Provocation 221 Economic formalism vs economic theory.

Much recent critique of economics has been on its formalism – more interested in the equations than in reality,   and hence  not a terrific science . The alternative to formalism is theory (narrative). Sounds strange. How are formalism and theory different, are they not the same?

Formalism usually raises the question how can I express this data in a set of equations, what is goin on with  the numbers.. Theory asks what is really going on here, what is happening outside the numbers.?

The difference is subtle. Take “capital”. No quantitative questions come to mind, but what is it leads to questions: who owns it, how does it affect society, are there alternatives? Same with “ownership” “property” or “land”. Formalism tends to work with what is (data sets) whereas theory pushes intuition and metaphor into the unknown.

To encourage a bit more playfulness in economics, here is a simple tool.

What comes in and out of the economy? Try a few of your own. Things will occur to you. Better questions, interesting answers. Obviously any such diagram is incomplete, the question is, is it fruitful?

Most economists assume relevant reality is “in the economy”, but the simple circle suggests that much of importance economically is usually treated as outside the economy. Such an assumption is very limiting on creating better theory.

comments much appreciated. doug@dougcarmichael.com