Monopolistic Competition Revolution and Business as Usual Thereafter

Seminar paper from the year 2003 in the subject Economics - Micro-economics, grade: 1,3 (A), Maastricht University, course: Skills training: Philosophy of Science, language: English, abstract: Like many of the social sciences, economics grew out of philosophy. Philosophical reflections on the "e;scientific method"e;, on the nature of rationality, and on societal welfare are of vital significance to economists. These reflections on economics are ancient, but the conception of 'the economy' as a field of scientific interest originated only in the 18th century. Aristotle addresses some problems of economics mainly as problems of household management. With the increasing importance of trade and of nation-states in the early modern period, 'mercantilist' philosophers pondered upon the predecessors of modern macroeconomics. As late as in the work of Adam Smith does the economy appears as an object of study with its own principles and laws. Much of 18th-century philosophy of science was influenced by Newtonian physics. It then lay to Adam Smith to extend such a method to a systematic Inquiry into the Nature and Causes of the Wealth of Nations. In the late nineteenth century, neo-classical economics developed, mainly in Europe. It is still regarded as the mainstream of economic thinking and has revived in recent years with the decline in emphasis on Marxist and Keynesian concepts. Economists who led the 'neo-classical revolution' did not reject classical economics, with its emphasis on the efficiency of markets in allocating resources. The logic of neo-classical economics is mainly deductive - once the assumption of maximization (of profit, sales, output or any other outcome) is adopted, the implications are theoretically irrefutable (www.thomsonlearning.co.uk). Criticisms of neoclassical economics relate mainly to the excessive simplicity of the initial assumptions and/or to the impractical complexity of the derived implications for business decisions. Beginning in the 1930s, mainstream economists began to have a bad conscience about their traditional methodology, which some saw as insufficiently empiricist. Other economists cited survey data to argue that the theoretical propositions of economics were false. The theory of monopolistic competition was in the middle of this phase that Kuhn would have termed scientific crisis. In this paper the emphasis is on the fact that it did not grow to become the scientific revolutions that Kuhn predicted for these times of methodological uncertainty. The confusing methodological situation stabilized in the 1950s.