The term “neoclassical economics” was born in 1900; in this paper I am proposing economist-assisted terminasia; by the powers vested in me as president of the History of Economics Society, I hereby declare the term neoclassical economics dead. Let me be clear about what I am sentencing to death—it is not the content of neoclassical economics. As I will discuss below, it is difficult to determine what that content is, and even if I wanted to kill the content, I have no role in determining content. The role of historians of thought is to record, not determine, content. What I am declaring dead is the term.

The central theme of this session is the changing relationship between “orthodox” (i.e., mainstream, neoclassical) and “heterodox” economics, especially in the USA, during the past two or three decades. Economics is such a large and heterogeneous discipline that it cannot be characterized both briefly and accurately. Alongside the growth of formalization and mathematization, and the high degree of uniformity in the undergraduate and graduate curricula and in the leading textbooks, there are also within the subject a number of dissenting or deviant doctrinal schools, rival methodological approaches, and innovative developments designed to remedy its defects and/or overcome its limitations. Moreover, many of the outspoken criticisms of the status quo, proposed remedies, and innovations, originate with or are endorsed by prominent economists with impeccable professional credentials. Indeed, in some cases their contributions threaten the discipline's foundations and can, therefore, be considered a species of “orthodox subversion.”

There is great variety within contemporary economics. As Coats (2000) points out, not only are there several schools of thought that would conventionally be labeled “heterodox,” there are numerous economists whose work is in a significant sense unorthodox or unconventional. How, then, can a dividing line be drawn between dissent within orthodoxy and dissent from orthodoxy? The suggestion I make here is that a heterodox school of thought has to satisfy three criteria.

What are the prospects for progress in heterodox economics? The question posed for this roundtable discussion raises a wide range of important issues, for heterodox economics and for economics as a whole. In order to clarify some of these issues, this contribution approaches the question from a practical point of view: what strategy would promote the progress of heterodox economics?

Heterodox economics today is alive and well, and will always be with us. It is generated by opposition to mainstream orthodoxy and performs the important function of preventing the mainstream from stagnating. Orthodoxy and heterodoxy feed off each other, and both are transformed in the process.

This topic is more in contemporary economics than in the history of economics, but in this case an historical perspective does help us to understand the present day. Roger Backhouse and Sheila Dow have approached the progress of heterodox economics mainly through the philosophy and methodology of the discipline. I take a more sociological approach. I see the issue as external to the discipline at least as much as internal.

My comments on the papers given by Bob Coats, Roger Backhouse, and Sheila Dow will focus on the history and prospects of institutional economics, as that is the part of the heterodox world I know most about.

According to the folk history of transaction costs, the concept is due to a seminal article by Ronald H. Coase, written in the 1930s. Failing to provide an operational framework, Coase's article was neglected for a long time, or so the story continues. In the 1970s, after the limits of the Arrow-Debreu paradigm had become obvious, several authors, including Oliver E. Williamson, Kenneth J. Arrow, Armen A. Alchian, and Harold Demsetz, took up the notion of transaction costs and turned it into a useful analytical tool. Partly responsible for this sudden upsurge of interest was an article by Coase in which he allegedly proposed the now famous “Coase Theorem.”

In this paper I propose to investigate the problem of liberty in Adam Smith's work. Suggesting that there is a “problem” may strike some as strange. After all, is not Smith simply the great defender of the system of natural liberty, a set of economic proposals that would remove the State from the business of directing the economy? Does he not maintain unequivocally that individuals are the best judges of their own self-interest and argue that they should be allowed to commit their labor and capital to those enterprises they deem most useful? Is Smith not one of the great defenders of the concept of negative liberty in modern liberal thought?

Since the 1980s, institutional change has become a matter of great interest as economists faced the necessity and the challenge to provide a theory of economic or cultural evolution. Their first reaction was to refer to biology, a field in which theories of evolution have reached a high degree of sophistication. This was all the more legitimate and relevant given that biology has been largely influenced by economics (Schweber 1977, 1980; Gordon 1991; Kresge and Wenar 1994; Depew and Weber 1995). Indeed, the influence of classical political economy on the views of one of the fathers of the modern theory of evolution, Charles Darwin, is widely admitted. Darwin borrowed from economists fundamental ideas such as spontaneous order and methodological individualism (from Adam Smith), the positive role of diversity and variety (from Charles Babbage) and the concept of the struggle for life (from Thomas Malthus). Therefore, the ideas promoted by the founding fathers of political economy, sometimes called “Darwinians before Darwin” (Hayek 1973, p. 23), have shaped Darwin's theory of biological evolution.

The ideal of Political Economy is not unrestricted competition, but competition that is truly free, because controlled by justice and by law. The distinction between freedom and license needs to be preserved in this department of political philosophy. With that distinction clearly maintained, we may still retain, in economics as in politics, our beautiful watchword, liberty (John Bates Clark 1879, p. 167).

John Bates Clark has had a formidable impact on the development of economic theory and the theory of income distribution. In addition, Clark's marginal product theory of distribution has often played an instrumental role in the defense of laissez-faire policies. His theory has been used to criticize a wide variety of market interventions, including minimum wage legislation. As a result it is not surprising that Clark's theory of income distribution, and Clark himself, have drawn more than a few critics.