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Heterodox Economics

Updated on January 29, 2024
Article byNanditha Saravanakumar
Reviewed byDheeraj Vaidya, CFA, FRM

Heterodox Economics Meaning

Heterodox economics refers to theories and principles that do not conform to orthodox economic schools of thought, such as neoclassical economics. It aims to offer alternative economic theories and perspectives that challenge the assumptions and limitations of mainstream neoclassical economics.

Heterodox economics

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Heterodox economists are known for their broad scope of ideas and their adoption of radical research methods from other fields of study. While mainstream economists may not often agree with heterodox economists, there have been many instances where heterodox ideas and conclusions have proved extremely useful for certain explanations in mainstream economics.

Key Takeaways

  • Heterodox economics refers to theories and ideas that challenge orthodox or mainstream economics, including the neo-classical schools of thought.
  • While orthodox economists may not highly regard heterodox economics, it has sometimes provided satisfactory explanations for certain macroeconomic events.
  • It encompasses a variety of divergent schools of thought and is not a recent development nor a single institution opposed to conventional economics. 
  • Any deviation from mainstream economics in theory, practice, or research approaches is considered heterodox.

Heterodox Economics Explained

Heterodox economics dates back to the early days of economics as a discipline and has always challenged the dominant neoclassical paradigm. It encompasses diverse approaches that critique neoclassical economics and emphasize social, institutional, and environmental factors in shaping economic outcomes. Some of the major heterodox schools of thought include Marxism, institutional economics, post-Keynesian economics, feminist economics, and ecological economics. Today, this discipline continues to be a vibrant and diverse field, with scholars working on a wide range of topics and using a variety of theoretical and methodological approaches.

Heterodox economics does not refer to a single, unified school of thought. Instead, it encompasses a broad, diverse set of economic perspectives that significantly differ from mainstream economics. Heterodox economists may thus propose a range of theories and assumptions that challenge the dominant paradigm of neoclassical economics.

Heterodox schools of thought share a critical attitude towards the assumptions and methodologies of mainstream economics and a commitment to understanding the economy holistically and multidisciplinary way. These economists may emphasize different aspects of the economic system, such as power relations, social norms, historical context, or ecological constraints. As a result, they may have divergent policy recommendations based on their theoretical perspectives.

One important forum for heterodox economists to exchange ideas and develop research is the Association for Heterodox Economics, which brings together scholars from various fields and schools of thought to promote eclecticism and critical inquiry in economics. By fostering dialogue and collaboration among heterodox economists, the association aims to advance a more nuanced and socially relevant understanding of the economy. Thus, they aim to contribute to developing more inclusive and sustainable economic policies.

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Examples

Here are a few examples to gain a deeper understanding of heterodox economics.

Example #1

Consider the example of the Austrian School, one of the prominent heterodox schools of economic thought. Also called Causal Realist Economics, it was established in the late 19th century. One of the most popular theories of this school is the Austrian Business Cycle Theory (ABCT).

The real business cycle (RBC) theory explains the four phases as inevitable due to the constant fluctuations in the environment caused by technological changes and the availability of resources. As opposed to this, the ABCT places the cause of business cycles on the excessive credit from banks and lower interest rates. ABCT criticizes the RBC theory, but the former is not without its criticisms.

Example #2

Another example is the Solidarity Economy movement in Latin America. This movement aims to create an alternative economic system prioritizing community well-being and financial sustainability over profit maximization. It incorporates mutual aid, cooperatives, and social justice principles to create more democratic and participatory economic structures. In short, this approach challenges the assumptions of mainstream neoclassical economics that prioritize individual self-interest and competition as the primary drivers of economic growth and development.

Orthodox vs Heterodox Economics

Orthodox (mainstream) and heterodox economics are two different approaches to understanding economic systems. But, it is important to note that both approaches have a lot of diversity and that economists from both camps may share some common ground on certain issues. Here are the key differences between mainstream and heterodox economics:

Orthodox EconomicsHeterodox Economics
Emphasizes mathematical models and formal analysis.Emphasizes interdisciplinary analysis and diverse methods.
Focuses on market equilibrium as a central concept in understanding the economy.Criticizes the idea of market equilibrium as unrealistic and oversimplifying.
Tends to rely on the assumption of rational behavior by individuals and firms.Criticizes rational behavior as unrealistic and instead emphasizes bounded rationality, social norms, and psychological biases.
Emphasizes the importance of economic growth and efficiency.Emphasizes the distributional aspects of economic policies and outcomes.
Tends to prioritize the role of the market and private property in the economy.Criticizes the idea of free markets and private property as inherently biased and emphasizes the importance of state intervention, public goods, and common property.
Emphasizes the role of monetary policy and central banks in stabilizing the economy.Criticizes monetary policy as being limited in effectiveness and instead emphasizes fiscal policy and government intervention in addressing economic fluctuations.
Emphasizes the idea of comparative advantage in international trade.Criticizes the idea of comparative advantage as being limited and emphasizes the role of power relations, technological change, and historical context in shaping trade patterns.

Frequently Asked Questions (FAQs)

1. What are some critiques of heterodox economics?

Critiques of heterodox economics include accusations of political bias, lack of rigor, and lack of coherence among different heterodox schools of thought. In other words, heterodox economists respond by emphasizing the importance of pluralism and diversity in economic analysis and arguing that heterodox approaches can provide more realistic and nuanced understandings of economic systems.

2. How does complexity economics fit within the heterodox tradition?

Complexity economics is a subfield of heterodox economics that applies concepts from complexity science to economic systems. Complexity economists argue that economic systems are complex adaptive systems in which agents interact and learn from each other. Therefore, the outcomes are emergent and non-linear.

3. How does heterodox economics promote diversity and pluralism in the economics profession?

Heterodox economics plays an important role in promoting diversity and pluralism within the economics profession by providing alternative perspectives and frameworks that challenge the dominance of neoclassical economics. It also emphasizes the importance of interdisciplinary collaboration and encourages dialogue and exchange among economists from different backgrounds and traditions.

This article has been a guide to Heterodox Economics and its meaning. Here, we explain it in detail using its comparison with orthodox economics and examples. You may also find some useful articles here –

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