Is classical economic theory too present in German lecture halls?

Introduction

Classical economic theory is omnipresent in economic bachelor degree programs at the University of Cologne.^[1] It is the major part in fundamental courses such as Micro- and Macroeconomics.^[2] The only other big theory discussed in these courses is Keynesianism.^[3] Many students criticize the enormous presence of classical theory and wish to learn more about alternative outlooks on economy.^[4] So am I. Some of my fellow students even title the economic studies a ‘brain wash’. Students formed discussion groups on this issue, not only in Cologne but in many cities all around the world.^[5] Here in cologne, our professors admitted during a panel discussion that the old models of classical theory are not relevant in contemporary economic research. They were rather important to gain analytical and mathematical skills. In my courses, not a single professor mentioned this so far. It is the nature of philosophy to question whether measures are still contemporary.^[6] This led me to the major question of this essay: Is classical economic theory is too present in economic degree programs? And if so, what else should we study?

Part I: Classical economic theory

Classical economic theory has its roots in some of the ideas of Adam Smith.^[7] These are seen as the origin of economics as a proper science.^[8] The main idea is that the economy functions most efficiently, when everyone pursues his or her own interest in an area of free competition.^[9] During the past two centuries economists rethought and developed this theory. Nowadays a bunch of complex mathematic models, respecting what are considered to be the basic ideas of Adam Smith, are well respected as classical economics.^[10] These models enable economists to predict the future development of the economy and to evaluate political action. Classical economic theory plays an important role in the bachelor degrees in German universities, especially in Cologne but also in other cities.^[11]

Part II: Discussion on the current role of classical theory

The current role of classical theory is criticized and defended in many differentiated aspects. Most of the criticizers feel uncomfortable with the methods or the underlying ideology of economics. Therefore they argue, that classical theory should not be as important in lecture halls as it is nowadays. In this essay I am going to focus on two specific methodological aspects, which appeared to be the most relevant to me. Furthermore I will picture the ideological aspect in general.

Reality and models

Economics work, just like almost all sciences, with models in order to analyze developments.^[12] This is legitimate and important, because economies are too wide and complicated to consider all possible parameters at the same time.^[13] Economists of the 18th and 19th century such as Smith, Walras, Edgeworth and Wicksell therefore emphasized that their models had to be used with caution, because they were just models and therefore did not draw a perfect picture of reality.^[14] According to the Indian professor for economics and philosophy Amartya Sen, contemporary economists are not doing this anymore.^[15] In my courses, lecturers usually mention that we are talking about a model. But until now, no one was talking about how to use these models facing problems in reality. Students in higher semesters have similar experiences.^[16] And this might be the biggest problem concerning the models: When I have my degree and can call myself an economist, I don’t feel like I will be able to understand when a specific model is helpful, and when it is not.

Mathematisation of a social science

A lot of my fellow students complain that we are only calculating all the time. We are not discussing and reflecting on what we are doing. While putting everything in mathematical models, we believe we can predict human behavior. The models of classical economics indicate that human behavior follows some kind of natural law.^[17] Habits suggest that there might be laws. But habits can change. No one ever proved that there indeed are laws and not only habits. Economists are also criticized for only considering phenomena as relevant, once they are calculable in one of the models. Paul Krugman won the Nobel Prize for his foreign-trade-model for example.^[18] He says that what he described was known long before his theory. His mathematical model made the other economists take it serious.^[19] This is problematic, as not everything in this world is calculable in mathematical terms. For example freedom is a relevant good for most humans’ well-being. What is the price of freedom? The value of freedom is individual. But even on an individual level: Am I willing to change some of my freedom for a car? Or a house? Making freedom valuable in monetary terms (or, to see it from the microeconomics-perspective: in utility terms) means comparing two things that are incomparable. The call for more plurality in methods is loudly voiced among criticizers.^[20]

An unscientific science?

According to the economics professor Ulrich Thielemann, a science is unscientific, once it stops considering new ideas and only accepts one specific opinion. He says that what happened to economics is a paradigmatic isolation.^[21] In this way he criticizes the ideological background of economic science: No model is neutral. Every model needs underlying assumptions in order to be understandable and calculable. For example, almost all models treated in my courses use the assumption of a totally rational acting human being, called homo oeconomicus. Supporters of classical theory say that this assumption is important in order to distinguish between mistakes of human beings and mistakes in the market.^[22] Thus the assumption is not there for predictions in the first place, but to analyze and combat market mistakes.^[23] Something in this explanation astonishes me: These arguments implicate that it is a self-inflicted mistake not to be absolutely rational. It has been scientifically proven that human beings often do not behave according to what would be ‘rational’ in mathematical or probability terms.^[24] So am I making a mistake by not being completely rational? Or is it just my nature? There are some theories with non-rational actors, for example in game theory. But we don’t learn anything about those theories and models in the bachelor degree. This is justified with mathematical complexity of them. Regarding this, there is an enormous lack of knowledge. It prevents bachelor-students from applying their economic knowledge in reality, given that not all students do a master in economics or a specialization in game theory.

Part III: ideas of improvement

Just as criticism is widely differentiated, there are lots of elaborated ideas of improvement. The following two would make the difference for me.

More history

The history of economic thought does not play a major role in economic teaching in Germany.^[25] In Cologne, it does not play any role at all. There is only the compulsory optional subject “Deutsche Wirtschaftsgeschichte des 20. Jahrhunderts” which students with the major or minor in economics may attend. This course is focused on the economic impacts of the two world wars.^[26] It does not help students to classify economic theories. I think that a course about the history of economic thought would do that. At least the history of political thought can be part of the bachelor’s degree, if economic students chose the minor in politics.^[27] But there will be a new structure of degrees of the WiSo-Faculty beginning in summer 2015. Within these new degrees there will not be a possibility for students of economics to choose the minor politics anymore, business studies will be obligatory.^[28] To me, this seems to be a wrong decision. Students already have a lack of knowledge and understanding in the range of models and their application. Now they even lose the only chance to get an idea of history of thoughts.

More interdisciplinarity

In terms of research, economists tend to work together more and more with scientists of other disciplines, such as psychologists, neurobiologists and physicists.^[29] In teaching, we do not really get in touch with that. I believe that it would be helpful to integrate latest research subjects into the courses, in order to motivate students and to give them a realistic feeling of their scientific field. Furthermore, we could learn to work with methods used in other disciplines, such as qualitative and not only quantitative methods.^[30]

Conclusion

I conclude that classical theory is too present in German lecture halls, especially in Cologne. This does not mean that it should be entirely replaced, but reduced. A course on the history of economic thought would enable students to classify classical theory. Without any historical knowledge, models of classical theory can seem as if they were reality from time to time. Economies are very complicated and diverse, and so are economics as a discipline. Undergraduate students like me need to get an overview of different theories and ideas. We also need to learn the basic methodological skills. But I do not benefit from a model, as long as I am not able to interpret the results correctly and to use it in daily life. Nowadays, students who want to gain the skills mentioned above and not only pass the tests need to acquire knowledge themselves. The majority of students push themselves or are pushed to finish their studies in the regular study duration. If you also need a job to afford your studies, it is difficult and inefficient to read lots of books that do not count anything on the certificate. The highly restricted admission to the master programs increase the pressure. The faculty of economics and social sciences at the University of Cologne is one of the biggest in Germany and very well-respected in Europe.^[31] Therefore there is a huge need for improvement.

Bibliography

§ Backhouse, Roger E. 2002. “The Scottish Enlightenment of the Eighteenth Century” in The Penguin History of Economics, 110-31. London: Penguin.

§ Breker, Gerd. 2012. „Das Ökonomie Studium heute gleich einer Gehirnwäsche“. Deutschlandfunk, 5. April. http://www.deutschlandfunk.de/das-oekonomie-studium-heute-gleicht-einer-gehirnwaesche.694.de.html?dram:article_id=71444

§ Bühring, Pascal. 2013. Offener Brief an die Wirtschaftsfakultät der UZH – Mitdenken statt mitlaufen in der Ökonomik. openPetition Deutschland. https://www.openpetition.de/petition/online/offener-brief-an-die-wirtschaftsfakultaet-der-uzh-mitdenken-statt-mitlaufen-in-der-oekonomik

§ Buhse, Malte. 2014. Markt oder Mensch? Die Zeit, 22. Mai. http://www.zeit.de/2014/22/volkswirtschaftslehre-oekonomie-wirtschaftsfakultaet-koeln/komplettansicht

§ Buisiness dictionary. 2015. Classical economics. http://www.businessdictionary.com/definition/classical-economics.html

§ Dietz, Charlotte and Josephine Pabst. 2014. Weitermachen, als hätte es die Krise nie gegeben. Die Welt, 7. Oktober. http://www.welt.de/wirtschaft/karriere/bildung/article133018852/Weitermachen-als-haette-es-die-Krise-nie-gegeben.html

§ Financial Times lexicon. 2015. Definition of classical economics. http://lexicon.ft.com/Term?term=classical-economics

§ Hamburger, Kai. 2010. Ist der Mensch ein „rationales Wesen“? Pressestelle der Universität Gießen, 21. Juni. https://www.uni-giessen.de/cms/ueber-uns/pressestelle/pm/pm139-10

§ Häring, Norbert and Olaf Storbeck. 2012. Was nun, Herr Smith? Handelsblatt Online, 30. September. http://www.handelsblatt.com/politik/konjunktur/oekonomie/nachrichten/die-krise-der-volkswirtschaftslehre-was-nun-herr-smith-/7188670.html

§ Heise, Arne. 2015. Aus dem Gleichgewicht – Über den Zustand der Wirtschaftswissenschaften. Forschung & Lehre, Ausgabe 6/15, 5. Mai. http://www.forschung-und-lehre.de/wordpress/?p=18545

§ Heß, Dorit and Olaf Storbeck. 2012. „Viele Ökonomen nehmen ihre simplen Modelle zu ernst“. Handelsblatt, 12. April. http://www.handelsblatt.com/politik/konjunktur/oekonomie/nachrichten/amartya-sen-viele-oekonomen-nehmen-ihre-simplen-modelle-zu-ernst/6500622.html

§ International student initiative for pluralism in economics (Isipe). 2015. Members. http://www.isipe.net/member-groups/

§ International student initiative for pluralism in economics (Isipe). 2015. Open letter. http://www.isipe.net/open-letter/

§ Kaufmann, Stephan. 2012. Lehre ohne akademische Prostitution. Frankfurter Rundschau, 4. April. http://www.fr-online.de/wirtschaft/appell-an-die-wirtschaftslehre-lehre-ohne-akademische-prostitution,1472780,14680434.html

§ Mair, Stefan. 2012. Top-Ökonomen zerpflücken Thilemann-Manifest. Handelszeitung, 11. April. http://www.handelszeitung.ch/konjunktur/top-oekonomen-zerpfluecken-thielemann-manifest

§ Modulhandbuch Bachelor. 2014. Modulbeschreibungen für die Bachelorstudiengänge der Wirtschafts- und Sozialwissenschaftlichen Fakultät. http://www.wiso.uni-koeln.de/fileadmin/wiso_fak/fakultaet/dokumente/downloads/bachelor/b_allgemein_modulhandbuch.pdf

§ Nobelprize.org. 2015. Paul Krugman – Facts. http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2008/krugman-facts.html

§ Pinzler, Petra. 2012. „Ich konnte es nicht ertragen“. Die Zeit, 13. April. http://www.zeit.de/2012/16/Interv-Johnson

§ Plecko, Andreas. 2014. „Korrekt, präzise und absolut nutzlos“ – Das Elend der Ökonomen. Wall Street Journal, 19. Dezember. http://www.wsj.de/nachrichten/SB12265722269804043990704580344910868787020

§ Sinn, Hans-Werner. 2014. Ignorante Kritik an Ökonomen: Sie sind wie Spürhunde. Süddeutsche Zeitung, 1. November. http://www.sueddeutsche.de/wirtschaft/kritik-an-oekonomen-der-grosse-irrtum-1.2198333

§ Springer Gabler Verlag. 2015. Gabler Wirtschaftslexikon, Stichwort: Modell. http://wirtschaftslexikon.gabler.de/Definition/modell.html

§ Universität zu Köln – WiSo Fakultät. 2015. Volkswirtschaftslehre. http://www.wiso.uni-koeln.de/bachelor_vwl.html?&L=0

§ Warburton, Nigel. 2012. Philosophy: The basics. London: Taylor and Francis Ltd.

§ Wirtschafts- und Sozialwissenschaftliche Fakultät der Universität zu Köln. 2015. FAQ: Was zeichnet das Studium an der Wiso Fakultät aus? http://www.wiso.uni-koeln.de/31104.html?&L=0

§ Wirtschafts- und Sozialwissenschaftliche Fakultät der Universität zu Köln. 2015. Forschungsprofil der Wirtschafts- und Sozialwissenschaftlichen Fakultät. http://www.wiso.uni-koeln.de/14687.html?&L=0

^[1] (Modulhandbuch Bachelor 2014)

^[2] (Modulhandbuch Bachelor 2014: 134-135)

^[3] (Modulhandbuch Bachelor 2014: 134)

^[4] (Buhse 2014)

^[5] (Isipe 2015: Members)

^[6] (Warburton 2012: 1-8)

^[7] (Backhouse 2002: 110-131)

^[8] (Backhouse 2002: 110-131)

^[9] (Business dictionary 2015: classical economics)

^[10] (Financial Times lexicon 2015: classical economics), The term „classical economics“ itself was first used by Karl Marx to describe early economists.

^[11] (Modulhandbuch Bachelor 2014), (Kaufmann 2012)

^[12] (Financial Times lexicon 2015: classical economics)

^[13] (Springer Gabler Wirtschaftslexikon 2015: Modell)

^[14] (Heß and Storbeck 2012)

^[15] (Heß and Storbeck 2012)

^[16] (Dietz and Pabst 2014)

^[17] (Plecko 2014)

^[18] (Nobelprize.org 2015: Paul Krugman)

^[19] (Häring and Storbeck 2012)

^[20] (Heß and Storbeck 2012), (Heise 2015), (Isipe 2015)

^[21] (Breker 2012), Professor Ulrich Thielemann is a German professor for economics who specialized himself in economic ethics. Currently he works in the think tank “MeM – Denkfabrik für Wirtschaftsethik” which he founded in Berlin. (Mair 2012)

^[22] (Sinn 2014)

^[23] (Sinn 2014)

^[24] (Hamburger 2010)

^[25] (Modulhandbuch Bachelor 2014), (Heß and Storbeck 2012), (Dietz and Pabst 2014)

^[26] (Modulhandbuch Bachelor 2014: 89)

^[27] (Modulhandbuch Bachelor 2014: 10)

^[28] (Universität zu Köln – WiSo Fakultät 2015: VWL)

^[29] (Pinzler 2012)

^[30] (Isipe 2015: Open letter)

^[31] (Wiso-Fakultät 2015: FAQ), (Wiso-Fakultät 2015: Forschungsprofil)