Modern economic theory seeks mathematical descriptions for complex economic phenomena to demonstrate the legitimacy of the effects observed. In other words, its goal is to justify the existence of what already exists. The theoretical confirmation of the obligate and logical nature of the complex and anomalous effects observed in the economy is thus somewhat scholastic. Such descriptions can only be meaningful if they facilitate a deeper penetration into the essence of a phenomenon and make it possible to perform the applied calculations that are needed in forecasting or management. In most cases, these requirements are not met, causing a fundamental contradiction in modern economic science. The question here is that of the unprecedented growth of descriptive and explicative schemes against the background of an evident lack of understanding of the economy and ineffective economic solutions at all levels.

The aspiration to present the economy in terms of superfluous mathematical descriptions is a basic feature and the main corollary and, at the same time, the cardinal problem of modern economic science. Incapable of providing efficient practical solutions, such sensational descriptions, devoid of in–depth understanding, increase still further the passivity of economic science. Practical workers dealt with the most momentous and important problems, while theoreticians do not go beyond discussions, at best.

Such a situation cannot be considered normal. As the well–known aphorism says, knowledge is power. Indeed, physicists and engineers, for instance, are capable of canalizing a waterfall into a pipe and using the harnessed energy to illuminate a city. Modern biology has helped to develop an ultralight and ultrathin bulletproof jacket using artificial cobweb. The advances of microbiology make it possible to clone from fossil bones not only brontosauruses but also some internal human organs.

What about economic science? What use, for example, can be made of G. Becker’s economic theory of natality? For all its sophistication, it does not (and cannot) resolve the problem of natality: some nations multiply, others die out. And what about the economic theory of the family? Men and women chose the wrong spouses in the past and they continue to do so; they divorced and abandoned children in the past and they do so today. Does institutionalism make us richer in any way? The institutionalists are busy trying to explain why historical development took a certain path in a certain country, but history cannot be undone. We can recall an infinite number of similar examples, but the important thing is that modern complex economic theory has lost its main function, that is, to augment the might of man.

N. Wiener said that W. Gibbs, the founder of statistical physics, was a very strong but not very subtle mathematician. Similarly, the economists of the past were strong but not subtle. We must also observe, however, that the present–day economists are bogged down in their analytical subtleties. Successful in nuances, they have lost their constructiveness. Paradoxical as it may be, but Seneca’s aphorism “how much evil there is in excessive subtlety, and how hostile it is to the truth’’ applies well to the present situation.

Now, let us try to compare the Russian and Western models of economic science.

Having in mind the colossal mathematical apparatus of modern economic knowledge and the economists’ mindset for a scrupulous and formal description of processes, it would be logical to begin comparing the two models with the level of processability and instrumentality. What immediately strikes the eye is the nearly complete incompatibility of the two national schools. While the whole of Western economic science is utterly formalized, the Russian one has hardly been touched by this process.

The situation with specialized economic publications proves this point. In Russia, there is only one nationwide journal publishing economic-mathematical articles with no limitations on the level of complexity – Ekonomika i matematicheskie metody (Economics and Mathematical Methods). This journal alone is generally recognized to comply with all international standards. As opposed to Russia, in the United States there are dozens of such journals. Moreover, even periodicals dedicated to management, business, banking, and the world economy always carry articles featuring a complex mathematical toolbox. In our country, this seems quite improbable, as the economic-mathematical culture of the Russian economic community is too low to absorb complex scientific constructions.

Clear enough, there are exceptions. As of late, a cohort of economists– “Westernizers” has emerged in Russia in the wake of the American mainstream, opposing the rest of the Russian economic community. The Higher School of Economics and the Russian (New) Economic School, both of which offer instruction according to high economic–mathematic standards, are considered to be strongholds of the “Westernizers.” It should be pointed out, however, that many students abandon these schools and go to other Moscow higher educational establishments, while those who stay are seeking employment abroad since they cannot make use of their new scientific potential inside the country.

How can we assess Russia’s lag behind the West in terms of the formalization of economic knowledge?

On the one hand, the low instrumental level is a negative phenomenon. First, it is in reality impossible to resolve new complex problems using old–fashioned research methods. Second, the high level of process–ability of the economic sphere serves as a filter for the professional community of economists. Furthermore, it is exactly the mathematical background that determines the stratification of this community. Thus, a bachelor in economics understands this science at a qualitative level; a master, at a quantitative level, being capable of using models and theories; and a doctor in economics can use the entire complex of all sophisticated methods of economic analysis.

On the other hand, the bias towards instrumentality in economic science represents a negative phenomenon, like anything else that is done in excess. Sometimes, one has the impression that Western economists have forgotten that simplicity is the mark of genius. Having abandoned this basic postulate of science, they have pursued a contrary idea: “the usual heroes follow roundabout paths.’’ Western economic science fears no mathematical complexity and is proud of it, though 99% of these complexities cannot be justified.

Moreover, the mathematical tools in contemporary research objectively blot out the economic essence of phenomena. I cannot help quoting A.E. Ivanter: “It may well be OK that people put forward abstract economic models. They give a mathematical analysis of these models and prove abstract theorems–this may be good, too. But do not call it economics!’’

Finally, even the most sophisticated mathematical apparatus currently fails to meet the needs of economic science; indeed, formal science is already irrelevant to economics. Many economic theorems being proved today are trivial, banal, and self–evident from the point of view of economics. A majority of them reflect particulars that, upon closer examination, have little or nothing to do with real life. With all the multiformity and complexity of the modern mathematical apparatus of economics, its sphere of action is usually limited and has nothing in common with the so–called big mathematics.

Present–day economics requires an apparatus similar to that used in molecular biology. This may be the reason for the emergence of a new tendency to replace traditional economic–mathematical models with simulation (behavioral) computer models, an area in which Russia has carte blanch. The point here is that those countries proceeding along the trunk road of economic thinking cannot quickly change to a new track. Such a change is obstructed by the long–standing infrastructural “canopy’’: many journals, publications, university departments and laboratories, institutes, and research centers are engaged in producing a scientific product within a given framework, and, to be sure, they will not relinquish their positions overnight. We cannot exclude that it may take decades to reorient this scientific machine to something quite new. Russia is not burdened with such an ideological and infrastructural load: the mainstream has not become the dominant paradigm of domestic economic science. The path for Russian economists is free of all obstacles, and nothing can prevent them from making a breakthrough in a new scientific direction.

In my opinion, this situation constitutes a paradox of economic development, which plays into the hands of the Russian economic school: what has been its minus for years may turn into a plus.

Let us continue comparing the two models in terms of the level of the ideologization of economic science. It is no secret that economic science always has an ideological tinge. As to mathematical economics, many believe it to be free of this drawback, since ideology has nothing to do with objective quantitative relationships. However, this is totally different.

Here is an example from my own practice. In 1989, when the Marxist–Leninist tradition was still strong in our country, I wrote an article proposing a model that was aimed at optimizing the reproduction structure of investments. The article was to be published in a collection of my Institute’s works, but L.N. Shaposhnikov, the editor of the collection, discarded it. His first argument was that I had chosen capital productivity as the maximization criterion, whereas capital does not exist under socialism. His second argument was more “weighty”: in my article, I set the goal of optimizing the distribution factors of capital investments, which was senseless because these factors were plan targets. The point was that you could neither question nor optimize a target. You have to fulfill it and not prejudice it.

Evidently, I could not win this debate, and so my article was rejected because of ludicrous ideological quibbles. Many people, myself included, thought that with the fall of socialism such a thing could never occur again. This was yet another illusion. In 2003, I received a review from the publisher’s reader S.M. Guriev for an article of mine that studied the trajectories of enterprises’ outputs with and without credit, which I had sent to the journal Economics and Mathematical Methods. The review stated, in particular, that the main drawback of my paper was the absence of the enterprise’s target function. In his opinion, the model I had proposed was not an economic model, for it had no rational economic agents. Moreover, the article discussed the model of a separate enterprise, thus setting a goal for a finance manager and not a researcher in economics. In Guriev’s opinion, to solve problems of economic research, this article should have focused on the behavior of interest rates, prices, etc.

The article was rejected, although, in fact, it simply failed to meet the mainstream standards, which is a punishable offence among those who accept such standards.

In spite of the fact that many valuable results have been obtained within the framework of mainstream economic science, its patterns cannot cover all researchers. At least an equal number of not just excellent but outstanding results have been achieved within the bounds of descriptive modeling. Here are, for example, W. Leontief’s interindustry models (for which he was awarded the Nobel Prize) and his classical model of the economic growth of developed and developing countries with capital movements between the countries; F. Black and M. Scholes’ options pricing models (which garnered the Nobel Prize for Scholes); F. Modigliani and Miller’s theorem on the firm’s independence from the structure of its capital (Miller received the Nobel Prize for this research and related works); etc. The works of R. Fogel, D. North, and J. Buchanan, whose importance for economics is enormous, belong to the institutional school and so cannot be reduced to the mainstream ideology and apparatus.

The pressure of the Western school on the Russian is growing by the day. Contributors to this process include higher educational establishments, which are financed by Western foundations and which train Western–minded economists; Western financial institutions with their grants; and the international openness of the country. Nevertheless, the mainstream ideology has not yet become, and is unlikely to become, dominant. We have every reason to believe that our country has a good chance to reach new scientific frontiers. Moreover, there is the possibility that the absence of ideological biases will help Russian economists to achieve a breakthrough further and faster than the countries now considered the leaders in economics. [1]

There is yet another important difference between the Russian and Western models that concerns accumulated scientific traditions. In this respect, Russia is also at a disadvantage, especially from the point of view of the age of specialized economic periodicals. In an interesting paradox, the United States is much younger than Russia, but American scientific economic journals have a richer history. In Russia, the Ekonomist is formally considered the oldest economic journal, turning 80 a short time ago (as a matter of fact, it was founded in mid–1991, on the basis of the journal Planovoe Khozayistvo (Planned Economy), which had been published since 1924). In the United States, The American Economic Review has existed for 94 years; The Journal of Political Economy is 112 years of age; and the British Economic Journal is 114 years old.

Further, in the West, mainstream economic thought has been strongly supported by the Econometrica journal , which was founded back in 1932, whereas a somewhat similar Russian periodical Economics and Mathematical Methods was first published 32 years later, in 1964. What is more, in all the years of its existence, this Russian periodical has not been able to even approach the international status and prestige of Econometrica.

Moreover, a number of journals with a good record of scientific publications are, or will soon be, extinct, as is the case with the journal Problemy Teorii i Praktiki Upravleniya (Studies in the Theory and Practice of Management), recently closed after 20 years in operation. Such facts do not contribute to a heightening of the status of Russian economic science. The international “weight” of a scientific discipline also depends on its “face,” that is, the leading scientific journals.

The unenviable situation of Russia’s economic science (science itself and not individual Russian economists!) on the world scientific market can also be explained by the fact that it has not yet been integrated into world science. In my opinion, the reason for this is that scientific works have been published almost exclusively in the Russian language, which is not understood by most of the world’s economists. Today, only one academic journal – “Problemy Prognozirovaniya –is published in English, the latter under the title of Studies on Russian Economic Development. Other economic journals are not translated and, therefore, are not represented on the world scientific market. Such linguistic barriers are not typical of the civilized world. Suffice it to say that in Japan, for example, many economic journals are published in English. Nor are such linguistic barriers typical of the technical and natural sciences in Russia itself, for many academic and university publications have parallel editions: one in Russian and one in English. Economic science has thus far been excluded from this process.

The level of cohesion of the professional community is another feature of any national economic school. Unfortunately, our country is an outsider here as well. While economists in the West are united, in Russia they are split.

In the United States, the special Merit program is now underway. On the basis of tests worked out over the last 70 years, 35 000 talented high school students are selected. Approximately 1.5 billion dollars are spent to support these youths and the schools in which they study [1]. Russia has no such program, and talented young scientists come into economic science mostly by chance.

Economists as a separate professional category have not been institutionalized in our country. In the United States, the American Economic Association has existed for almost 120 years. The Royal Economic Society was founded in Britain in 1890. The Free Economic Society of Russia has nothing to do with modern economic science.

The lack of unity in the ranks of Russian professional economists is also proven by the fact that they almost never quote the works of each other and do not consider it necessary to name the author of a particular idea, model, concept, etc. Russian economists have no desire to familiarize themselves with all the literature related to the subject on which they are working. Furthermore, many Russian economic journals do not have bibliographic references and often object to footnotes with copious indications of firsthand publications. Thus, here there is tacit collusion in “silencing” the scientific priority of the individual researcher.

All this is so very different from the traditions that have been established in the Western literature, where authors are obliged to provide references not only to the publications of their predecessors but even to works that have yet to be published and exist only as a single copy or just a few copies. The absence of an acknowledgment of colleagues who took part in discussions on individual topics, of persons and organizations who gave financial support, and even of anonymous readers who provided their opinion is considered mauvais ton. Authors often make a special statement taking upon themselves all the blame for all possible errors and drawbacks, should any be found in their works. Such traditions have helped to establish an environment of mutual propriety and respect, which is almost nonexistent in Russia.

Note that Western economic science is, so to speak, “individualized”; that is, scientific constructions are named after their authors. In the present–day economic literature, you can come across such terms as the Laffer curve, Hiksian cross, Keynesian investment trap, Keynesian multiplier, Fisher equation, Leontief model, Solow function, Debreu theorem, Allais paradox, Gossen law, Marshall–Lerner terms, Gordon formula, Nash equilibrium, Veblen effect, Shapley value, McFadden elasticity, Pareto optimum, etc. Unfortunately, there are very few analytical constructions bearing Russian names in modern economic science.

The absence of such traditions not only leads to some Russian names being silenced but also undermines the authority of the whole of national economic science for, as life shows, anonymous science very soon becomes amorphous, badly structured, and ineffective.

In the meantime, our compatriots have recently produced brilliant results. We can recall L.A.Dedov’s research into the structural cycle phenomenon [2], the works by V.M.Polterovich on the theory of institutional traps [3, 4] and the theory of collective firms [5], the articles by L.E.Sokolovskii on the theory of fiscal regulation [6,7], V.V. Kapitonenko’s formulations on pricing in multilevel economic structures [8, 9], etc.

On the other hand, all is not perfect in Western economic science, particularly as concerns the very subject of investigation. Take for example the article by C.Goldin and L.F.Katz “The Power of the Pill: Oral Contraceptives and Women’s Career and Marriage Decisions” [10] published by Chicago University’s Journal of Political Economy. We wish neither to reproduce the entire article nor to question the signifi­cance of the problems it addresses, but we can reasonably affirm that the subject it discusses has little in common with the issues likely to be examined by political economy. The same goes for another article appearing under the provocative title “A Theory of Prostitution” [11]. No doubt, this represents an important social problem, but it is unlikely to become a soapbox of political economy.

In short, Russian economic science is not so bad after all, and the Western, not so majestic. However, the monolithic and monumental world of the Western economists is trampling on the isolated germs of Russian research.

What is the criterion of the veracity of scientific results in economics?

In accordance with the mainstream orthodox tradition, a strong work in the field of economics must be complex and based on a sophisticated mathematical apparatus. However, in the first place, practically all classical results are very simple in form and rest on a relatively “light” mathematical apparatus. Second, even those achievements that are based on complex mathematical constructions figure in the annals of economic science as a certain intentional essence without the corresponding instrumental embroidery. Theories and models that are too complicated cannot constitute day–to–day working tools even for a narrow group of specialists. Research carried out by Becker, who used simple analytical tools, represents a classic example of the triumph of instrumental simplicity [12, p. 669]. It is not an exaggeration to say that it was precisely this circumstance that made him both very popular and one of the most widely quoted living economists [12, p. 645].

In a certain sense, the results achieved by Russian economists are more transparent and, consequently, better correspond to the criterion of veracity.

Reproducibility and repetitiveness is another criterion of the fruitfulness of scientific theories that is directly linked with the problem of the complexity of modern economic schemes. The history of science definitely shows that all more or less valuable findings are always “rediscovered” by other researchers. Economics is not an exception to this rule. Really complicated works and schemes, however, do not stand a chance of rediscovery; therefore, they will never be identified as important discoveries or as the most significant of scientific achievements. From this angle, we can state that the Western mainstream in reality complicates the process of the revision of economic science with a view to capturing whatever it has of value.

The above–mentioned criterion may be used as a two–level consistency check of scientific results: collective and individual. At the first level, the ideas are accepted by a wide community of economists, as was the case with the famous E.E.Slutskii’s equation, later rediscovered and reinterpreted by J.Hiks. Incidentally, the model that constitutes the basis of the Slutskii equation is very simple, which evidently made it possible to reproduce the logic of his analysis. At the same time, the form of Hiks’ equation is somewhat different from that proposed by Slutskii.

The second level is a kind of self–test. The researcher fails to win recognition in the eyes of the community but becomes convinced that his work is correct and fruitful. Here are two examples from my own experience. In 2000, I published an article proposing, among other things, a simple method of calculating the size of the nominal tax burden presented as a sum of tax rates with the corresponding weight factors [13]. This index had a fundamental importance for coming to know the true scale of the fiscal burden on enterprises in the country. In 2001, R.Kh.Ibragimov defended his candidate’s dissertation using the same calculation method [14], although he was not familiar with my article. My work was essentially macroeconomic, while Ibragimov’s dissertation was mainly microeconomic; thus, this methodological parallelism in evaluating the nominal tax burden demonstrated its objectivity and practical usability.

Another example. In 2000, I published an article demonstrating that high economic growth rates helped the economic system to come out of an institutional trap [15], and two years later I generalized and detailed this approach [16]. In the meanwhile, in 2001 V.M.Polterovich proved the same using a completely different method and models [17]. He was not familiar with my work, and I knew nothing of his, but the results agreed, proving the correctness of the final conclusion, which, as it turned out, could be produced using completely different methods.

* * *

Thus, the situation in modern economic knowledge is somewhat ambiguous. On the one hand, the West has enormous advantages over Russia but, on the other hand, strange as it may seem, Western economic science is much more ideologized than Russian. Keeping in mind that modern economic thinking is at a turning (or fracture?) point, none of these advantages can be dismissed. Russia has the chance to build a powerful and effective national economic school. The fulfillment of this opportunity, however, requires the observance of many preconditions – this is the art of statesmanship.

References

1. V. R Efroimson, Genetics of the Genius (Taideks Ко, Moscow, 2002) [in Russian].

2. L. A. Dedov, “Macrostructural Dynamics of Russia’s Industrial Complex,” Ekon. Mat. Met., No. 3 (2002).

3. V. M. Polterovich, “Institutional Traps and Economic Reforms,” Ekon. Mat. Met., No. 2 (1999).

4. V. M. Polterovich, “Factors of Corruption,” Ekon. Mat. Met., No. 3 (1998).

5. V. M. Polterovich, “Paradoxes of the Russian Labor Market and the Theory of Collective Firms,” Ekon. Mat. Met., No. 2 (2003).

6. L. E. Sokolovskii, “Value–Added Tax and a Profit–Maximizing Enterprise,” Ekon. Mat. Met., No. 4 (1992).

7. S. M. Movshovich and L. E. Sokolovskii, “Output, Taxes, and Laffer Curve,” Ekon. Mat. Met., No. 3 (1994).

8. V. V. Kapitonenko, “Advantages of Vertical Integration in the Formation of New Organization–Production Systems (Simulation Analysis),” Ross. Ekon. Zh., No. 10 (1994).

9. V. V. Kapitonenko, “Simulating the Convergence of Domestic and World Prices,” Ross. Ekon. Zh., No. 2 (1997).

10. C. Goldin and L. F. Katz, “The Power of the Pill: Oral Contraceptives and Women’s Career and Marriage Decisions,” J. Polit. Econ., No. 4 (2002).

11. L. Edlumd and E. Korn, “A Theory of Prostitution,” J. Polit. Econ., No. 1 (2002).

12. R. I. Kapelyushnikov, “The Contribution of Harry Becker to Economic Theory,” in G. S. Becker Human Behavior: An Economic Approach. Selected Works on Economic Theory (GU VShE, Moscow, 2003) [in Russian].

13. E. V. Balatskii, “Reproduction Cycle and Tax Load,” Ekon. Mat. Met., No. 1 (2000).

14. R. Kh. Ibragimov, Candidate’s Dissertation in Economics (IMEI, Moscow, 2001).

15. E. V. Balatskii, “Nonproduction Costs in the Theory of Institutional Traps,” in Urgent Problems of State Construction and Control (GUU, Moscow, 2000) [in Russian].

16. E. V. Balatskii, “Functional Properties of Institutional Traps,” Ekon. Mat. Met., No. 3 (2002).

17. V. M. Polterovich, Rent Seeking, Tax Policy, and Economic Growth. New Economic School. Working Paper (2001/027).