Hans Albert was born in Cologne, Germany in 1921. He is one of Germany's most distinguished philosophers of science and one of the world's leading critical rationalists, yet much of his work remains unknown to the English-speaking public. Besides his contribution to the positivist dispute in German sociology (Adorno et al., Reference Adorno, Albert, Dahrendorf, Habermas, Pilot and Popper1969, Reference Adorno, Albert, Dahrendorf, Habermas, Pilot, Popper, Adey and Frisby1976),Footnote ¹ his two main works available in English translation are the Treatise on Critical Reason and a compilation of essays entitled Between Social Science, Religion and Politics (Albert, Reference Albert1968, Reference Albert1985, Reference Albert1999). His seminal article on ‘model Platonism’ (Albert, Reference Albert, Karrenberg and Albert1963) has until now been unavailable in English. The publication of the translation of it in this issue of the Journal of Institutional Economics finally introduces this influential piece of particular relevance to economics (Albert, Reference Albert, Arnold and Maier-Rigaud2012). It facilitates a better understanding of Albert's work and thought and provides a criticism of a certain type of economic reasoning that is still prevalent in economics and continues to influence public policy.

In this important article, Albert attacks the ‘model Platonism’ of neoclassical economic thought; that is, he attacks neoclassical theory for its construction of fundamentally non-testable, hence Platonic-like, theories. This is part of a general criticism of the institutional, motivational and cognitive vacuum within which neoclassical thinking operates.Footnote ² This contribution to the methodology of economics appeared for the first time in 1963.Footnote ³ Since then the article has been reprinted several times with slight modifications only.Footnote ⁴ There is only one aspect of the paper, namely the discussion of consumer theory, that Albert elaborated and expanded on in a separate contribution later on.Footnote ⁵

‘Model Platonism’ offers an incisive critique of (neoclassical) economics from the perspective of critical rationalism. This criticism is two-pronged. On the one hand, Albert faults neoclassical theory for its refusal to integrate social scientific research, especially from social psychology and sociology. Its pervasive use of the homo oeconomicus model for describing human behaviour is one of the most obvious examples of this. On the other hand, he opposes its attempts to insulate itself from the possibility of being falsified by immunizing its theories, for example, by the use of ceteris paribus clauses. In other words, it posits its theories as applicable only under rather strongly qualified conditions. Consequently, when a hypothesis seems to be refuted, one can simply claim that the theory is inapplicable to the case at hand. The validity of the hypothesis is thus purchased at the cost of its empirical content. The alternative to ‘model Platonism’ that Albert envisions for an empirical economic science is one that is both sensitive to the social sciences and humanities and formed in relation to facts. Specifically, he calls for a fundamentally more empirical approach to economics that reflects the connection of economic thinking to the historical and socio-cultural milieu out of which it arises.

Since the first appearance of the article in German, the discipline of economics has undergone substantial changes. Important institutional challenges have been taken up by burgeoning research in new institutional economics, public choice, new political economy, constitutional political economy, and law and economics. These developments are apparent in the works of Nobel laureates James Buchanan, Ronald Coase, Douglass North, Elinor Ostrom and Oliver Williamson.

The behavioural challenges have been taken up, very much in line with Albert's ‘hypotheses’, by a closer integration of psychology, particularly social psychology and behavioural economics on the one hand and an experimental methodological focus within economics on the other. The 2002 Nobel Prize for Daniel Kahnemann and Vernon Smith recognized these two developments in economics. Reinhard Selten, who had already received the Nobel Prize in 1994 for his game-theoretic works, is another important pioneer of such behavioural and experimental economics.

While these immense developments provide an alternative to the ‘model Platonic’ economic research programme, the fact that these branches of economics are now integral parts of the discipline does not imply that Albert's work in general, or more specifically the article available in an English translation in this volume of the journal, has lost its relevance to economics. On the contrary, many economists, both in academic and public policy functions, have failed to take heed of these developments.

In fact, ‘model Platonic’ forms of thinking continue to play a pervasive role in public policy. This is true for many policy areas, such as antitrust. Milton Friedman (Reference Friedman and Friedman1953) already considered the discussion of the proper foundations of economic models irrelevant, emphasizing that the value of models has to be measured not by the properties of their assumptions but by the empirical success of their predictions.Footnote ⁶ The repercussions of this approach are, for example, apparent in a very influential book setting out the ‘Chicago’ perspective on antitrust.Footnote ⁷ Robert Bork suggests that price theory is sufficiently strong so that difficult empirical investigations of antitrust cases – for instance in the form of an efficiency defence – are unnecessary and can be avoided. He effectively embraces a deductive system whose axioms provide the answers; and any event not included in the axioms will either not happen or will be irrelevant.Footnote ⁸ This ‘model Platonic’ approach to antitrust set the stage not only for a series of questionable court decisions in the USA but it also continues to influence thinking about antitrust policy worldwide. The substance of Albert's criticism is thus of considerable importance to policy makers in antitrust but also in other domains that continue to operate under the spell of the abstract beauty of ‘model Platonic’ reasoning.

The fact that the economics profession was caught unawares in the long build-up to the 2007 worldwide financial crisis and substantially underestimated its dimensions once it started to unfold can be attributed to two factors directly linked to ‘model Platonic’ reasoning: first, the lack of an empirical motivation in the essential modelling assumptions, combined with questionable ceteris paribus assumptions; and second, a blatant disregard for the complete absence of the empirical fit of macroeconomic research. Indeed, the deeper roots for this are found in what has been termed the ‘systemic failure of the economics profession’Footnote ⁹ to design models that take into account key elements that drive economic outcomes in real-world markets. Half a century of research that conveniently disregarded essential institutional and behavioural characteristics of the markets that it supposedly modelled has left its (hardly surprising) imprint on financial market regulation and ultimately on the world economy.Footnote ¹⁰ Instead of letting theories die,Footnote ¹¹ economists preferred experimentation on a worldwide scale.

Similarly to Bork's aprioristic approach to antitrust, by definition assumptions such as the efficient markets hypothesis of the new classical and new Keynesian approaches in macroeconomics rule out the possibility that asset prices will not fully reflect all the relevant fundamental information (Buiter, Reference Buiter2009; Krugman, Reference Krugman2009). Despite abundant evidence to the contrary, the notion continues to be prevalent that if a model does not correspond to reality, this does not so much speak badly for the model as for reality.

A major reason why developments in the direction of ‘model Platonism’ were possible in the first place is the profound ignorance of epistemological and methodological thought, closely linked to the lack of training in this area still typical in the field of economics. Indeed, many continue to affirm the statement attributed to George Stigler that ‘it is a folly to become concerned with methodology before the age of sixty-five’ (Buchanan, Reference Buchanan1964: 213). This may in part explain why economics still has not become an empirically oriented science or Realwissenschaft as Albert calls it.

In conclusion, while the behavioural and institutional vacuum in the field of economics that Albert rightly identified in the 1950s and 1960s has in the meantime been partly filled, Albert's article remains relevant. Despite the fact that economists have begun to integrate behavioural and institutional approaches, at least in some areas, there remains an acute need for a basic epistemological understanding of what theory construction is and how economics as an empirical science can be developed. An orientation towards a more empirical approach is warranted.