The Consequences of the Dominance of Formalism in Economics

Extended Abstract
 
Introduction and Objectives: In recent decades, the widening gap between formal economic models and institutional and behavioral realities has emerged as one of the fundamental challenges of conventional economics. Despite the increasing complexity of mathematical tools and the expansion of the formalist approach, the explanatory power of these frameworks in elucidating real economic phenomena—ranging from financial crises to the irrational behaviors of agents—has been seriously called into question. This divergence cannot be reduced merely to empirical failures, data limitations, or policy errors; the issue is more profound than a purely applied concern. In fact, what lies at the heart of this crisis is a methodological transformation in the criteria for the scientificity of economics—a shift through which scientific rigor and validity have gradually migrated from empirical, institutional, and historical explanation toward formal coherence and axiomatic consistency. While extensive literature has critiqued the excessive mathematization of economics, the majority of these critiques have focused either on the policy implications of economic models or have been restricted to empirical testing. Conversely, systematic investigations into the philosophical and methodological foundations of axiomatic formalism and the mechanisms of its integration into conventional economics have received less attention, particularly regarding the nexus between developments in the philosophy of mathematics and the redefinition of scientific legitimacy in economics. The primary inquiry of this article is how axiomatic formalism has become the benchmark for the scientificity of conventional economics and what consequences this redefinition has entailed for the explanatory capacity of the discipline. The paper argues that this transformation, while enhancing the internal consistency and formal precision of economic models, has been achieved at the cost of excluding or marginalizing institutional, historical, and behavioral realities, ultimately leading to a form of explanatory poverty.
Method: This research is fundamental in terms of objective and analytical-critical in terms of method. The required data were collected through library research and a review of authoritative texts in three areas: (1) Philosophy and foundations of mathematics (to understand the origins of formalism); (2) The history of economic developments (to trace the introduction of mathematics into economics); and (3) Economic methodology and philosophy (to extract existing critiques). Qualitative content analysis with a critical orientation was employed for data analysis. In this process, key concepts were extracted, categorized, and subsequently interpreted within the framework of the primary research question: “the explanation and critique of the hegemony of mathematical formalism over conventional economics.” The final argument of the article is constructed through a deductive-analytical approach; specifically, the foundations of formalism were first deduced from mathematics, followed by an examination of their adaptation and consequences within economics, and finally, concluding the invalidity of this paradigmatic shift for indigenous economics in light of the identified deficiencies. The validity of the analysis has been ensured by broadening the scope of sources and citing both supportive and critical perspectives.
Results: Based on a critical reappraisal, this article demonstrated that the dominance of formalism in economics cannot be interpreted merely as progress in analytical tools or an increase in scientific precision. By emphasizing symbols, mechanical rules, and the independence of reasoning from substantive content, formalism gradually led to the perception that a theory’s validity lies not in its correspondence with reality, but in its formal provability within an axiomatic framework. As this perspective expanded into economics, a shift occurred in the criteria for scientificity from “explanation of economic phenomena” to “formal coherence and consistency.” Within this framework, economics has come to resemble the non-human sciences—particularly the exact sciences and engineering—more than a social science. Mathematical formalism, which has expanded over several decades, has led to a state where learning and producing economic theories at advanced levels are nearly impossible without mastery of high-level mathematics. In such a context, the focus on the form and structure of reasoning replaces attention to its content and its connection to the real world. The core issue is not the use of mathematics per se, but the hegemony of mathematical formalism, which has weakened the commitment of economics to institutional, historical, and social contexts. Although the dominance of formalism has increased the precision and clarity of economic reasoning, it has fostered an avoidance of real economic issues that cannot be examined or studied within an axiomatic framework. Due to this dominance, every analysis necessitates knowledge of mathematical and econometric techniques, while historical methods, field studies, and other qualitative approaches, such as discourse analysis, carry negligible value. Based on the analyses conducted, this article concludes that the dominance of formalism entails the following consequences for economics: (1) Unrealism; (2) Obscuring the ideological and value-laden dimensions of economics; (3) Pure quantification and neglect of qualitative aspects of economic life; and (4) Determinism (reductionism) and denial of human agency and freedom.
Discussion and Conclusions: The expansion of formalism in economics has resulted in the loss of meaningful engagement with the institutional, historical, and behavioral complexities of economic reality. Gradually, this deficiency has not only remained unresolved but has been obscured under a shroud of increasing technical complexities (such as the burgeoning use of DSGE models and advanced mathematics). The limited successes of this approach have primarily occurred in domains where variables are largely independent of qualitative and human factors; however, its generalization to the macro-analysis of issues with human and qualitative dimensions—such as inequality, power, and historical transformation—faces inherent limitations. It is worth noting that the critique of formalism does not imply the rejection of mathematical application in economics, but rather serves as a call to rethink the criteria for scientificity. Restoring explanation, empirical relevance, and social significance to the center of theoretical evaluation can help revive the status of economics as a social science and prevent its reduction to a series of formal exercises decoupled from reality.