Power in Economics

A Reflection on Dymski's Analysis

This Liberation Letter is motivated by a close reading of Gary Dymski’s AFEE presidential speech (reference provided below).

The relationship between power and economics reveals itself in multiple, interwoven dimensions that extend far beyond conventional analyses of market power or monopoly. At the theoretical level, power manifests in how certain methodological approaches achieve dominance within the discipline. The ascendancy of Dynamic Stochastic General Equilibrium (DSGE) models in mainstream macroeconomics exemplifies this dynamic - not through their superior explanatory capacity, but through their role in defining what constitutes "proper" economic analysis.

This methodological power operates through exclusion. As Dymski's article illuminates, economists who don't express their ideas using DSGE frameworks are effectively rendered invisible in mainstream discourse. This parallels Tolkien's Ring of Power metaphor - the ability to make alternative viewpoints disappear represents a form of absolute power that corrupts absolutely.

Yet paradoxically, this power contains inherent mathematical contradictions. The Sonnenschein-Mantel-Debreu theorem demonstrates that models with missing markets generate infinite equilibrium solutions. This mathematical reality suggests that no single theoretical framework can claim exclusive authority. Nevertheless, the mainstream maintains its dominance not through superior explanation but through institutional power - control of leading journals, prestigious appointments, and policy influence.

The alternative approaches developed by institutional economics demonstrate a fundamentally different relationship with power. Dymski argues that institutional economics' position outside the mainstream, rather than being a weakness, provides three distinctive strengths. First, its analytical flexibility - free from the methodological straitjacket of DSGE models - allows institutional economists to explore economic phenomena without predetermined theoretical constraints. This flexibility stems from institutionalism's emphasis on theoretical innovation as a historically-informed discovery process without a pre-given analytical destination.

Second, institutional economics maintains a systematic critique of power, both in economic relations and in the construction of economic knowledge itself. This stems from its historical roots in analysing monopoly power and social upheaval but extends to questioning how certain theoretical approaches achieve dominance. Rather than seeking methodological dominance, institutional economics recognises multiple forms of truth rather than pursuing a singular 'T-truth.' This methodological pluralism acknowledges that different theoretical frameworks illuminate different aspects of economic reality.

Third, institutional economics' grounding in pragmatic philosophy, particularly through figures like John Dewey, provides a sophisticated understanding of knowledge's limitations. As Dymski demonstrates through Rorty's work, this means recognising that we can make contextual 't-truths' while abandoning the quest for absolute 'T-truth.' This philosophical foundation explains why institutional economics can maintain its analytical flexibility while still producing rigorous analysis.

These characteristics proved particularly valuable in analysing the polycrisis that emerged after 2008. The financial crisis provided a telling example - despite mainstream macroeconomics' inability to predict or explain the crisis, its methodological dominance remained largely unchallenged. While mainstream economists struggled to explain events through their DSGE framework, institutional economists could draw on their diverse analytical tools and their understanding of power relations to provide more comprehensive analyses. This persistence of DSGE dominance reflects not intellectual victory but rather the embedded power structures within the discipline.

The implications extend beyond academic discourse into policy realms. When certain theoretical approaches dominate, they shape which policy options appear viable and which are dismissed as unrealistic. This filtering of possibilities through a particular theoretical lens represents another dimension of power - one that affects real-world outcomes through its influence on policy choices.

The tension between theoretical unification and epistemological modesty represents a significant challenge within heterodox economics more broadly. When any scholar aspires to create a grand unified framework for their theoretical tradition, they risk replicating the same epistemological difficulties that characterise mainstream economics - the quest for what Rorty would call a 'T-truth' rather than accepting the more modest aim of developing contextual 't-truths.'

Such unifying theoretical aspirations, though different in content from the DSGE approach, share something of its architectural ambition. These attempts at unification can become their own kind of Ring of Power - efforts to establish theoretical authority that, while perhaps well-intentioned, may ultimately constrain rather than enhance our understanding.

The challenge becomes particularly acute within heterodox traditions. While seeking to challenge mainstream orthodoxy, heterodox approaches can sometimes develop their own forms of theoretical power and exclusion. The desire to create comprehensive syntheses, though intellectually ambitious, may inadvertently reproduce the very patterns of theoretical dominance they originally sought to challenge.

The relationship between theoretical unification and power thus reveals itself as more complex than a simple opposition between mainstream and heterodox approaches. As Dymski argues, institutional economics' three defining characteristics - analytical flexibility, critique of power, and pragmatic philosophical foundations - provide tools for understanding both economic phenomena and the power relations that shape economic theory itself. The challenge lies in developing approaches that can recognise and analyse power while resisting the temptation to claim absolute theoretical authority - what we might call the Ring of Power in economic theory.

References

Dymski, G. (2024) '"Contingency, Irony, and Solidarity" in the Era of Polycrisis: Institutionalist Economics beyond the t/T Duality', Journal of Economic Issues, 58(2), pp. 379-396. DOI: 10.1080/00213624.2024.2343244.