at Real World Closures

Now to help sustain this claim, and to indicate that, for science, openness is not
an insuperable problem, let me briefly consider rather more closely than economists usually do the nature of the natural realm and of its science. I do not, ofcourse, do so with the intention of arguing straight from natural science to social
science. Rather, the social realm has to be considered on its own terms. But there

Two Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

171

are two strategic advantages in turning to a consideration of the natural realm
and its science at this point. First, the desire amongst economists to be scientists
in the mode of natural scientist is so strong that it is worth showing first—as I
think is easily done—that the formalistic deductivist method is actually notcentral to natural science after all. Second, because closed systems clearly do
occur in the natural realm, though are hardly ubiquitous, indeed are rather
restricted in their occurrence, we can learn by way of examining them, something of the conditions of their occurrence.
Now a significant fact of the matter to emphasise here is that, outside
astronomy, natural scientific closures are mostly confined to experimental situations. Even so, it is worth taking note that experimental results are yet
successfully applied in open (non-experimental) contexts, in situations inwhich event regularities are not to be found. In fact, these two observations
are sufficiently important for us to add them to the list of phenomena forwhich we have to account:iv) Scientifically interesting closures, at least outside astronomy, are mostly
confined to well controlled experimental situations.
v) Experimental results are regularly successfully applied in open systems
where event regularities do not obtain.
Let me immediately provide an explanation for observations iv) and v), theonly sustainable explanation, indeed, of which I am aware (and indeed canimagine). Just before I do so, however, notice how problematic these observations are for the deductivist, including the predictive-instrumentalist, who
considers the elaboration of event regularities to be essential to science. First, theconfinement of event regularities to controlled experiments vastly reduces thescope of application of science; far from having near universal relevance,
science, on such an understanding, is found to be hardly of relevance at all.
Second, because any laws of nature are thought to depend on event regularities,
and given these mostly are located in well-controlled experimental situations, itfollows that laws of nature depend on us, on our establishment of the experimental situation, which is at the very least counter-intuitive. Third, the fact thatscience is regularly successfully applied outside the experiment, in situations inwhich event regularities are not at all in evidence, is quite unintelligible on the
deductivist interpretation.
How then can we explain observations iv) and v)? In order to do so it isnecessary to accept an alternative ontology and conception of science to that
underpinning deductivism. The ontology required is one of structures, powers,
mechanisms and tendencies, etc., that are irreducible to, but which underpin the

172

Tony LAWSON

actual course of events and states of affairs. Once this ontology is established it
supports a conception of science as moving from phenomena at one level to its
conditions or causes at a different, deeper, one. Let me start with ontology.
Consider an aspirin. In virtue of its intrinsic chemical structure it has certain
powers, most obviously to relieve a headache (or pain in general). Or consider
a bicycle. Because of its physical structure it facilitates rides. Now the powersof aspirins, bicycles, and anything else, can exist unexercised; the aspirin may
remain in the bottle, the bicycle in the garden shed. When powers are exercised they work by way of mechanisms or processes. For example, the aspirin
and human body work together in such a way as to contribute to the relief ofthe headache. The category of tendency is reserved to capture the idea thatsomething can be continually active even if its effect is not completely actualised in the outcome. If I have a headache the aspirin will have a tendency tomake it better. And this remains the case even if the headache actually ends up
worse because I take the aspirin with a bottle or two of sake, and while
listening to a loud noise. Here the workings of the sake and the noise produce
countervailing tendencies, dominating the effects of the tendency of the aspirin
to relieve the headache.
It should be emphasised that the operation of a tendency in an open system,
i.e., in the face of countervailing tendencies, licences claims that are transfactual
as opposed to being merely counterfactual. They do not inform us of what
would happen if things were different but of what is happening in reality whatever the actual outcome. They tell us, for example, that the gravitationaltendency acts on the pen in my hand whatever I do with it. The gravitationaltendency is not merely something that would, counterfactually, have an impact if
I dropped the pen in an experimentally created vacuum; it is something that is
acting on the pen and continues to do so whether I drop it in a vacuum, throw itin the air, continue to write with it, or merely place it in my pocket.
Armed with this ontology, and I believe only if so, observations iv) and v) areeasily explained. According to it science is no longer restricted to, or primarily
concerned with, correlating actualities; rather it aims to uncover the mechanisms,
etc., that govern surface phenomena. And the experiment can be recognised as
an attempt to intervene in reality to isolate a stable mechanism or tendency fromcountervailing ones so that it is more easily empirically identified. The production of an experimental event regularity—between triggering conditions and theeffects of the mechanism—just is an aspect of this process.
From this perspective none of the problems with the deductivist conception
arise. First, science is not restricted to the experimental situation; mechanisms areoperative and identifiable all over the place, whether or not event regularities arein evidence. The experiment, with its possibility of event regularities, is just one

Two Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

173

contribution to the scientific process. Second, there is no longer anything
counter-intuitive about the confinement of event regularities to the experimental
situation. For laws of nature no longer are considered to express event regularities, but rather the workings of underlying mechanisms and tendencies. From thisperspective the well controlled experiment can be seen not as a situation inwhich a law of nature is produced, but merely as one wherein, as I say, it isempirically identified. Third, the fact that the results of experimental research areapplied in open systems is also no longer surprising. For the objects of thisresearch are now recognised as being mechanisms or tendencies, etc., many ofwhich, if triggered, operate transfactually, i.e., inside and outside the experimental situation alike. The gravitational tendency, as noted, is operative not onlyin the experimental vacuum, but equally, if transfactually, on the autumn leaf
even as if flies over roof tops and chimneys.
Given the explanatory power of this perspective—a component of a broader
view that has been systematised as critical realism in economics—I think it canbe accepted. But it follows from it that economists have, in their abductions, seriously mischaracterised natural science. Formalistic modelling activities, or the
event regularities which condition them, are highly restricted even in the natural
sphere, and in the end inessential to the natural scientific process. Rather, theessence of natural science is seen to be the move from a phenomenon of interest
at any one level to a cause lying at a different ‘deeper’ one. And although thecontrolled experiment can aid this process, there is, as I say, no reason to
suppose it to be a necessary aspect.
3.4. The Social Domain and its Science

Does this conception of science—entailing a movement from phenomena at one
level to causes at another—carry over to the social? Notice that I am not wanting
merely to assert that it does, but to question whether it is possible.
What first of all is the social realm? It is typically defined as that domain of all
phenomena whose existence depends at least in part on intentional humanagency. And it is clear that, for this domain, the conception of science in question does indeed carry over. Central to the possibility of science carrying over isthe condition that the sphere of reality to be investigated is structured: it is irreducible to actualities such as events and states off affairs; it includes structures,
powers, mechanisms and the like. And the social realm is easily seen to be so
structured. Behind speech acts are rules of language; behind my cashing ofchecks, a banking system; behind my motoring acts, systems of highway code;and so forth.

174

Tony LAWSON

3.5. The Specificity of Social Ontology

But there are differences between the natures of the social and natural realms as
well. First, although, like natural structure, social structure conditions ouractions—when I drive home I depend on gravity and the highway code alike—social structure depends in turn on us and our activities. Social structure, then, isboth condition and consequence of human activity. The Japanese language, forexample, is a (typically unacknowledged) condition of the speech acts ofJapanese people, and its continued reproduction (and transformation) is equallya consequence of the sum total of people engaging in the Japanese language.
Social being, then, is inherently dynamic; it is a transformative process inmotion. In critical realism this is systematised as the transformational conceptionof social activity.
Second, the social realm seems to be very highly internally related or holistic.
Two things or aspects are said to be internally related when they are what they
are, or do what they, in virtue of the relation in which they each stand to theother. Thus, employers and employees, landladies or landlords and tenants,
teachers and pupils, parents and children, etc., are internally related; you cannot
have the one without the other. Notice that in the social realm it is positions
rather than individuals that are internally related. I am a university lecturer, andas a result I have various rights, tasks, obligations and duties to perform, etc. But
if I were to resign tomorrow, someone else would take over my job and inherit
the same set of obligations, etc. They are attached not to me but to my position.
We can see that this is true of all positions. We can also easily see that we all
simultaneously occupy a very large number and range of positions as parents
and children, employers or employees, teachers, students, members of religiousor political groups, and so on. And each position is typically internally related toa large number of others. As a result, society emerges as a highly internallyrelated phenomenon. It is indeed an internally-related position-practice system
into which agents essential slot, and which, through the collective actions of suchagents, is continually reproduced and/or transformed through practice (for an
extensive discussion see Lawson 1997, chapters 12 and 13).
These latter elements of social ontology have been developed here in a somewhat fast and sketchy manner. As a result, the aspects of social being to which I
have referred, have been discussed only at an extremely high level of abstraction. However, I think this brief elaboration is sufficient for me to establish mybasic claim. These are that i) the study of social phenomena can be scientific in
the sense of natural science, because the social world is structured; but, ii)
because of the highly internally-related and intrinsically dynamic nature of thesocial domain, social closures may not be possible. In the natural sciences,

Two Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

175

closures are produced in experimental situations where isolatable stable mechanisms are effectively shielded from others by way of human manipulation. In thisway they are empirically identified. The highly internally-related and dynamic
nature of society suggests that it is unlikely that stable bits of it can somehow be
similarly experimentally cut off. Thus, although the structured nature of societymeans that the latter can be studied scientifically in the sense of natural science,
mainstream deductivist economists, with their near exclusive focus on closed
systems, appear to have succeeded only in universalising that one limited aspectof natural scientific practice which, in the social realm, has hardly any relevanceat all.
The realist approach, then, does not lead to the methodological conclusion of
the instrumentalist that we need more of the same, that we persevere in ourefforts to elaborate event regularities of interest. Instead, it bears the implicationthat economics ought really to move in a different direction entirely, to develop
ways of uncovering causal mechanisms in a seemingly quintessentially open, as
well as intrinsically dynamic, and highly internally-related, social reality.

4. Making Sense of All the Evidence
At this point I am in a position to be able also to explain the observations noted
earlier. Let me briefly recall what they were:i) From the point of view of providing social illumination mainstream
economics is none too successful. Certainly, it performs badly in terms ofaccommodating the data. Further, that project is widely perceived as unrealistic, without clear direction and in a state of disarray.
ii) A good number of economists are of the view that the realisticness of their
theories is not a problematic issue, and proceed, in effect, as though theories can serve primarily as instruments of prediction.
iii) Despite any clear articulation, a common response to econometric forecasting
failure is to revise models by including more variables and digging deeper.
Observation i) is easily explained from the realist perspective by recognisingthat mainstream economists, given the very nature of their project, are attempting
to express the phenomena of the open social system as though they were generated in a closed one. This activity is a bit like trying to force a square plug into around hole—it cannot possibly work, and not surprisingly generates all the signsof tension, inconsistency, and general disarray that we see.
Observation ii) is also easily explained, by the recognition that, in their formalistic

176

Tony LAWSON

modelling, activities, economists are very much driven by a desire to appear likenatural scientists (the fact that here they have been found to be acting on a
misconception of the nature or essence of natural science does not obviate thispoint). And it has to be admitted that in the natural sciences, an instrumentalist
orientation has sometimes proven useful. For example, Ptolemy’s astronomy
made it possible to fit and predict the motions of the planets with quantitative
precision, facilitating, amongst other things, a reasonably accurate calendar. Yet
the geometric constructions of Ptolemaic astronomy made little theoretical sense
given other understandings of the physical world. It was impossible, for example,
to fit non-decaying epicycles—as the Ptolemaic system required—into a heavenfull of crystalline spheres that revolved naturally around the centre of theuniverse. However, many impressed with the ability of the system to predict oraccommodate observations on planetary movements, came to accept Ptolemaic
astronomy as an instrument of prediction. The same instrumentalist orientation is
also taken by some to aspects of modern quantum mechanics, which has provento be predictively successful, if difficult to interpret.
But the relevant point here, of course, is that all such examples refer to closedsystem situation where predictive success had already been achieved. The
celestial closure, for example, is just a fairly unique example of a naturally occurring closure (at least relative to our life spans). Of course it is a spectacular one.
No doubt it is precisely its spectacular nature that accounts for some part of thegeneral failure from Laplace onwards to realise that the situation is relatively
uncommon, to appreciate that the celestial closure is far from being indicative of
the phenomenal situation that can be expected to prevail more or less everywhere. This failure, in turn, appears to be largely responsible for the widespread,
if tacit, acceptance, formerly in philosophy, and currently in the social sciences inparticular, of a ubiquity of constant conjunctions of events in nature, and thus of
the doctrine of the actuality of causal laws.
In any case, observation ii) is mow explained. When natural scientists haverun into difficulties in interpreting their theories they have often fallen back on
an instrumentalist posture. Some mainstream economists, happy to act likenatural scientists, have chosen to follow suit. The difference, as I say, is thatnatural scientists have done so in closed system contexts, where their theories
had already been found to be predictively successful, to avoid any seemingly
unnecessary metaphysical worry. Economists, though, are adopting an instrumentalist stance in contexts where predictive success has not been achieved,
where there is cause for concern on all fronts. The borrowing of the instrumentalist orientation, then, is, in this context, if explicable, quite without a legitimate rationale.
Observation iii) is also now easily explicable. By way of examining theTwo Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

177

well-controlled experimental situation it has been found that, in order systematically to generate an event regularity, a stable mechanism must be isolated andtriggered. Mainstream economists concerned to produce empirical models must,
if tacitly, be looking to mimic this experimental set-up; they must be looking toelaborate analogous conceptions. In their deductivist models they need ways ofguaranteeing that under conditions x some predictable outcome y follows.
Clearly, to mimic in their theorising the stable and isolatable mechanisms which
are found to form the objects of the experimental natural sciences, two requirements are entailed. First, the objects of analysis must be intrinsically closed,
essentially atomistic, guaranteeing that, in the same conditions, the posited
objects of analysis will always act in the same way, that x always tends to
produce y. Second, an extrinsic closure condition is also required ensuring that
all factors that can influence y are internalised within the system, or effectively
held off. Putting these two requirements together, we find that deductivist modelling effectively requires conceptions of isolated crypto-atoms. And in modern
economics, this is indeed essentially all we find. The easiest, though not unique,way of achieving intrinsic closure, of course, is to assume agents always optimise
in conditions in which a unique optimum occurs. Extrinsic closure is achieved byassuming that external factors are constant or orthogonal in their effects.
We can thus, now, easily interpret the two systematic responses to econometric modelling failure reported in observation iii). The resort of including evermore variables in the analysis, is a reaction to the possibility that the extrinsic
closure condition has not yet been adequately satisfied, that the system has yet
to be adequately isolated. The resort of “digging deeper” is a reaction to thepossibility that the intrinsic closure condition has yet to be satisfied, that theanalysis is not yet sufficiently atomistic. Such responses clearly lead to two
regresses which result, in the limit, in a (constructed) social world so large it
excludes nothing, couched in terms of human atomistic agents so small they
include nothing. The realist alternative is to recognise the structured as well as
open nature of social reality, and to seek to replace (or at least supplement) themainstream concentration on correlation analysis, with a turn to causalist explanation. It is to encourage a move in a quite different direction. The supported
aim is not to broaden the analysis at the level of surface phenomena but tomove behind the latter to identify the conditions by which surface phenomenaof interest are produced.
There is not space here to indicate how this causalist analysis might proceed
in practice. But this is something to which I have attended at length elsewhere,
giving rise to a position systematised as contrastive explanation (see for example,
the second half of Lawson 1997). I hope that I have here at least succeeded inshowing that instrumentalism and realism bear contrasting implications. These178

Tony LAWSON

may not be much in evidence in closed-system situations, at least where ascience is seemingly successful. But where the systems to be analysed are quintessentially open, as appears to be the case with economy and society, the twoorientations offer in fact a world of difference.
4.1. Final Comments and Conclusion

Let me, by way of concluding remarks, frame my argument rather differently.
Although it is common in modern economic methodology to contrast realism
and instrumentalism, to do so is, at best, only part of the relevant story. In thecontext of modern economics, the central oppositions, dividing mainstream
economists and their more heterodox opponents, are, if not always so
expressed, between those who insist, or at least prioritise, closed-systems
formalistic modelling methods and those who do not; between those who thinkthat mimicking natural-scientific method is a sufficient basis for fashioning themethods of social science and those who do not; between those who neglect
ontology and those who do not; and between reductionist and non-reductionist
approaches to science.
Instrumentalists and realist find themselves on opposite sides of these oppositions. But if realist social theorists as conceptualised here may well figure as thesecond part of each described contrast, instrumentalists no not exhaust theformer part of each pair. Certainly, not all who accept closed-systems formalistic
modelling seem happy about adopting the instrumentalist stance. Hence thevarious expressions of dissatisfaction with the whole situation of modern mainstream economics referred to at the outset.
Here I have indeed allowed the label realist to be used to designate those who
accept the need for ontological elaboration. Once an ontological stance is taken,
I find it difficult to imagine that the conclusion will not be drawn that the socialworld is open and structured (including dynamic and internally related). Still it
remains possible in principle that an alternative realist conception will eventually
be sustained; this is why the one defended here has been systematised not as
realism per se, but as critical realism in economics. Of course, once an ontological orientation is adopted, the nature of social reality determines whether areductionist method is justified. I suppose it could have turned out that reality
was of a nature such that reductionism was indeed an appropriate methodological stance. However, if the ontological analysis included above, and elaborated
more fully under the head of critical realism, is at all correct, methodologicalreductionism is merely an unnecessary obstacle to social illumination.
In truth, I think both historically and in principle, instrumentalism andrealism—as I am understanding these positions here—only come into clear

Two Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

179

opposition in situations where there are difficult puzzles, tensions and other difficulties surrounding the interpretation of scientific theories and their inter relations, and connections to practice. For the realist the impulse is to criticallytransform the situation, to transcend as many of the difficulties as is feasible. The
term critical in critical realism is there for a reason. For those who prefer to livewith the situation, however, the instrumentalist orientation offers hope, or at least
sanctuary. It offers, or allows, in the guise of an apparently respected philosophical tradition, a relaxed attitude to puzzles and tensions, a possibility that some
may even find liberating. Perhaps this explains the relaxed attitude to the econometric ‘malpractice’ that Leamer and others find to be so endemic:“The opinion that econometric theory is largely irrelevant is held by anembarrassingly large share of the economics profession. The wide gap
between econometric theory and econometric practice might be expected tocause professional tension. In fact, a calm equilibrium permeates our journals and our meetings. We comfortably divide ourselves into a celibate
priesthood of statistical theorists, on the one hand, and a legion of inveterate sinner-data analysts, on the other. The priests are empowered to draw
up lists of sins and are revered for the special talents they display. Sinners
are not expected to avoid sins; they need only confess their errors openly”(1978, p. vi).
However that may be, a problem with adopting such a relaxed attitude totension and inconsistency in the context of modern economics is the absence ofany cushion of predictive successes on which to fall back. The result so
achieved, indeed, is conceivably the worst possibility of all. For not only is the
subject marked by failure, the instrumentalist stance serves as an excuse to do
nothing worthwhile about it.
Only if the working scientist possesses the concept of an ontological realm,
distinct from her or his claims to knowledge of it, can he or she entertain thepossibility of rational criticism of any such knowledge claims. To be a fallibilist
about knowledge and method it is necessary to be a realist about things.
Conversely, to be a sceptic about things is to be a dogmatist about knowledge
and conventional method. When a subject is faring as poorly as is the modern
academic discipline of economics, adopting the latter position, of which
instrumentalism is a prime example, must be recognised as a debilitatingorientation indeed.

180

Tony LAWSON

References
Allais, M. 1992. “The Economic Science of Today and Global Disequilibrium,” in Global
Disequilibrium in the World Economy, edited by M. Baldassarri, J. McCallum, and R. A.
Mundell, Basingstoke: Macmillan.
Bell, D. and Kristol, I. 1981. The Crisis in Economic Theory, New York: Basic Books.
Blaug, M. 1980. The Methodology of Economics: Or How Economists Explain, Cambridge:
Cambridge University Press.
Friedman, M. 1953. Essays in Positive Economics, Chicago: University of Chicago Press.
Gee, J. M. A. 1991. “The Neoclassical School,” in A Modern Guide to Economic Thought: An
Introduction to Comparative Schools of Thought in Economics, edited by D. Mair, and A. G.
Miller, Aldershot: Edward Elgar.
Hahn, F. 1984. Equilibrium and Macroeconomics, Oxford: Basil Blackwell.
———. 1985. “In Praise of Economic Theory”, the1984 Jevons Memorial Fund Lecture, London:
University College.
———. 1994. “An Intellectual Retrospect,” Banca Nazionale del Lavoro Quarterly Review:
September, 245–58.
Hausman, D. M. 1998. “Problems with Realism in Economics,” Economics and Philosophy, 14,
185–213.
Hendry, D. F. 1983. “On Keynesian Model Building and the Rational Expectations Critique: a
Question of Methodology,” Cambridge Journal of Economics, 7(1): 69–76.
———. 1986. “Economic Methodology: a Personal Perspective,” in Advances in Economics
edited by T. F. Bewley. Cambridge: Cambridge University Press: 29–48.
Hendry, D. F., Leamer, E. E. and Poirier, D. J. 1990. “The ET Dialogue; A Conversation on
Econometric Methodology,” Econometric Theory 6: 171–261.
Kay, J. 1995. “Cracks in the Crystal Ball,” Financial Times, 29 September.
Kirman, A. 1989. “The Intrinsic Limits of Modern Economic Theory: The Emperor Has No
Clothes,” Economic Journal, 99(395): 126–39.
Lawson, T. 1997. Economics and Reality, London: Routledge.
———.1999. “What Has Realism Got to Do With It?”, Economics and Philosophy, 15: 269–82.
Leamer, E. E. 1978. Specification Searches: Ad hoc Inferences with Non-Experimental Data,
New York: John Wiley and Sons.
———.1983. “Let’s Take the Con Out of Econometrics,” American Economic Review, 73 (1):34–43.
Leontief, W. 1982. Letter in Science, 217: 104–7.
Lucas, R. E. 1986. “Adaptive Behaviour Economic Theory,” Journal of Business 59(4).
Mäki, U. 1998. “Instrumentalism,” in The Handbook of Economic Methodology edited by J. B.
Davis, D. Hands and U. Mäki, Cheltenham: Edward Elgar.
Mc Aleer, M. 1994. “Sherlock Holmes and the Search for Truth: A Diagnostic Tale,” Journal of
Economic Surveys. 8(4), 317–70.
McCloskey, D. 1986. The Rhetoric of Economics, Brighton: Wheatsheaf Books Ltd.
Nagel, E. 1961. The Structure of Science, New York: Harcourt Brace.
Popper, K. R. 1963. Conjectures and Refutations: the Growth of Scientific Knowledge, New
York: Harper and Row.
Rubinstein, A. 1995. “John Nash: the Master of Economic Modelling,” Scandinavian Journal of
Economics 97(1): 9–13.

Two Responses to the Failings of Modern Economics:
the Instrumentalist and the Realist

181

Schumpeter, J. A. 1994 [1954]. History of Economic Analysis, London: Routledge.
Shionoya, Y. 1990. “Instrumentalism in Schumpeter’s Economic Methodology”, History of
Political Economy, 22(2); 187–222.
Strassmann, D. L. 1994. “Feminist Thought and Economics; Or, What Do the Visigoths Know?”,
American Economic Review, Papers and Proceedings, 84(2); 153–58.
Wiles, P. and Routh, E. 1984. Economics in Disarray, Oxford: Basil Blackwell.