Path deviation: A methodological discussion

As a relevant position in the philosophy of science, critical realism provides an adequate methodological basis for post-Keynesian realism, which aims to explain and understand structures and processes in contemporary economies. Jespersen (2009, p. 72), for example, demonstrated this point with a critical realistic model consisting of three strata in which the two upper layers are visible and open to immediate description based on the use of empirical methods, whereas the lower layer is invisible and calls for deduction and interpretation based on conceptual frameworks to facilitate explanation and understanding. In this paper, the latter stratum is understood as the context for investigating real-world problems in an actual economy. Contexts are characterised by institutions; thus, the deep stratum broadly covers institutions and how they are located in time and space.

Macroeconomic factors (i.e. tendencies, actions, and reactions) can thus, in context, be explained, understood, and to a certain degree predicted. However, as researchers, we often envisage evolutionary deviations from the expected path of institutions and consequently posit unsatisfactory explanations for such factors when they deviate from expectations. Such deviations pose a conceptual and heuristic challenge because institutions are characterised by a high degree of rigidity as they comprise norms and routines, thus ensuring significant path dependence and predictability. The most obvious hallmarks of institutions are stability and predictability, since institutions enable economic actors to forecast other actors’ actions and reactions and subsequently corroborate our expectations, which in turn implicates—ceteris paribus—rigidity. This institutional lock-in (North, 1990) implies the core questions raised in this paper: (1) How do we conceptualise ‘the Minsky moment’, when institutions will inevitably change?, (2) Can we predict that moment ?, and (3) Can we determine the substance of the evolutionary changes ex ante?

This paper discusses these questions as well as related potential answers, drawing on a problem-based investigation of two exemplary cases. We have recently witnessed interesting institutional changes based on policy reactions to the COVID-19 crisis, with austerity policies being superseded by more Keynesian conceptual frameworks and policies. However, rather than investigating that pertinent case, the paper instead introduces two cases that allowed the author to compare and reflect on one case in which it was possible to profit from the clarity of historical distance: the transformation of Danish society from a poor peasant economy to a prosperous welfare economy. This paper will specifically focus on the transformation of the agricultural sector primarily by applying a meso perspective and connecting meso to macro level.

As a starting point for the discussion, the paper will describe the two upper strata related to the two cases and conceptually relate them to the initial institutional context based on appropriate conceptual frameworks. It will relate the discussion to the conceptual frameworks of, among others, Veblen, North, and Crouch. Finally, the paper will conclude with a summary of preliminary answers to the questions based on the discussion.