A Seminar Report On

EVOLUTION OF ECONOMICS IN
TERMS OF PARADIGM SHIFT
By Vaishnavi

Roll No- 03

M.Phil. (Economics)

Department Of Economics
Kurukshetra University, Kurukshetra
Introduction

A paradigm shift, a concept identified by the American physicist and philosopher Thomas Kuhn,
is a fundamental change in the basic concepts and experimental practices of a scientific
discipline. Kuhn presented his notion of a paradigm shift in his influential book ‘The Structure of
Scientific Revolutions’ (1962). The word "paradigm" is used in its original Greek meaning, as
"example” that stands for certain exemplary instances of scientific achievements in the past. It
is the set of experiences, beliefs, and values that affect the way you perceive what is real and
how you should react. A paradigm is a habit of reasoning. The World view. Scientific revolutions
occur because the established paradigm faces a scientific crisis which occurs because of
accumulation of anomalies or unsolved scientific puzzles. Gradually, a new paradigm becomes
dominant.

A scientific revolution occurs, according to Kuhn, when scientists encounter anomalies that
cannot be explained by the universally accepted paradigm within which scientific progress has
thereto been made. The paradigm, in Kuhn's view, is not simply the current theory, but the
entire worldview in which it exists, and all of the implications which come with it. Scientific
revolutions occur because the established paradigm faces a scientific crisis which occurs
because of accumulation of anomalies or unsolved scientific puzzles. Gradually, a new paradigm
becomes dominant. When enough significant anomalies have accrued against a current
paradigm, the scientific discipline is thrown into a state of crisis, according to Kuhn. During this
crisis, new ideas, perhaps ones previously discarded, are tried. Eventually a new paradigm is
formed, which gains its own new followers, and an intellectual "battle" takes place between the
followers of the new paradigm and the hold-outs of the old paradigm.

There are anomalies for all paradigms, Kuhn maintained, that are brushed away as acceptable
levels of error, or simply ignored and not dealt with (a principal argument Kuhn uses to reject
Karl Popper's model of falsifiability as the key force involved in scientific change). Rather,
according to Kuhn, anomalies have various levels of significance to the practitioners of science
at the time.
A common misinterpretation of paradigms is the belief that the discovery of paradigm shifts
and the dynamic nature of science (with its many opportunities for subjective judgments by
scientists) are a case for relativism the view that all kinds of belief systems are equal. Kuhn
vehemently denies this interpretation and states that when a scientific paradigm is replaced by
a new one, albeit through a complex social process, the new one is always better, not just
different. These claims of relativism are, however, tied to another claim that Kuhn does at least
somewhat endorse: that the language and theories of different paradigms cannot be translated
into one another or rationally evaluated against one another—that they are incommensurable.
One of the important aspect of kuhn’s paradigm is that the paradigms are incommensurable,
which means the two paradigms cannot be compared to each other.

Kuhn explained paradigm as ‘Disciplinary matrix’: ‘disciplinary’ because it refers to the common
possession of the practitioners of a particular discipline; ‘matrix’ because it is composed of
ordered elements of various sorts, each requiring further specification which in general sense
means the entire constellation of beliefs, values, techniques, and so on shared by the members
of a given community.

Among the numerous examples of paradigms Kuhn, gives are Copernicus' treatise on his
heliocentric theory of the solar system that is the Copernican revolution, the Newtonian
revolution, or the Einstein Planck revolution. The so called ‘Copernican revolution’ however,
took 150 years to complete and was argued out every step of the way; even the Newtonian
revolution took more than a generation to win acceptance throughout the scientific circles of
Europe.

According to Kuhn, normal science is an enterprise of puzzle-solving. Though the paradigm

guarantees that the puzzles it defines have solutions, this is not always the case. Sometimes
puzzles cannot admit of solution within the framework (disciplinary matrix) provided by the
paradigm. In such case, scientists may become acutely distressed and a sense of crisis may
develop within the scientific community. This sense of desperation may lead some scientists to
question some of the fundamental assumptions of the disciplinary matrix. However, paradigm
changes during “scientific revolutions” do not imply absolute discontinuities in scientific debate,
that is, a choice between competing but totally incommensurate theories; mutual
incomprehension between scientists during a period of intellectual crisis is only a matter of
degree; and the only point of calling paradigm changes “revolutions” is to underline the fact
that the arguments that are advanced to support a new paradigm always contain ideological
elements that go beyond logical or mathematical proof. Paradigms do not replace each other
immediately and, in any case, new “paradigms” do not spring up full-blown but instead emerge
as victorious in a long process of intellectual competition. What Kuhn has really done is to
conflate prescription and description, deducing his methodology from history, rather than to
criticize history with the aid of a methodology.

SCIENTIFIC REVOLUTIONS IN ECONOMICS

In Kuhn's view, the existence of a single reigning paradigm is characteristic of the natural
sciences, while philosophy and much of social science were characterized by a "tradition of
claims, counterclaims, and debates over fundamentals."

Let us begin by reviewing the attempts to apply Kuhn’s methodology to economics. What are
the ruling “paradigms” in the history of economic thought?

In the history, the economic thought has passed through various stages, marked by
miscellaneous controversies. After a period of supremacy of the ancient and medieval
conceptions, there is emergence of modern theories: classical, neoclassical, Keynesian, new
classical and monetarist, to mention the most relevant.

Although there were initially Mercantilists (17th to 18th century) which preached economic
nationalism and state intervention, restricted imports and believed nation’s way to become rich
was to export more than it imported. Its goals were to enhance national power, better armies,
stimulate national armies and employment and become rich and powerful. They believed that
trade was a zero sum game. They advocated strict government control and then Physiocrats
came in the 18th century.

Classical Economists (19th century) is a school of thought in economics. Its main thinkers are
held to be Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Robert Malthus, and John
Stuart Mill. These economists produced a theory of market economies as largely self-regulating
systems, governed by natural laws of production and exchange (famously captured by Adam
Smith's metaphor of the invisible hand). Adam Smith's The Wealth of Nations in 1776 is usually
considered to mark the beginning of classical economics. The beginnings of economic classicism
are marked by the conceptions of Adam Smith, who reorients the economy focus from the
protection of one’s own interest to the support of the entire nation’s interest, starting from the
premises that price, wage and interest rate flexibility creates the conditions necessary for
equilibrating the markets, at full employment. The market self-adjusts providing economic
stability, the state intervention being necessary only to ensure the free operation of markets
and a balanced budget. We assist to the progressive development of a thinking system in a
context dominated by perfect competition, without protectionist restrictions and in the
absence of any form of monopole or unfair competition. The economy succeeds in continuously
reaching the natural level of GDP, its self adjusting mechanisms laying the grounds for quick
rebalance in case of steady state deviations. It was the hard core principle of constrained
maximization.

Marginal revolution

In 1870s, Menger, Jevons, Walras came up with Marginal revolution which gave the oncept of
marginal utility analysis and the focus shifted from production, supply and cost to consumption,
utility and demand. But it was only considered as ‘progressive problem-shift’ and not a
paradigm shift. It was seen as improvement of Adam Smith. T. S. Kuhn uses the term in his
analysis of the structure of scientific revolutions or whether it is better described as a 'pre-
paradigm school'. This neoclassical formulation had also been formalized by Alfred Marshall.
The neoclassical school dominated the field up until the Great Depression of the 1930s. The
thoughts of classical economics were embodied in a book called Principle of economics,
published in 1890 by English economist Alfred Marshall. Marshall organized into concepts that
we still use today like supply, demand and marginal utility. It is not considered a paradigm shift
but only progressive problem shift.

Shift from Classical to Keynesian economics

Due to the great depression in 1930s, the rate of unemployment was very high and there was a
sharp decline in the output. The market had the inability to control the problem and needed
government intervention. Classical economists had no valid explanation of such severe
depression.
Keynesian economics

Keynesian economics was largely founded on the basis of the works of John Maynard Keynes.
With the publication of The General Theory of Employment, Interest and Money by John
Maynard Keynes in 1936, certain neoclassical assumptions were rejected. Keynesians focus on
aggregate demand as the principal factor in issues like unemployment and the business cycle.
As the great depression had crushed the market economies. The rate of Unemployment was
high and classical economists had no valid explanation of such severe depression. Then Keynes
said it was due to sharp decline in private investment. Keynesian economists believe that the
business cycle can be managed by active government intervention through fiscal policy
(spending more in recessions to stimulate demand) and monetary policy (stimulating demand
with lower rates). Keynesian economists also believe that there are certain rigidities in the
system, particularly "sticky" wages and prices that prevent the proper clearing of supply and
demand.

According to Gordon, “Smith’s postulate of the maximizing individual in a relatively free market
. . . is our basic paradigm”; “economics has never had a major revolution; its basic maximizing
model has never been replaced . . . it is remarkable when compared to the physical sciences
that an economist’s fundamental way of viewing the world has remained unchanged since the
eighteenth century” .

Likewise, Coats asserts that economics has been “dominated throughout its history by a single
paradigm-the theory of economic equilibrium via the market mechanism,” but, unlike Gordon,
Coats singles out the so-called Keynesian Revolution as a paradigm change, a Kuhnian “scientific
revolution,” and subsequently he has claimed almost as much for the so-called Marginal
Revolution of the 1870’s.

Benjamin Ward, a firm believer in Kuhn’s methodology, also dubs the Keynesian Revolution a
Kuhnian one.

Lastly, Bronfenbrenner, after defining a “paradigm” as “a mode or framework of thought and

language,” goes on to cite Keynesian macroeconomics, the emergence of radical political
economy.
Keynesian Revolution, which at any rate has all the superficial appearance of a paradigm
change. It is perfectly obvious, however, that the age-old paradigm of “economic equilibrium
via the market mechanism,” which Keynes is supposed to have supplanted (taken place), is
actually a network of interconnected sub paradigms.

Keynes introduced pervasive uncertainty and the possibility of destabilizing expectations, not
just in the protective belt but in the hard core of his programme. The Keynesian hard core,
therefore, really is a new hard core in economics.

Problems arose during the 1973–75 recession triggered by the 1973 oil crisis. Keynesian policy
responses did not reduce unemployment, instead leading to a period of high inflation and
stagnant economic growth—stagflation. Keynesians were puzzled by the outbreak of stagflation
because the original Phillips curve ruled out concurrent high inflation and high unemployment.

Monetarist

After the 1970s and the apparent failure of Keynesian economics, the monetarist for a while
became the dominant school in Macroeconomics. Milton Friedman advocated monetarism. The
monetarists are built largely on the Neoclassical school. The Monetarist emphasizes the
importance of microeconomics and models based on that behavior. They also believe that the
market clears at all times. New Classical economists believe that unemployment is largely
voluntary and that discretionary fiscal policy is destabilizing, while inflation can be controlled
with monetary policy. It was the new paradigm shift specifically due to the problems of
stagflation that is stagnation with inflation. It fitted well with political and ideological turn. They
believed that market lead to efficient outcome and small government control was required.
Again there was domination of supply side economics and made market system work more
efficiently.
Conclusion

Economic theories are constantly proven, disproven and revised. The problem is when these
theories are wrong millions of people can be adversely affected. Economics is not an exact
science, it aims to draw conclusion about human behavior without the benefits of labs or
perfect control groups. Economic theories reflect different theories about human nature and
those are likely to change overtime. The Social Sciences lack a central paradigm that works. Like
we can see in economics the hard core of economics initially was Classical economics but due to
the great depression it was able to recover the economy and there was a paradigm shift to
Keynesian economics. Again with the oil crisis in 1970s Keynesian economics had a problem of
stagflation and was unable to cope with the economy, so Milton Friedman came up with
Monetarism which was also a paradigm shift but it brought back the classical school of
economics. Again the Global Financial Crisis of 2008 pointed out the weakness due to the
excessive deregulation, failure of markets and it called for increased government regulation and
oversight of financial activities. It also needed a paradigm shift but some economists
recommended Classical economics, some advocated Keynesian and also the synthesis of both.
So we can conclude that there is no major Paradigm shift in economics, there are just paradigm
changes.
References

Kuhn, T.S(1962). “The structure of scientific revolutions”. Chicago University. Chicago

Press,1962.

Deane Phyllis. “The evolution of economic ideas”. University of Cambridge. Cambridge

University Press.

Blaug, Mark. “Kuhn versus Lakatos or Paradigms versus research programmes in the history of
economics”.

Fischer, Charles C.(Jan, 1993). “On the ‘stickiness’ of the Economic Equilibrium Paradigm: Causes
of its Durability”, American Journal of Economics and Sociology, Vol. 52, Issue NO.1 (Jan1993),
pp.51-62.

MccGwire, Michael(1944). “Shifting the Paradigm”, Oxford University Press on behalf of the
Royal Institute of International Affairs, Vol.78, Issue No.1 (Jan., 2002), pp.1-28.

Orman, Turkan Firinci(2016). “Paradigm as a central concept in Thomas Kuhn’s Thoughts”,

International Journal of Humanities and Social Science, Vol. 6, No. 10; October 2016.