Methodology

 Economics as mathematical Geisteswissenschaft

As a human scientist, I view economic methodology in a somewhat different light than economists normally do. Modern economics emerged from the import of mathematical methods of the sciences into economics, the corresponding empirical methods detached. That intellectual move resulted into what I call ‘mathematical Geisteswissenschaft’, the analysis of abstract and ideal-typical models of markets. Contemporary economics departs from this tradition fundamentally in becoming ‘naturalized’. That means, it moves closer to the empirical and analytical methods of the sciences, such as when today assigning a central role to ‘experiments’ in understanding economic behaviour and processes. This methodological turn makes economics an integral part of human sciences. In fact, in experimental economics we often see that  multidisciplinary teams pooling intellectual resources and analytical tools.
However, I think that the tradition of ‘mathematical Geisteswissenschaft’ remains important for economics, combined with thorough empirical methods, especially econometrics. This is because markets are extremely complex systems, and so we need to ground empirical work on abstract models, such as in modern international trade theory, or in game theory in behavioural economics. In my view, these models actually catch the ontological foundations of our thinking about how the economy works, so we shouldn’t misunderstand them as being approximations to empirical descriptions. Nevertheless, this points to the need for ontological reflection in economics, which I regard to be an essential part of methodology. Much of my own work is about the ontology of economics, and I think there is a need for intellectual innovation. In my recent work, I adopted the framework of so-called 'mechanistic' or 'constitutive explanations'. As an example for this, see my recent paper in Entropy:
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If we take the notion of ‘mathematical Geisteswissenschaft’ seriously, this also implies that we have to include interpretive methods of the humanities into economics, which have been eschewed for many decades. This is what I emphasize in my work: Going back to Max Weber, I think that all economic activities involve the fundamental human capacity for sense-making (‘Sinnstiftung’ in German). Interpretive methods and appreciative theorizing are indispensable for exploring the human economy. I do not think that this stays in tension with using models in economics, if we recognize that both approaches envisage the economy as a structure of evolving information, with the modelling approach focusing on the mechanisms and the interpretive approach on the meaning (software and content, if you like). For example, mathematical models of game theory can help us to identify the generic figurations of the coordination of human behaviour, and the interpretive methods are essential to locate these in specific contexts, identify conditions of application, and so forth. So, I think we need to achieve a reflective equilibrium in methodology.
How can we integrate these different perspectives into one unifying scheme? By coincidence, after working many years on a book tentatively entitled ‘Foundations of Evolutionary Economics’, I discovered Peirce a couple of years ago, and started a lively academic conversation with one of the founding fathers of biosemiotics, Stanley Salthe. Peirce’s philosophy provided the key to resolving all my personal problems in envisaging a transdisciplinary synthesis, and so I was eventually able to publish my ‘Foundations of Economic Evolution: A Treatise in the Natural Philosophy of Economics’ in 2013. The title manifests a radical rethinking: This is no longer about evolutionary economics, but about the evolution of the economy, and I argue that the economy is part and parcel of the larger evolutionary system, the ‘tree of life’. The unifying idea is the notion of ‘information’, approached in physical terms.
My book is a philosophical one, definitively not ‘economics’. It encompasses economics in terms of its performative functions. The notion of physical information allows for a comprehensive integration of Naturwissenschaften und Geisteswissenschaften in a twofold sense: Firstly, Peircian semiotics approaches information content in terms of the unity of meaning and function. Second, information is always embodied in physical phenomena. So, meaning is also embodied in physical entities. This allows to overcome Cartesian substance dualism which, I believe, haunts economics until today: Treating ‘the mind’ or ‘information’ as non-physical. This is a trap that economists have troubles to avoid if they only concentrate on the mathematics, even though the economics of information recognizes that information is costly. I explore the full consequences of the idea that ‘information is physical!’ (Rolf Landauer). My first statement of this approach was published as my contribution to receiving the Clarence Ayres Visiting Scholar Award in 2008:
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Most people ask me, then, well, you are a hard-nosed materialist, how about human subjectivity, creativity and autonomy? For me, the final solution emerged when a young Russian scholar, Ivan Boldyrev, told me that my thinking bears a close resemblance to Hegel. I never considered Hegel before, but now I realized that Hegel’s notion of ‘second nature’ provides the key for understanding the two sides of information, function and meaning, which is exactly the tension between ‘objectivity’ and ‘subjectivity’, the sciences and the humanities, the Naturwissenschaften and the Geisteswissenschaften. Astonishingly, in economics the thinker who comes closest to this is Hayek, with his view that knowledge is embodied in institutions. So I realized that Hegel’s notion of ‘spirit’ is nothing else than physical information embodied in human actions and its products. This is what Hegel calls ‘objective spirit’.
Finally, I think that human subjectivity in the strong sense is the result of the evolution of institutions, culture and the growing complexity of interactions between individuals. Freedom and autonomy of individuals are collective achievements of our culture. So, from the viewpoint of human science one of the fundamental errors of economics was to introduce the idea of ‘methodological individualism’, that means, to ground all theorizing on the assumption of independent and autonomous individuals. The founding father of economics thought very differently, in his ‘Theory of Moral Sentiments’. If we take the Wealth of Nations and the TMS together, Smith actually approached economics as being part and parcel of human science. Smith, the moral philosopher, was a human scientist in the first place.
Together with my friend and colleague Frédéric Basso of LSE, economist and psychologist, now I work on a book entitled 'Embodied Economics' where we elaborate on a new methodology of economics that is not only different from the conventional approach, but also from behavioural economics. This combines various resources such as embodied cognition theories and phenomenology to reinstate a view of economic subjects as human beings with a body situated in the real world.
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