B50 - Current Heterodox Approaches: GeneralReturn

J. A. Schumpeter was an Austro-American economist, historian of economic science, political scientist, lawyer and politician, ranking among the most famous, outstanding and cited economists of the 20th century. He created a dynamic theory of development based on innovations, researched economic cycles, issues including long waves, innovations, entrepreneurship, and theory of evolution.

It has been widely accepted that philosophers of science wrote a "swansong" for positivism during the second half of the 20th century. Milton Friedman and Paul Samuelson, major contributors in the field of economic methodology at the time, the argument goes, never reflected the demise. Therefore, positivist roots are still to be found in influential theoretical concepts developed by mainstream economists. Specifically, I present the hypothesis of rational expectations and the theory of efficient markets as two significant outcomes of a "high tide" of positivist thinking in economics. However, quite a large number of scholars currently share the view that the two concepts contributed in a non-negligible manner to the development leading to the financial crisis culminating in 2008 and 2009 and should be replaced by behavioural or other approaches. The article thus asks, in quite a novel way, if the crisis - seen by many as an empirical rejection of both the concepts - can also be seen as a milestone in the development of methodology of economics.