Economic formalism crowds out the analysis of change and adjustments to change under capitalism. The style of analytical narrative that was practiced by the first generation of neoclassical economists, in contrast, is more productive of genuine economic understanding. Despite Daniel Haus‐man's challenging argument to the contrary, I maintain that Joseph Stiglitz's work is formalist at its core. While I agree with Robert Heilbroner's critique of contemporary economics, there is a limited sense in which nonformalist economics can rely on universalistic assumptions. (...) And Thomas Mayer has provided useful guidelines for focusing nonformalist analysis on real‐world economic problems. (shrink)

F. A. Hayek's realistic economic theory has been replaced by the formalistic use of equlibrium models that bear little resemblance to reality. These models are as serviceable to the right as to the left: they allow the economist either to condemn capitalism for failing to measure up to the model of perfect competition, or to praise capitalism as a utopia of perfect knowledge and rational expectations. Hayek, by contrast, used equilibrium to show that while capitalism is not perfect, it contains (...) error‐correcting institutions that bring it closer to perfection than is intuitively apparent. (shrink)

The recent economic crisis has brought to the fore another crisis that has been going on for many years, that of economic theory. The latter failed to predict and, after the event, cannot offer an explanation of why it happened. This article sketches out why this is the case and what constitutes the crisis of economics. On this basis, the case is made for the revival of an interdisciplinary political economy as the only way for offering an explanation of the (...) workings of the economy in general and of economic crises in particular. (shrink)

Theories of social capital are popular because they claim to insulate society against both the coercion of states and the individualism of markets, as well as to better explain social prosperity and economic performance. But in fact laws, citizenship rights, compulsory associations and political institutions do a much better job of the former, while large-scale civic movements, like Poland’s Solidarity, with demonstrable impacts on the configuration of political power, are the historic keys to democratic prosperity and social confidence.