By David Sloan Wilson

January 20, 2025

Read almost any recent critique of neoclassical economic theory, and you will find its unreality pointed out. Homo economicus is nothing like flesh-and-blood humans, we are told–again, and again, and again.

Remarkably, this critique has been leveled against the precursors of neoclassical economics, all the way back to the origin of the profession. That’s what we can learn from a new book titled Ricardo’s Dream: How Economists Forgot the Real World and Led Us Astray, by Nat Dyer, an able scholar and entertaining writer on the subject. The title refers to David Ricardo (1772-1823), whose influence was on a par with Adam Smith, Thomas Malthus, Jeremy Bentham, James Mill, and John Stuart Mill.  His dream was to discover economic laws as universal and mathematically tractable as Newton’s laws of motion. He became so mesmerized by his models that he gave them priority over the more complicated real world—just like the neoclassical economists of today.

Ricardo did not start out as a theorist—quite the contrary. His ancestors were Sephardic Jews who fled the Portuguese Inquisition and eventually ended up in London, where they became successful stockbrokers. David broke with his family when he married a Quaker woman and converted to Unitarianism but made a fortune as a stockbroker in his own right, becoming one of the wealthiest men in England. His main contributions to economic theory came after he stepped back from the Stock Exchange, including his 1817 book Principles of Political Economy and Taxation.

Ricardo’s detachment from reality was noted by his peers and future generations of economists. His friend, John Louis Mallett, wrote: ” … he meets you upon every subject that he has studied with a mind made up, and opinions in the nature of mathematical truths… It is this very quality of the man’s mind, his entire disregard of experience and practice, which makes me doubtful of his opinions on political economy[1].”

Here is a sample of passages from Dyer’s book documenting both the addiction of Ricardo and his kind to unreal theories, and critiques by other economists more grounded in reality. 

The method of getting clear-cut results to economic questions by piling on one huge assumption after another has been named after its progenitor, David Ricardo. The influential Austrian-American economist, Joseph Schumpeter wrote in the mid-twentieth century, that the method produced ‘an excellent theory that can never be refuted and lacks nothing save sense.’ He concluded ‘The habit of applying results of this character to the solution of practical problems we shall call the Ricardian Vice.’ (p 6).

The way in which Ricardo made his arguments, with a desire to construct ‘laws’ in the image of the physical sciences and with the use of hypothetical numerical examples meant that his work was anchored not in reality but in an ideal world. John Maynard Keynes spoke of this in the 1930’s with an analogy from mathematics: ‘The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience, straight lines apparently parallel often meet, rebuke the lines for not keeping straight’. (p 38)

Thomas Piketty, writing in his 2014 book Capital in the 21^st Century: “To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research…This obsession with mathematics is an easy way of acquiring the appearance of scientificity without having to answer the far more complex questions posed by the world we live in…[Economists] must set aside their contempt for other disciplines and their absurd claim to greater scientific legitimacy, despite the fact that they know almost nothing about anything.” (p 231)

To summarize, unreal theories in economics have been both advanced and critiqued for over two centuries. What accounts for this amazing example of cultural stasis? Here is the opinion offered by Keynes in his 1936 book General Theory of Employment, Interest, and Money (quoted in Dyer, p 4):

That it was adapted to carry a vast and consistent logical superstructure, gave it [Ricardo’s theory] beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That is afforded a measure of justification to the free activity of the individual capitalist, attracted to it the support of the dominant social force behind authority.

This passage identifies two major attractions of unreal theories—they supported the interests of the elite members of society and they had the appearance of being scientific at a time when this meant emulating Newtonian physics. I will leave the first of these to others and will focus on the second.

There is nothing wrong with wanting to place the study of human society on a scientific foundation. And scientific theories inevitably require simplifying assumptions, which detach them from reality to a degree. If we are going to critique the unrealities of scientific theories, we also need to critique the problem of no theories—just masses of disorganized empirical information.

What Ricardo and his peers lacked was the availability of a scientific framework other than Newtonian physics. That’s what Darwin’s theory of evolution provided and at least some economists were quick to build upon it. Much of the activity took place in Germany and the United States and is lacking from Dyer’s account, which is centered on England. To fill the gap, here is a passage from Charles Camic’s biography of the Norwegian-American economist Thorstein Veblen[2], describing the education that Veblen received from his professor, John Bates Clark, at Carleton College in 1879 and 1880.

As Clark would have been the first to admit, many of these ideas were imports he had just carried back from Germany, where he had come under the spell of the historical school of economics. As a graduate student in Heidelberg for two years, Clark had studied with Karl Knies, one of the school’s founders, who regularly flayed classical political economy on several counts: first, for depicting individuals as creatures of “self-interest” alone, rather than psychologically complex, anthropologically mutable human beings motivated by “material” and “nonmaterial forces”; second, for severing individuals from the social groups to which they belonged, neglecting the economic and noneconomic aspects of their “communal life”’ and, third, for eliding “the process of historical development” by postulating “unconditional and constantly uniform” economic principles that failed “to take into account of the great differences and developmental stages existing in human civilization.” Holding as an article of faith that “the horizon of political economy [must be] extended beyond the perspective of Adam Smith,” Knies insisted to his students that the “economic forces and phenomena of the present day are to be comprehended as a mere historical fragment, and are neither to be treated as entire and universal for all economic phases and evolutions, nor as typifying such phases and evolutions. (p117)”

This passage can be used to make several key points. First, notice the watershed difference between the two scientific frameworks. The evolutionary framework called for the study of history, which was entirely lacking from the Newtonian framework. It led to a far more complex conception of human psychology as mutable and not based entirely on self-interest. Both the Newtonian framework and the Darwinian framework deserve to be called scientific and authoritative, but they lead in completely different directions as far as the development of economic theory is concerned—and did from the very beginning.

Second, notice how evolutionary theory manages to be authoritative without being mathematical. The strength of evolutionary theory is its ability to make sense of a huge variety of facts based on its core assumptions of variation, selection, and heritability. These core assumptions are closely tethered to reality, rather than departing from reality, and simple enough to reason from in words. Mathematical models have a role to play in evolutionary theory, of course, but they do not have the dominating role that forced Ricardo and others to make unreal assumptions for the sake of mathematical tractability.

Third, notice how evolutionary theory lends itself to anti-authoritarianism. The current social order is not ordained by God. It was different in the past and can be different in the future. The current distribution of wealth can be seen as predatory and in need of reform.

Against this background, when Veblen wrote his 1898 essay “Why is Economics not an Evolutionary Science?”, he was not just speaking for himself. He represented an emerging school of thought that was vying with the Newtonian school of thought for the scientific high ground.

Why economic history turned out as it did, with the Newtonian School making a comeback after a period of decline, is discussed by Dyer in a chapter titled “The Return of Unreality”. One contributing factor was that the history of evolutionary theory had its own complications, including an almost exclusive focus on genetic evolution until the closing decades of the 20^th century.

Fast forwarding to the present, we have three main alternatives to consider for the future of the economics profession, as Dennis Snower and I articulate in our series of articles titled “Rethinking the Theoretical Foundation of Economics”. The first is the neoclassical paradigm, with its roots forever embedded in Newtonian physics. The second is a disorganized collection of perspectives that we call “diffuse pluralism”. The third is a vastly more sophisticated theory of evolution than in Veblen’s day, which includes human cultural evolution in addition to genetic evolution. Choosing the third will be the cure of economics’ addiction to unreal theories, so entertainingly described and perceptively diagnosed in Ricardo’s Dream.

[1] Quoted in the Wikipedia entry on Ricardo: https://en.wikipedia.org/wiki/David_Ricardo

[2] Go here for a podcast with Camic on his book.