Here’s a letter that I sent yesterday to the Wall Street Journal:
David Henderson rightly laments that “that mainstream economics has become highly mathematical and increasingly independent from reality” (“A Nobel for Practical Economics,” Oct. 13). And he also rightly hopes that the award of this year’s Nobel Prize in Economics to Elinor Ostrom and Oliver Williamson – economists who “do the time-consuming work of examining the institutional structures that humans build to solve their own real-world problems” – will help to break the profession’s enchantment with formal mathematical modeling.
That this enchantment is overly strong is revealed by William Baumol’s 1986 review of Williamson’s magnum opus, The Economic Institutions of Capitalism. Although Baumol praised the book as a path-breaking contribution, he regretted that it offers no formal models. But, observed Baumol, the “absence [of formal models] is not to be ascribed to the inability on the part of the author, who in the past has shown himself to be a master of the pertinent techniques.”*
There you have it. Williamson’s book is wonderful – and apparently more trustworthy because its author knows math. But, by golly!, wouldn’t the book have been even better if it were formalized?
I, for one, learned far more from any one of Williamson’s non-formalized works than I have from any 100 formal models.
Sincerely,
Donald J. Boudreaux* William J. Baumol, “Review: Williamson’s The Economic Institutions of Capitalism,” Rand Journal of Economics, Vol. 17 (Summer 1986), pp. 279-286. The quotation in the letter is found on page 285.
