The Method of Reasoning Employed by the Neoclassical School Is Essentially the Same As That Followed by Ricardo

The method of reasoning employed by the neoclassical school is essentially the same as the procedure followed by Ricardo as described by Schumpeter:

This is the method of analysis which proceeds by excluding as many variables as possible. Then, for the rest, piling one simplifying assumption upon another until, having really settled everything by these assumptions, he [Ricardo] was left with only a few aggregative variables between which, given these assumptions, he set up simple one-way relations so that in the end, the desired results emerged almost as tautologies.⁴

Nevertheless, it was hailed by almost all professional economists as being a triumph for economic theory when in 1964 it was shown that, given specified endowments of resources, technology and consumer preferences, a system of competitive markets could in a logical sense be proved to exist. This triumph was only slightly marred by the fact that its proponents themselves were divided on its interpretation. Since it was recognised that the result had been achieved by making such drastic simplifications and such sweeping exclusions as were not remotely attainable in practice, did it mean that a real world market economy could work, or did it mean that it could not work?

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⁴Schumpeter continued: ‘The habit of applying results of this character to the solution of practical problems we shall call “The Ricardian Vice”’.

—David Simpson, Rethinking Economic Behaviour: How the Economy Really Works (Houndmills, UK: Macmillan Press, 2000), 16-17, 213n4.