Methodological issues in theorising the financial, economic and social system: realistic and systematic abstraction

The global financial and economic crisis, and in particular the perceived failure of economics to predict the crisis, has led to questioning of the methodology of economics. Some have championed the methodological approach of ‘critical realism’ as fostering a more realistic economic theory than that currently predominant. This paper will argue that, whilst critical realism correctly poses the need for realistic abstraction, critical realism fails to deliver because it does not offer any aid towards systematic abstraction (despite proponents’ claims to the contrary). The application of critical realism can readily identify myriad relevant aspects of the crisis (financial, economic, political, social, psychological, local, national, international, short-run, medium-run, long-run and so on). Yet, critical realism precludes any adequate comprehension of how these myriad aspects cohere to constitute the capitalist system as a whole. The paper goes on to argue that critical realism corrupts an approach (appropriately termed ‘system abstraction’) which can genuinely aid the development of economic theory that is both realistic and systematic. This superior approach aids system-wide theory by offering a step-by-step method that begins with an abstract conception of ‘value’ and moves towards a concrete comprehension of the world market.