Alexander Dow

The Scottish Political Economy Tradition and Modern Economics

The purpose of this article is to reexamine the notion of a Scottish tradition in political economy in the light of recent developments in the methodology of economics. Consideration is given to the concept of tradition itself, which puts the focus on approach to theorizing and the relationship between theory and reality rather than theoretical content. It is argued that the Scottish approach provided the foundations for much of modern political economy. Further, modern discussion of constructivism and critical realism can both be seen to have precedents in the Scottish tradition. Indeed the Scottish political economy tradition provides an exemplar of the constructive blending of the two strands. Copyright 1997 by Scottish Economic Society.

Animal Spirits and Rationality

The notion that ‘animal spirits’ govern investment decisions can be viewed as being central to Keynes’s theory of aggregate demand and, at the same time, as being its weakest point. An autonomous shift in long-run expectations among entrepreneurs can drive a wedge between effective demand and full employment output, requiring government stabilisation policy if full employment is to be achieved. That shifts in long-run expectations may occur autonomously is, however, regarded by many as cause for concern. If Keynes’s theory can neither explain nor predict these shifts, then it appears to be lacking a crucial element.