The Formalist Revolution or what happened to orthodox economics after World War II
Paper number: 98/10
Paper date: October 1998
Paper Category: Discussion Paper
That the Keynesian Revolution in the 1930s marked a water-shed in economics dividing the Young Turks from the Old Guard is too well known to require discussion. But that World War II and the immediate post-war years marked a similar and possibly greater break in the 'paradigm' of professional economists is something which is little appreciated even by historians of economic thought, not to mention workaday modern economists. There was in fact a Formalist Revolution that swept throughout economics with increasing speed in the 1950s, coming to full realisation in the 1960s. I call it a 'formalist revolution' because it was market by 'formalism' - an overriding preference for the form of an economic argument over its content - which frequently but not necessarily implies a reliance on mathematical modelling and mathematical reasoning. The seeds of this Formalist Revolution were clearly laid down in the 1930s, as we try to show, but the full triumph of formalism only came after World War II. Intellectual revolutions do not have well-defined birthdays but if we must date the post-war formalist revolution in economics, two years that stand out are 1947 when Paul Samuelson published his 1941 PhD thesis under the title Foundations of Economic Analysis and 1954 when Kenneth Arrow and Gerard Debreu published their proof of the "Existence of an Equilibrium for a Competitive Economy" in the September issue of Econometrica. Samuelson's book and the Arrow-Debreu paper might as well have been written in Sanskrit for all the incomprehension with which they were received by the old generation of pre-war orthodox economists. The paper closes with a sketch of a historical explanation of this phenomenon.
JEL Classification Nos: B2 (History of Economic Thought since 1925)
Keywords: Formalism; mathematical economics; institutional economics; general equilibrium theory; capital theory; socialist calculation debates; welfare economics; competition; Austrian economics
Corresponding Author: Mark Blaug, Department of Economics, University of Exeter, Streatham Court, Rennes Drive, Exeter, EX4 4PU, UK, tel: (44) 1392 263217, fax: (44) 1392 263242, email: M.Blaug@exeter.ac.uk