A blow against the fondness for formulae

A growing number of economists are beginning to appreciate the serious limitations of the current state of the subject. For many of these, it is probably because of, rather than despite, their own extensive training in the arcane mathematics of the discipline. Rick Szostak is a refreshing addition to this list.

Both the title and the cover description suggest a certain amount of pretension about the book. We are told, for example, that it "shows how the cultural influences identified by art historians have affected economic theory assessing these effects through a wide-ranging study of the development of surrealism, cubism and abstract art".

These issues are discussed, but they are in many ways secondary to the methodological and philosophical questions Szostak raises and discusses. As Szostak points out, he makes extensive use of the rhetorical approach of gentle satire. The title and artistic parallels are intended to entice readers who would never otherwise touch a methodological treatise into reading this one.

Szostak deserves to succeed. His style is clear but subtle, and the book is full of insights. It is readily accessible to readers from other disciplines who are anxious to find out more about what lies behind economists' claims to understand the world.

His basic thesis is not that orthodox economics is wrong or that it is totally without insight. Rather, despite the claims of its complete generality made by true believers, the theory captures only a very small part of reality.

Szostak gives a good illustration with international trade theory. This shows that, with free trade, wages will be equalised across countries. A vast amount of energy has gone into trying to explain why this has conspicuously failed to happen. Wages in the United States are the highest in the world, but the US exports labour-intensive products, completely contrary to the predictions of the theory. Yet the conventional theory is very elegant and continues to be taught and believed around the world.

Szostak accounts amusingly for the increasing dominance of economics by mathematics and modelling techniques that require years of arduous graduate work to acquire. Economists, he notes, speak primarily to each other. They therefore operate mainly in a producer-dominated industry. Further, it is an industry in which the taxpayer foots most of the bills. In such conditions there is a tendency for high-tech goods to be produced.

Szostak understands the true complexity of the world, and his views are firmly in the tradition of the two great English economists of the first half of this century, Alfred Marshall and John Maynard Keynes. Both had extensive training in mathematics at Cambridge, yet both were very wary of introducing maths into economics. Szostak extols the virtues of economic history, a discipline that Keynes expressed the intention of taking up at the age of 70.

There is a great deal to be said for the study of economic history. But Szostak perhaps underestimates the extent to which the new approach of complexity theory can be of value. This combines formal modelling with a recognition of the uncertainty inherent in most real-life situations. But it will be impossible to induce economists to move away from current methodologies unless some form of alternative analytical approach is offered.

Overall, however, the book is entertaining and at the same time serious, a description that few books about economics merit. With its readable style, it deserves to have a wide readership among economists and those beyond the subject.

Paul Ormerod is chairman, Post-Orthodox Economics.