Grounded Theory and Heterodox Economics

By Frederic S. Lee, Ph.D.


The dominant theory in the discipline of economics, known as
neoclassical economics, is being challenged by an upstart, known
as heterodox economics. The challengers face many obstacles,
the most significant of which is the actual creation of an alternative
economic theory. However heterodox economists have not settled
on what the methodology of theory creation should be. The aim of
this paper is to advocate that the method of grounded theory is the
best set of guidelines for theory creation. In addition, I shall argue
that the grounded theory method results in the creation of heterodox
economic theories that are historical in structure, content and

Grounded Theory and Heterodox Economics

The dominant theory in the discipline of economics, known as
neoclassical economics, is being challenged by an upstart,
known as heterodox economics. Heterodox economics can be
understood in two ways. The first is as a collective term of many
different approaches to economic analysis, such as radical and
Marxian economics, Post Keynesian economics, institutional
economics, feminist economics, and social economics. Each of
these approaches rejects various methodological and theoretical
aspects of mainstream economics, including supply and demand
curves, equilibrium, marginal products, deductivist approach to
theory creation, methodological individualism and the optimality
of markets. Because the different approaches utilize somewhat
different theoretical arguments and methods of theory creation,
there has been little progress over the last forty years towards
developing an encompassing theoretical alternative to mainstream
theory. But in recent years, this fragmentation among the heterodox
approaches has declined as heterodox economists have taken
positive steps towards developing a coherent synthesis. This activity
has generated the second meaning for heterodox economics;
that of referring to the development of a coherent theory that is
an alternative to and replacement for mainstream theory. This
alternative theory is based on the view that the discipline of
economics should be concerned with explaining the process that
provides the flow of goods and services required by society to meet
the needs of those who participate in its activities.

Heterodox economists believe that any explanation or theory of
the social provisioning process must be grounded in the real world
of actual historical events, must incorporate radical uncertainty
and social individuals, and must tell a causal analytical story.
Consequently, they reject the method of theory creation and
development utilized by mainstream economists which is based
on positivism, empirical realism, and deductivism. Numerous
suggestions for an alternative method of theory creation have
been raised by heterodox economists, but none have been widely
accepted; and without a widely accepted method, progress towards
developing an alternative heterodox theory will be slow indeed.
The aim of this paper is to overcome this roadblock by advocating
the method of grounded theory as the best set of guidelines for the
creation of heterodox economic theory. In addition, I shall argue
that the grounded theory method results in the creation of heterodox
economic theories that are historical in structure, content and
explanation. Thus, the first section of this paper will delineate the
method of grounded theory. This is followed, in the second section,
by a discussion of three methodological issues–the nature of data,
the role of case studies, and mathematics and models–as they
relate to the grounded theory method. The final section concludes
the paper with a brief discussion of the historical nature of grounded
economic theories.

The Method of Grounded Theory

To develop a theory that analytically explains causally related,
historically contingent economic events, the critical realist heterodox
economist needs to identify and delineate the structures, causal
mechanisms, and causal processes producing them. The best
methodological guideline for creating causally explanatory theories is
the method of grounded theory. The method of grounded theory can
be described as a process in which researchers, or more specifically
economists, create their theory ‘directly’ developed from data (which
are not the same as the ‘objective facts’ of the empiricist); and
in which data collection, theoretical analysis, and theory building
proceed simultaneously.1

The use of the method begins with the economist’s becoming familiar
with, but not dogmatically committed to, the relevant theoretical,
empirical, and historical literature that might assist him/her in
approaching, understanding, and evaluating the data relevant to his/
her research interest. Then, one engages in ‘field work’ by collecting
comparable data from economic events from which a number of
specific categories or analytical concepts and their associated
properties are isolated and the relationships between them identified.
With the concepts and relationships empirically grounded in detail,
the economist then develops a theory in the form of a complex
analytical explanation based on the data’s core concepts. An
essential property of the theory is that it explains why and how the
sequence of economic events represented in the data took place.

Hence, the economist does not attempt to construct a simplified
or realistically deformed empirically grounded theory by ignoring
or rejecting particular data. Rather, s/he endeavors to capture the
complexity of the data by establishing many different secondary
concepts and relationships and weaving them together with the core
concept into structures and causal mechanisms. This ensures that
the resulting theory is conceptually dense as well as having causal
explanatory power. The process of selecting the central concepts
and developing the theory brings to light secondary concepts and
relationships that also need further empirical grounding, as well as
suggesting purely analytical concepts and relationships which need
empirical grounding if they are to be integrated into the theory. After
the theory is developed, the economist will evaluate it by seeing how
it explains actual economic events.

Let us now consider aspects of the grounded theory method in more
detail. First, the collection of data is a complex task that involves
collecting the data themselves, that is counting up pieces of data, as
well as constantly comparing, analyzing, and interpreting the data
collected while simultaneously organizing them into conceptual or
generalized categories. The categories that emerge come from the
data themselves, not after they are all collected, but in the process of
collecting them. Consequently each category is tied to or empirically
grounded in its data; and since the data are real, observable,
measurable, so is the category.2 Moreover, since the data lie in
time and history, each category is anchored in a particular historical
setting. In addition, the purpose of constant comparison of the data
is to see whether they support and continue to support emerging
categories. Thus, each category that becomes established will have
been repeatedly present in very many comparable pieces of data
derived from multi-sources. In this way, individual pieces of data that
would not be significant on their own obtain a collective, emergent
significance. The categories that emerge are of two types: one that
is derived directly from the data and the other that is formulated by
the economist. The former tends to denote data self-description
and actual processes and behavior while the latter tend to denote
explanations.3 In addition, each category will have properties also
derived from data in the same manner, that is using constant
comparisons. The more properties a category has the denser and
hence the more realistic it is. A grounded theory category does not
ignore the complexity of reality; rather it embraces it.

In the process of collecting data, the economist may feel that
what is being collected is not revealing additional properties of a
specific kind that s/he believes, owing to his/her familiarity with
the relevant theoretical, empirical, and historical literature, might
exist. As a result, s/he will engage in theoretical sampling. This
involves sampling or collecting data that are expected to increase
the density of a specific category by producing more properties, as
well as increasing the number of pieces of data supporting each
of the properties hence making it more definitive and analytically
useful. Theoretical sampling and collection of data for a single
category, as well as for a range of categories, continues until
theoretical saturation is reached, that is when no new data regarding
a category and the relationships between the categories continue
to emerge. The significance of this empirical grounding process is
that the categories cannot be unrealistic hence false since they are
derived from the data. If the data collection and theoretical sampling
is incomplete then the categories will not be adequately dense,
as relevant properties will be missing; thus such categories will be
incompletely realistic. On the other hand, if future data emerge
which the empirical grounding process shows do not fall into a
previously existing category, then that category is not relevant, but it
is not empirically false.

Once the real, observable categories are delineated and grounded,
the economist, perceiving a pattern of relationships among them,
will classify some directly as economic structures and others as
components of economic structures. Continuing the practice, other
categories that centered on human motivation and action and a set
of outcomes will be woven together into a causal mechanism. The
resulting structures and causal mechanisms will be real, observable
as opposed to unreal, metaphoric, and hidden. That is, to observe
a structure or causal mechanism is to observe the working together
of its observed concrete components, including the human actions
involved, much as a family is observed through the interaction
of its members. Hence structures and causal mechanisms are
real, observable precisely because their categories are real and

Given the research interest of the economist, s/he will select
from the causal mechanisms identified, one as the central causal
mechanism around which the structures and secondary causal
mechanisms with their outcomes are arranged. Criteria for selecting
the central causal mechanism from among a number of possible
causal mechanisms include that it appears frequently in the data as
a cause of the outcomes, that it has clear implications for a more
general theory, and that it allows for complexity. Thus the causal
mechanism is central to the narrative to be analytically developed
in conjunction with the economic structures and secondary causal
mechanisms. More specifically, the narrative is not a description
of present or a recounting of past unique and/or semi-regular
economic events, although both techniques of presenting empirical
and actual economic events are included in the narrative. Rather, it
is a complex analytical explanation of those described or recounted
events. Even when the basic narrative is decided upon, its
development will involve further theoretical sampling and collecting
of data as new properties for the existing structures and causal
mechanisms emerge. Consequently, the narrative evolves into
an economic theory while at the same time becoming increasingly
dense (in terms of properties and empirical grounding) as well as
increasingly complex.

The complexity arises because of the variations in the categories
and in the properties of the categories that make up the theory. The
grounded economic theory that eventually emerges is a complex
analytical explanation or interpretation of the actual economic events
represented in the data. Thus the theory is not a generalization
from the data, but of the data; that is, a grounded theory does
not go beyond the data on which it is based–it does not claim
universality or the status of an empirical-theoretical law. Moreover,
with the grounded theory in hand, the heterodox economist can
directly “see” the causal mechanisms and structures and “hear” the
economic actors determining the empirical and actual events—the
mysterious and unintelligibility is replaced by clear explanation.
Moreover, being a weave of a central causal mechanism, secondary
causal mechanisms, and economic structures designed to explain
actual economic events in historical time, the theory also consists
of descriptively realistic (as opposed to stylized or fictionalized)
descriptions of economic events and accurate narratives of
sequences of economic events. As a result, the grounded economic
theory is an emergent entity, a concatenated theory that cannot be
disassembled into separate parts. Hence the question of logical
coherence of a deductivist kind cannot be applied to a grounded
theory; instead the coherence of the theory is judged on how well
its explanation corresponds to the actual historically contingent
economic events.

Economic theory centered on a single central causal mechanism
is classified as a substantive economic theory since it is an
explanation of a single basic economic process that occurs widely
in the economy. From a number of substantive theories, a formal
economic theory can be developed into a general or holistic theory
where the relationship or pattern among the substantive theories
is its analytical explanation. As in the process of grounding the
substantive economic theory, the formal theory also has to be
grounded. In particular, the relationships between the substantive
theories that constitute the formal theory need to be grounded in
data assisted and directed by theoretical sampling. Consequently,
the formal economic theory is grounded, historically contingent, and
its analytical explanations are not empirical extrapolations. As the
economic world is not static, a formal theory is never complete, but
undergoes continual modification with ever newer data relating to
newly emerging patterns or configurations of economic reality.

There are two aspects of the grounded theory method that need
further delineation. The first deals with the role of pre-existing ideas,
concepts, and categories, that is, the issue that all observations, data
and descriptions are theory laden. To use the method fruitfully, the
heterodox economist must become familiar with the contemporary
theoretical and non-theoretical literature, the controversies between
economists, and the relevant literature from the history of economic
thought. In particular, s/he needs to make a detailed and critical
investigation of the pre-existing heterodox ideas and concepts to
see which lend themselves to empirical grounding. S/he also needs
to be familiar with some of the empirical literature as well as with
the relevant literature from economic history. By acquiring a critical
awareness of the pre-existing economic theories and empirical
findings, the economist acquires a theoretical sensitivity regarding
the data and theoretical concepts s/he will be examining, comparing,
and empirically grounding. As a result, the economist will have the
ability to recognize what might be important in the data and to give it
meaning as well as recognizing when the data do not support a preexisting
concept or category, requires a large or small transformation
of the pre-existing concept or category, or ‘produce’ a new category.
Thus, the grounded theory method not only recognizes that
observations, data, and descriptions are theory laden, it reinforces
the latter by demanding that all economists enter into theory creation
as theoretically knowledgeable and aware individuals, as well as
with the conviction that the creation of a new substantive economic
theory will most likely require them to set aside forever some of that
acquired knowledge. By acknowledging the issue of theory-laden
observations while at the same time demanding that the economist
be skeptical of all pre-existing theory, the grounded theory method
is a highly self-conscious, engaging and open-minded approach to
economic research, data creation-collection, and theory building.

The second aspect deals with evaluating a grounded theory. It is
noted above that, since the categories that constitute the theory
are intimately linked with the data, the grounded theory itself can
not be falsified. More specifically, because a grounded theory is
developed with the empirical data rather than prior to it, it does not
stand independently of the data. Thus, it is not possible to test
for the truth or falsity of a grounded theory by checking it against
independently given empirical evidence. But a grounded theory
can be evaluated by how well it explains actual economic events;
that is, how well it identifies empirically and weaves together the
causal mechanisms, structures, and descriptions into a narrative of
the economic events being explained. In short, a grounded theory
refers to real things, represents real entities, and is evaluated on how
well it corresponds to the causal way the economy actually is. The
evaluation process takes place within a community of scholars, in
that papers delineating tentative drafts of the theory are presented
to colleagues at conferences and seminars for critical comments;
and more refined presentations of the theory are published where
colleagues have the opportunity to point out inadequacies. Through
this cooperative process of economic-writing, economic-reading, and
critical commentary, the community of heterodox economists arrives
at adequate theories. Consequently, a grounded theory is, in the
first instance, only as good as its categories. If the data selected do
not cover all aspects of the economic event(s) under investigation;
if the economist compiles categories and properties from only part
of the data collected or forces data into pre-determined categories;
if the density of the categories is small or the relationships between
categories under-grounded due to incomplete data collected; if the
economist chooses the ‘wrong’ central causal mechanism; and/or if
the narrative is static, terse, unable to fully integrate structures and
central and secondary causal mechanisms and relatively uncomplex,
then the commentary of critics will make it clear that the economic
theory is poor, ill-developed hence to a greater or lesser extent
unrealistic, and unable to provide a comprehensive and convincing
explanation of actual economic events. As a result, the economist
will have to begin the theory creation process anew.

A second way to evaluate a grounded economic theory is to see
how well it deals with new data. That is, the relatively enduring
structures, causal mechanisms and their outcomes of a grounded
theory are based on data collected in a specific time period. Thus,
it is possible to evaluate whether they have remained enduring
outside the time period by confronting them with ‘new’ data derived
from replicating studies, especially data from actual events that
at first glance appear to fall outside existing categories and not to
support expected transfactual results. If the new data fall within the
existing categories and conform to the transfactual results, then the
structures and causal mechanisms have been relatively enduring.4
On the other hand, if the new data falls outside the existing
categories and not supporting the transfactual results, then at least
some of the structures and causal mechanisms have changed.
Consequently, the existing grounded economic theory needs to be
modified or replaced by a completely new one. Therefore, theory
evaluation in the grounded theory method based on the introduction
of new data is designed to check the continual correspondence of
the theory with the real causes of ongoing unique and semi-regular
economic events. Hence, it is essentially a positive way of promoting
theory development and reconstruction as well as new theory
creation when the correspondence between theory and events
breaks down.

The fact that a good or poor research process leads to better or
worse grounded economic theories indicates that choices made
by economists do affect the final outcome. Therefore, within the
grounded theory method it is possible, although not likely, to have
good but different substantive and formal economic theories for
the same economic events. Given the same categories, a different
choice of a central causal mechanism will produce a different theory;
or if the same central causal mechanism is used but integrated with
different structures and secondary causal mechanisms a different
theory will also be produced. However, since their theories concern
causal historical events, heterodox economists do not accept the
possibility that there is no empirical data that could distinguish
between two incompatible theories. Thus, following the same
procedures as above, the way forward for the grounded theorist
would be to collect new data to see which of the two theories they
support supplemented by critical commentary from colleagues.
Hence, although the procedures used are the same and the
data collected are, in principle, the same, checking the continual
explanatory adequacy of a grounded theory is a different activity from
choosing between two different theories, for the former produces a
historically linked sequence of grounded theories, while the latter
concludes that one of the two theories was not an explanation after
all. [Annells, 1996; Glaser and Strauss, 1967; Conrad, 1978; Turner,
1981 and 1983; Charmaz, 1983; Strauss, 1987; Konecki, 1989;
Strauss and Corbin, 1990 and 1994; Corbin and Strauss, 1990;
Glaser, 1992; Dey, 1999; Finch, 1999 and 2002; Tsang and Kwan,
1999; Bigus, Hadden, and Glaser, 1994; Tosh, 1991; Diesing, 1971;
Wilber and Harrison, 1978; Fusfeld, 1980; Wisman and Rozansky,
1991; Boylan and O’Gorman, 1995; Atkinson and Oleson, 1996;
Runde, 1998; Sayer, 1992; Megill, 1989; Emigh, 1997; Maki, 2001;
McCullagh, 2000; Hunt, 1994; Pentland, 1999; and Ellis, 1985]

Methodological Issues

The grounded theory method of theory creation effectively dismisses
not only the traditional issue of the “realisticness” of assumptions but
also the role of assumptions in theory creation and development.
That is, since assumptions as a basis for theory creation are not
part of the grounded theory method and hence not grounded in the
real world, the degree of their “realisticness” or their adequacy as a
logical axiomatic foundation for theory is not a concern. This implies
that logical coherence is irrelevant for evaluating grounded theories.
Moreover, because the role of theoretical isolation in traditional
theory building and theorizing is dependent on assumptions, their
absence in the grounded theory method means that grounded
theories are not isolated theories that exclude possible influencing
factors. The combination of structures and causal mechanisms
with the grounded theory method produces theories that include
all the relevant factors and influences, are historically contingent
and exist in ‘real’ space. To exclude some factors would leave
the mechanisms, structures, and theories insufficiently empirically
grounded; and to claim to establish laws and certain (timeless)
knowledge would remove the mechanisms, structures, and theories
from the real world economic events they are to explain. Thus,
grounded theory results in theories and theorizing fundamentally
different from the traditional mode. In particular, it means that
heterodox economic theory is not an axiomatic-based approach to
theory creation, does not use deductivist methods to create theory,
and rejects every method of theory creation that is not empirically
grounded. This means that heterodox theory is very different from
neoclassical theory (or any other axiomatic/assumption-based
theory) and that neoclassical theory has no empirically grounded
meaning. On the other hand, their integration produces its own set
of methodological issues, centering on the nature of data, the case
study method, and mathematics and economic models. [Spiethoff,
1953; and Maki, 1998]


Originally, the grounded theory method was developed as a way
to utilize qualitative data to build a theory; however, the use of
quantitative data was not excluded. As economists are interested
in developing historically grounded explanations of past and
present economic events, their possible sources of data include
all existing written, recorded, physical, and quantitative records.
Since existing data sources might provide an incomplete record of
economic events, the economist must also utilize different research
strategies–such as surveys, interviews and oral statements,
ethnographic and industrial archaeology studies, questionnaires,
mapping, direct observation, participation in activities, fieldwork,
and statistical analysis–to create new qualitative and quantitative
data. For example, when it is important to explain how and why
particular business decisions are made and who made them,
the economist will need to create narrative accounts of relevant
lived-historical experiences embedded within the cultural milieu of
particular business enterprises. Thus s/he will need to examine
letters and other written documents, undertake interviews and other
oral documentation, and possibly engage in participant observation
in which the economist may directly engage with, for example,
the enterprise in the process of collecting data. What constitutes
appropriate data depends on the object of inquiry; but it is important
that much of the data deals with process, intentionality and their
outcomes. Consequently, real, observable, and measurable
categories, hence real, observable, and measurable economic
structures and causal mechanisms, are empirically grounded in
both qualitative and quantitative data obtained from various sources
(Goulding, 2002).

Case Study

The conceptual categories that make up grounded theories are
based on an array of comparable data generated by case studies. A
case study is defined as an in-depth, multifaceted investigation of a
particular object or theme where the object or theme gives it its unity.
The object or theme can be historical or a current real-life event
and the study will use several kinds of qualitative and quantitative
data sources. For example, the theme of a case study can be the
pricing procedures used by business enterprises; consequently the
case study will be the collection, comparison, categorization, and
tabulation of pricing procedures obtained from various empirical
pricing studies along with a critical narrative that examines and
integrates the data. Thus, the case study approach is the principle
method of qualitative and quantitative data collection and comparison
used to develop categories, structures, and causal mechanisms.
Moreover, by providing information from a number of different data
sources over a period of time, it permits a more holistic study of
structures and causal mechanisms.

A case study does not stand-alone and cannot be considered alone;
it must always be considered within a family of comparable case
studies. If the economist is faced with a shortage of case studies,
the response is not to generalize from them but to undertake more
case studies. Moreover, theoretical sampling is specifically carried
out through case studies in that the economist makes a conscious
decision to undertake a particular case study in order to increase the
empirical grounding of particular categories. Thus a case study can
be of an individual business enterprise and the theme of the study
can be to delineate the complex sets of decisions regarding pricing,
production, and investment and to recount their effects over time.
On the other hand, it can be concerned with a particular theoretical
point, such as pricing, examined across many different case studies
of different enterprises. The different cases not only provide
comparable data for comparisons but also descriptions of structures
and causal mechanisms and a narrative of the causal mechanism
in action over time. A third type of case study is a narrative that
explains an historical or current event. The narrative includes
structures and causal mechanisms which, when combined with the
history or facts of the event, explains how and why it took place.
Hence, this type of case study is both a historical and theoretical
narrative, an integration of theory with the event. Consequently, it
provides a way to check how good the theory is and, at the same
time, contributes to its grounding and extension. A robust substantive
theory is one that can be utilized in an array of case studies of
historical and current events.5 [Smith, 1998; Stake, 1998; Eisenhardt,
1989; Orum, Feagin, and Sjoberg, 1991; Wieviorka, 1992; Vaughan,
1992; Finch, 1999 and 2002; Yin, 1981a, 1981b, and 1994; George,
1979; Glaser and Strauss, 1994; and Sayer, 1992]

Mathematics and Economic Models

Mathematics and economic models are useful as tools and
instruments that can contribute to the development and evaluation of
causal mechanisms and grounded theory. Their uses are, however,
restricted since the method of grounded theory prescribes that
the type of mathematics used and economic models constructed
are derived from (as opposed to being imposed upon via analogy
or metaphor) the empirically grounded theories being developed.
Consequently, the economic model reflects the narrative of the
theory from which it is derived. To translate a grounded theory into
an economic model, its structures and causal mechanisms (which
embody accurate measurements and observations) have to be
converted, as far as possible, into mathematical language where
each mathematical entity and concept is in principle unambiguously
empirically grounded, meaning in part they also have to be
measurable and observable. As a result, the mathematical form of
the model is determined and constrained by the empirically grounded
structures and causal mechanisms, and hence is isomorphic
with the theory and its empirical data. This relationship between
mathematics and empirically grounded theory is similar to the late
19th century view in which mathematical rigor was established by
basing the mathematics on physical reasoning resulting in physical
models. However, the difference here is that rigor results when the
mathematical model is based on social reasoning represented by
empirically grounded theory. In this manner, mathematical modelbased
analysis remains subjugated to the study of economic activity.
Thus, while mathematics helps illuminate aspects of the grounded
theory and making clear what might be obscure, it does not add
anything new to the theory, that is, it does not by itself produce new
scientific knowledge.

One implication is that the model’s mathematical form is not
derived by analogy or based on a metaphor, both of which are not
constrained by reality. A second is that the model is an accurate,
but reflective, description of the grounded theory and its data and
therefore not a simplification of it. Additional implications are that the
relationships between the variables in the model are derived from the
empirically grounded theory as opposed to being assumed fictions,
that the same model is used in both theoretical and applied work;
that the model does not operate mechanistically like a machine,
and that different grounded economic theories have different
models. Consequently the mathematical-theoretical arguments
and the measurable and observable numerical outcomes derived
from the model are determined, constrained, and real. In particular,
the outcomes of the model are not logical deductions from given
axioms or unique (or multiple) mathematical solutions; rather they
are non-logical empirically grounded outcomes. Such mathematical-
theoretical arguments and models derived from empirically grounded
theories are characterized as rigorous and non-deductive. Thus,
this form of mathematical argument cannot be used to transform
economic reasoning and explanation into mathematical formalism
with its chains of mathematical-deductive reasoning.

Being isomorphic with the theory and its data, yet an alternative
representation of the theory, a model can be used by the economist
to obtain a better understanding of the theory itself as well as
an analytical-narrative summary for pedagogical purposes. In
addition, it can be used to examine and evaluate propositions found
in the theoretical literature. That is, the mathematical-theoretical
arguments derived from a rigorous economic model can be used to
examine whether particular mathematical-theoretical propositions
associated with different economic theories and models are also
rigorous or have no empirical grounding hence real world existence.
Because it is grounded in the existing data, it is independent of new
and future data. Thus, it can be used, for example, for discussing
economic policies and simulating their possible impacts on future
economic events. In particular it is a way of visually picturing the
economy and simulating its evolving, moving outcomes. Economic
models can also be used to see whether the resulting outcomes
of new data conform to the expected outcome patterns of the
theory and to explore the impact of changing structures and causal
mechanisms on economic outcomes. In this last case, for example,
if a structure is hypothetically altered so that the economic model
produces hypothetically different outcomes, the outcomes can then
be compared to actual outcomes. If they seem to be the same,
then the structures of the theory need to be re-examined and the
process of grounding the theory renewed. [Weintraub, 1998a, 1998b,
2001, and 2002; Israel, 1981 and 1991; Boylan and O’Gorman,
1995; Boland, 1989; Dupre’, 2001; Morrison and Morgan, 1999; and
Carrier, 1992]

Historical Nature of Grounded Economic Theories

The grounded theory method excludes, as part of heterodox
theorizing, ahistorical, atemporal entities and theoretical concepts,
atemporal diagrams, models and other forms of analysis
unaccompanied by temporal-historical analysis, and the utilization of
ahistorical first principles or primary causes. Being outside of history,
historical time, and an unknowable transmutable future, these
ahistorical entities and concepts are rejected by the grounded theory
method as fictitious since they do not emerge as categories in the
historical data. In contrast, the grounded theory method prescribes
that heterodox theorizing include the delineation of historically
grounded structures of the economy, and the development of
historically grounded emergent causal mechanisms. Thus grounded
economic theories are also historical theories in that they are
historical narratives that explain the internal workings of historical
economic processes and events in the context of relatively stable
causal mechanisms (whose actions and outcomes can be temporally
different) and structures. That is, the simultaneous operation of
primary and secondary causal mechanisms with different time
dimensions ensures the existence of historical economic processes
that are being explained. But even when the causal mechanisms
conclude their activity, the historical processes do not come to an
end for the secondary and other causal mechanisms can also have
an impact on the structures so that the slowly transforming structures
(and their impact on causal mechanisms) maintain the processes.

Historical economic theories are possible because historical events
are, due to the existence of structures and causal mechanisms,
narratively structured. Hence, heterodox economists do not
impose narratives on actual economic events to make sense of
them, but derive them from the events via the grounded theory
method. Moreover, being a narrative, the theories have a plot with a
beginning, middle, and end centered on a central causal mechanism
and set within structures and other causal mechanisms. Therefore,
antedated events prompt the causal mechanisms to initiate activity
to generate particular results and hence start the narrative; and
it comes to an end when the causal mechanisms conclude their
activity. As with all narratives, there is a storyteller, who is a
heterodox economist, whose objective is to help the audience—
which includes fellow economists, students, politicians, and the
general public—to understand theoretically how and why the actual
economic events transpired. Finally, a good storyteller is one who is
intimately knowledgeable about the ‘facts’ of the story and therefore
must be a grounded theory theorist!


1 The method of grounded theory was first delineated by Barry
Glaser and Anselm Strauss (1967). Similar methodological
guidelines going by the names of holism, pattern model, method of
structured-focused comparison, and participant-observer approach
using case study method were also proposed and developed at
roughly the same time–see Diesing (1971), Wilber and Harrison
(1978), George (1979), and Fusfeld (1980). Finally, historical
economic theories based on pattern models was articulated by Arthur
Spiethoff and members of the German Historical School—see Betz
(1988), Spiethoff (1952 and 1953), and Hodgson (2001).

2 Observable data is not solely restricted to sense experience. For
example, historical documents or field reports contain data that
cannot be verified by the reader’s sense experience. The same
can also be said for oral histories that deal with past events. On the
other hand, non-written data, such as informal rules and hierarchical
power inside the business enterprise, are not unobservable in that
they can be verbally articulated and hence written down, filmed and
then identified at a later point in time, or observed as institutions,
that is, as observable patterns of behavior hence capable of being
recorded. Thus all data is observable, although the sources and
medium in which they exist varies; to be unobservable in this sense
is not to be real and hence to be no data at all.

3 In either case, the language used to describe the categories may
be quite different from the existing theoretical language. In particular,
the building of a grounded theory may require the creation of a new
language and discarding old words and their meanings. On the
other hand, the language used may come directly from the data
collected and/or from commonly used language which is generally
not theoretical language (Konecki, 1989; and Coates, 1996).

4 This has been called pattern-matching in that the existing theory
is seen as a particular pattern of data and narrative and the new
pattern of data with its narrative is compared to it to see if they
match–see Wilber and Harrison (1978) and Yin (1981a and 1981b).

5 This type of case study is similar to the extended case method
advocated by Burawoy (1991 and 1998), with the caveat that the
latter is predicated on a false dichotomy between structures and
causal mechanisms, where structures change independently of
causal mechanism, not in part because of them.


Frederic S. Lee
Department of Economics
University of Missouri-Kansas City
5100 Rockhill Road
Kansas City, Missouri 64110
Tel. 816-523-3995

Frederic S. Lee is a Professor of Economics at University of
Missouri-Kansas City. His areas of research are heterodox
microeconomic theory and the history of heterodox economics in the
20th century. He has published in a number of heterodox economic
journals and is the editor of the University of Michigan Press book
series, “Advances in Heterodox Economics.” Finally, he is trying to
introduce the method of grounded theory to heterodox economists.


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