Abstract
This chapter offers the investigatory strategy that elaborates the approaches and methods undertaken. A critical realist orientation as a philosophical stance was adopted to capture the complexities of finance capitalism and how it leads to rising economic inequality. A major advantage of this philosophical tradition is its ontological commitment and the perception of reality as an open system, in contrast to a closed system of the positivist school and neoclassical orthodoxy. The second section explains why neoclassical orthodoxy and mainstream economics’ mathematical-deductivist approach should be rejected as irrelevant to the study of social ontology. The chapter also describes analytical tools employed to explain the financialisation-income inequality nexus and its causal relations.
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Notes
- 1.
For this aspect of critical realism Lawson (1994a: 519) provides an example of the rules of grammar which exist irrespective of peoples’ who speak this language awareness of these rules.
- 2.
In this study, the term ‘mainstream economics’ is interchangeably used to refer to ‘neoclassical economics’ given that the latter is a key component of the former; mainstream economics comprises essentially of neoclassical economics’ methodological approaches as opposed to the heterodox ones and constitutes the current orthodoxy in economics (Lawson, 1994b, 2008[1999]; Arnsperger & Varoufakis, 2006).
- 3.
‘Neoclassicism’ in economics is even compared to racism: while being present and dominating, its guiding role is not admitted (Arnsperger & Varoufakis, 2006: 5).
- 4.
‘Truly important and significant hypotheses will be found to have “assumptions” that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense) [reference to admitting that unrealistic assumptions do not guarantee a significant theory]. The reason is simple. A hypothesis is important if it “explains” much by little, that is, if it abstracts the common and crucial elements from the mass of complex and detailed circumstances surrounding the phenomena to be explained and permits valid predictions on the basis of them alone. To be important, therefore, a hypothesis must be descriptively false in its assumptions; it takes account of, and accounts for, none of the many other attendant circumstances, since its very success shows them to be irrelevant for the phenomena to be explained’ (Friedman, 2008[1953]: 153).
- 5.
As Friedman (ibid.: 153) concluded, ‘To put this point less paradoxically, the relevant question to ask about the “assumptions” of a theory is not whether they are descriptively “realistic”, for they never are, but whether they are sufficiently good approximations for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions. The two supposedly independent tests thus reduce to one test.’
- 6.
Milton Friedman was very eloquent disputant and thanks to his regular column in Newsweek and series on US television (Free to Choose) he later became something of a star. Here is a description of his professional characteristics attributed by other economists, Galbraith or Bhagwati, ‘[T]here is one and only one successful tactic to use, should you happen to get into an argument with Milton Friedman about economics. That is, you listen out for the words “Let us assume” or “Let’s suppose” and immediately jump in and say “No, let’s not assume that”. The point being that if you give away the starting assumptions, Friedman’s reasoning will almost always carry you away to the conclusion he wants to reach with no further opportunities to object, but that if you examine the assumptions carefully, there’s usually one of them which provides the function of a great big rug under which all the points you might want to make have been pre-swept’ (Retrieved from: http://crookedtimber.org/2004/08/19/the-correct-way-to-argue-with-milton-friedman/).
- 7.
Retrieved from: https://en.wikipedia.org/wiki/Gunnar_Myrdal
- 8.
Hudson (2010: 6) takes issue further with the contention that ‘Looking over the countries in which such theorizing [marginalist and monetarist equilibrium economics] has been applied, one cannot help seeing that the first concern is one of political philosophy, namely, to demonstrate that the economy does not require public regulation to intervene from outside the economic system. This monetarist theory has guided Russian economic reform (and its quick bankruptcy) under Yeltsin and his oligarchy, as well as Chile’s privatization (and early bankruptcy) under Gen. Pinochet, and the austerity programs (and subsequent bankruptcies and national resource selloffs) imposed by the IMF on third world debtor countries. Yet the reason for such failures is not reflected in the models. Empirically speaking, monetarist theory has become part of the economic problem, not part of the solution.’
- 9.
In Lewis’s (1984: 7) own comments on the importance of economic history in methodology, ‘[O]ne of the weaknesses of our subject, namely the widening gap between Economics and Economic History in Development Economics. If our subject is lowering its sights, this may be because the demise of Economic History in economics departments has brought us a generation of economists with no historical background. This is in marked contrast with the development economists of the 1950s, practically all of whom had had some historical training, and guided by Gerschenkron and Rostow, looked to history for enlightenment on the processes of development.’
- 10.
One of the theoretical frameworks of this thesis is based on the account that the rentier class emerged from nineteenth-century capitalism and used to be powerful throughout the 1920–1930s, before it was put on a leash by capital controls, the welfare state and powerful labour. In this sense, rentier or financial class has been resurrected and re-emerged since the 1980s (see, e.g., Epstein & Jayadev, 2005; Pollin, 2007; Piketty, 2014).
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Akizhanov, K.B. (2023). How to Study Inequality of the Finance Capitalism Era. In: Finance Capitalism and Income Inequality in the Contemporary Global Economy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-21768-5_3
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