Profit is the key

Comment on Lars Syll on 'The great IS-LM obfuscation'

Blog-Reference:

It is laudable to direct students away from irrelevant economic models.

Orthodox economics is irrelevant from Jevons to DSGE. The problem is that Heterodoxy from Veblen to Minsky is only slightly better. With a critical stance, it is easy to identify and avoid the worst blunders of standard theory. Davidson is a case in point. Of course, the ergodic hypothesis is inapplicable in economics. Keynes was right word for word in what he said about uncertainty (1937, p. 214). The point is that this was only revolutionary vis-à-vis the 'classical' economists. Outside this intellectually closed sphere, the argument is trivial. The next taxi driver can tell you that ‘the price of copper and the rate of interest twenty years hence’ is uncertain. If this is scientific progress it is not terribly impressive. It is a sad fact that heterodox economists have a strong bias to draw the wrong conclusions from correct observations. This brings us to Minsky.

Minsky (2008, p. 160) states correctly “What determines profits? is a key question for understanding how our economy works.” Clearly, it is irresponsible to give economic advice without a proper understanding of profit. With his zero-profit economy, Walras demonstrated a complete lack of understanding. Therefore, he and the neo-Walrasians are out. However, the General Theory is also based on a false profit theory (Tómasson and Bezemer, 2010), which has not been rectified by the Post Keynesians (Kakarot-Handtke, 2013), (Desai, 2008, p. 10). Therefore, Keynesian models, including bastardizations like IS-LM are out, too.

What about Minsky in particular? He tells us: “The simple equation 'profit equals investment' is the fundamental relation for macroeconomics that aims to determine the behavior through time of a capitalist economy with a sophisticated, complex financial structure.” (2008, p. 161)

Unfortunately, this simple equation covers only a limiting case. This is not much in absolute terms but considerably more than what IS-LM, which is a zero-profit model, ever had to offer. Minsky, too, got macroeconomic profit wrong. The axiomatically correct formula for the elementary case reads Q_m≡I−S_m Legend: Q_m business sector's monetary profit, I investment expenditures, S_m household sector's monetary saving. Minsky implies S_m=0, IS-LM implies Q_m=0. Macroeconomics is proto-scientific garbage since Keynes.

It is a mission impossible these days to direct students to relevant economic models because there are none.

Egmont Kakarot-Handtke


References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2013). Why Post Keynesianism is Not Yet a Science. Economic Analysis and Policy, 43(1): 97–106. URL
Keynes, J. M. (1937). The General Theory of Employment. Quarterly Journal of Economics, 51(2): 209–223. URL
Minsky, H. P. (2008). Stabilizing an Unstable Economy. New York, Chicago,  San Francisco: McGraw Hill, 2nd edition.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL

Related 'Heterodoxy, too, is still in the wood'

For more on Minsky see AXECquery.

***

Wikimedia AXEC143d Macroeconomic profit with increasing complexity

Key Issues: Logic and platitude

Deductive logic is one pattern of rationality in reasoning, but it is not the only one; good reasoning in science typically yields conclusions that go beyond the logical entailments of deductive logic. (Suppe, 1977, p. 657)

The economists of the twentieth century, by pushing the neoclassical model to its logical conclusions, and thereby illuminating the absurdities of the world which they had created, have made an invaluable contribution to the economics of the coming century: they have set the agenda, work on which has already begun. (Stiglitz, 1991, p. 136)

For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises. (Keynes, 1973, p. xxi)

***

For Keynes as for Post Keynesians the guiding motto is "it is better to be roughly right than precisely wrong!" (Davidson, 1984, p. 574)

Marshall followed the maxim: Better to be ambigous and relevant than precise and irrelevant. (Colander, 1995, p. 283)

It is well known that John Maynard was born anew every morning; for this reason, his colleagues at Bretton Woods commented that he was too intelligent to be consistent. (Valentino, 1988, p. 239)

... a remorseless logician can end up in Bedlam. (Keynes, quoted in Moggridge, 1976, p. 36)

But Keynes, too, sometimes gave the impression of not having fully grasped the logic of his own system. (Laidler, 1999, p. 281)

Toutes ses [Keynes’s] deductions, à notre avis, manquent absolument de rigeur. ... L’intuition de Keynes lui a fait sentir où se trouvaient les difficultés, mais son insuffisance logique ne lui a pas permis de résoudre les problèmes que son intuition lui avait fait entrevoir. (Allais, 1993, p. 70)

***

Even if we cannot prove a theory or model is true, at the very minimum to be true it must be logically consistent. (Boland, 2003, p. 24)

... each chief step in science has been a lesson in logic. (Peirce, 1992, p. 111)

When we define the ambition of science as getting it precisely right, then the guiding motto of Post Keynesianism amounts to an invitation to ‘Babylonian incoherent babble’ and leads, predictably, to a loss of theoretical coherence. Confronted with the phony alternative relevance vs. rigor or truth vs. precision, the non-Keynesians opted for rigor: "Mathematical economics, it seems, had the great virtue of demonstrable irrelevance, which was morally preferable to spurious relevance." (Porter, 1994, p. 155)

Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned. (Klant, 1994, p. 31)

Economists today do not wish to discuss the ‘truth’ of economic theories but only examine their logical validity. (Boland, 1992, p. 36)

Logical validity is indispensable. However, if the premises are false, the logical validity of the conclusions is pointless. Truth resides in the axioms, not in the deductive process. Because of a logical blind spot — the place one stands on is, for the moment, invisible — economists today cannot see that they operate with inadmissible axioms. Logical validity is indispensable but not sufficient.

And so — faithful to the theory's conceptual cornerstones and hoping against all hope that the unthinkable may still be achieved (i.e., a satisfactory theory of the price mechanism) — the tormented upholders of the validity of the paradigmatic core of economic equilibrium theory appear singularly reluctant to face the problem of comparing expectations and results and assessing the consistency of the theory. (Ingrao and Israel, 1990, p. 346)

Formal consistency does not count for much if the axioms lack material consistency. Realism does not count for much if it cannot be properly formalized.

***

Walrasians are comparatively stronger on the formal leg, Keynesians on the material leg; inseparable because of the micro-macro yoke, they limp along together. There is nothing to choose between vacuous logic and platitudinous realism. Both approaches are beyond repair. It is not surprising that the respective proponents cannot, given their idiosyncratic premises, figure this out for themselves. This, though, is a matter of indifference because paradigm shifts have in any case a very special modus operandi.

We are lost in a swamp, the morass of our ignorance. ... We have to find the roots and get ourselves out! ... Braids or bootstraps are necessary for two purposes: to pull ourselves out of the swamp and, afterwards, to keep our bits and pieces together in an orderly fashion. (Schmiechen, 2009, p. 11)

Logical bootstrapping is what axiomatization is all about. Therefore, one has to jump to new premises to see the defects of the previous premises. There is no path between them. Axiom Sets are incommensurable; there is no synthesis and no continuity, the previous set is simply abandoned. In practical terms, this means: both Walrasians and Keynesians are left behind the curve for good. Both approaches can still fulfill a useful role as practical examples of how not to do science.

References
Allais, M. (1993). Les Fondements Comptable de la Macro-Économie. Paris: Presses Universitaires de France, 2nd edition.
Boland, L. A. (1992). The Principles of Economics. Some Lies My Teacher Told Me. London, New York: Routledge.
Boland, L. A. (2003). The Foundations of Economic Method. A Popperian Perspective. London, New York: Routledge, 2nd edition.
Colander, D. (1995). Marshallian General Equilibrium Analysis. Eastern Economic Journal, 21(3): 281–293. URL
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Hudson, M. (2010). The Use and Abuse of Mathematical Economics. real-world economics review, (55): 2–22. URL
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London: Macmillan.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Laidler, D. (1999). Fabricating the Keynesian Revolution. Cambridge: Cambridge University Press.
Moggridge, D. E. (1976). Keynes. London, Basingstoke: Macmillan.
Peirce, C. S. (1992). The Fixation of Belief. In N. Houser, and C. Kloesel (Eds.), The Essential Peirce. Selected Philosophical Writings, Vol. 1,109–123. Bloomington: Indiana University Press, (1877).
Porter, T. M. (1994). Rigor and Practicality: Rival Ideals of Quantification in Nineteenth-Century Economics. In P. Mirowski (Ed.), Natural Images in Economic Thought, 128–170. Cambridge: Cambridge University Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition.
Stiglitz, J. E. (1991). Another Century of Economic Science. Economic Journal, 101(404): 134–141. URL
Suppe, F. (1977). Afterword. In F. Suppe (Ed.), The Structure of Scientific Theories, 615–730. Urbana, Chicago: University of Illinois Press.
Valentino, R. (1988). Discussion. In H. Hanusch (Ed.), Evolutionary Economics. Applications of Schumpeter’s Ideas, 238–249. Cambridge, New York, etc.: Cambridge University Press.

Related 'Why Post Keynesianism is Not Yet a Science URL' and 'Crisis and Methodology, Sec. 3 URL' and 'Objective Principles of Economics URL'.
 

© 2013 EKH, except original quotes

Key Issues: Profit

Neither orthodox nor heterodox economists have a clear idea of the fundamental concepts of income and profit. What is known with certainty from the elementary macro-axiomatic analysis is that the conventional approaches are logically deficient.



Dear representative economist, if you apply a conception of total monetary profit that is, in the elementary case, different from Qm≡EC−Y+DN ⇓, your theory is demonstrably false and therefore inappropriate for the solution of real-world problems. The definition of profit is not a matter of personal taste but of logical and material consistency. Ultimately, the selection of axioms determines analytical success or failure.

If you are a businessman, you know the particular profit determinants of your firm, but this does not give you the determinants of total profit for the business sector as a whole. The generalization of partial truths is prone to the Fallacy of Composition. From individual experience, no correct profit theory follows. Because of this, business people do not know better than average citizens how the economy works.

If you are a consultant or advisor and your background knowledge contains assertions like: the value of the product equals the value of factor incomes, total income is the sum of wages and profits, distributed profit is equal to profit, or saving equals investment, your advice is not based on state-of-the-art analysis and is, at best, useless.

If you are a student, you are expected to find out whether your teacher's theory is true or false, or incomplete. Growth of knowledge is what science is all about. The acceptance of basic tenets of conventional economics is indicative of a lack of scientific acumen. From a student who has accepted supply-demand-equilibrium as an explanation, not much is to be expected.

With regard to the formal foundations of a Paradigm, it is not the case that anything goes. John Stuart Mill clearly stated the key question:

What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.

Neither Orthodoxy nor Heterodoxy has accomplished the opus magnum. Economics is still at the stage of a proto-science. A 'sequence of models' (Koopmans) is no substitute for a comprehensive theory that realizes both formal and material consistency.

By looking at a single firm, it seems that profit depends on (List A):

• exploitation of the workforce
• innovation
• risk-taking
• capital accumulation
• monopolistic practices
• market imperfections
• the combination of the factors of production
• wage rate and employment
• the talent of managers and the motivation of the workforce
• aggressive expansion at home and abroad
• bamboozling the consumer
• speculation, financial manipulation, fraud, cheating
• corruption, cronyism, gaming the system
• the loss of other firms.

These factors play a role when it comes to the distribution of profits between firms. But these factors cannot explain the profit of the business sector as a whole. The conventional view is that total profit must be zero in equilibrium under the condition of perfect competition. This is an analytical conclusion because one cannot directly observe this limiting case in the real world. The conclusion depends, as with every theory, logically upon the premises. Hence, it all depends on whether the axioms are true or false.

By looking at the economy as a whole, which can be done with the help of an objective formal starting-point that radically reduces the complexity of the real thing, it follows that the total profit of the business sector is determined in the elementary case of a production-consumption economy by two factors (List B):

• by the relation of consumption expenditures to total income,
• by distributed profits in the period under consideration.

This theoretical conclusion can be verified with the accuracy of two decimal places by the proper application of national accounting. It does not depend on fantastic assumptions about human behavior, equilibrium, perfect competition, or other figments of the imagination. The explanations given in List A are obviously different from those in List B. In more general terms, List A is subjective/behavioral, while List B is objective/systemic and contains the elementary version of the AXEC profit theory. The profit formula Qm≡C−Y+DN is a logical implication of the structural/systemic axiom set. The elementary formula becomes more sophisticated as soon as investment, government, and foreign trade are added.

The first important conclusion of the macro-axiomatic analysis is that profit is a factor-independent residual and qualitatively different from wage income. Therefore, it is an elementary mistake to maintain that total income is the sum of wages and profits. The second conclusion is that there is a close relation between profit/loss and the expansion/contraction of credit for the economy as a whole. Therefore, it is an elementary mistake to identify profit with a physical surplus. The third conclusion is that there is no antagonism between total wages and total profits, and that the distribution of output has nothing at all to do with the behavioral concept of marginal productivity. The fourth conclusion is that innovation and efficiency are irrelevant for the profit of the business sector as a whole. It is a Fallacy of Composition to trivially generalize what can be observed in an individual firm. This applies to many other microeconomic observations.

The crucial point is that profit for the economy as a whole cannot be derived from the behavior of the individual firm. That is, the standard microeconomic approach cannot, as a matter of principle, deliver the correct profit theory. And when the profit theory is false, the other parts of a comprehensive approach are open to doubt. What is immediately obvious is that, as collateral damage, the familiar theories of income distribution and wealth distribution are wrong by logical implication.

A correct theory is the precondition of economic policy. This, of course, is not new: “We have long known that the conduct of economic policy requires the policy-maker to have a theory of how the economy works.” (D. Laidler). The conventional economist's combination of a sense of mission, flawed theory, and self-delusion is not of great help, if any.

Profit is a subject to which economists have addressed themselves for at least two hundred years, but without much success. For there is at the moment no general theory of profits which commands anything approaching universal acceptance either among academic economists or among men of affairs. (A. Wood)

His Collected Writings show that Keynes wrestled to solve the Profit Puzzle up till the semi-final versions of his General Theory but in the end he gave up and discarded the draft chapter dealing with it. (G. Tómasson and D. Bezemer)

A satisfactory theory of profits is still elusive. (M. Desai, New Palgrave Dictionary)

In the practical affairs of trade, industry and finance no concept is more fundamental or more familiar than profit. Yet to the questions what profit is, and by what causes it is shaped and determined, economic science has not as yet supplied answers which command general agreement. (R. G. Hawtrey)

"What determines profits?" is a key question for understanding how our economy works. (H. Minsky)

... one of the most convoluted and muddled areas in economic theory: the theory of profit. (P. Mirowski)

We need to know what profits have been, how they have been made, to what uses they have been put, ...: no light on these matters is shed by the analyses of value, of utility and disutility, that have preoccupied so many of us for so long. (C. Parry)

Much of what is usually offered as profit theory will be seen to be without merit. (M. Obrinsky)

But in my opinion contemporary profit theory is floundering in eclecticism and has lost touch with the major economic changes of the past twenty-five years. Until we have clearly established what it is we are talking about, what we say is not going to have much value. (P. Bernstein)

Profit theory has been largely concerned with specifying and isolating the 'function' for which profit is the 'reward.' This is scientifically irrelevant. (A. Murad)

Of all the traditional branches of economics, the theory of profits has had the greatest difficulty in attaining the "safe path of a science." Our knowledge of the causes determining value, or wages, is indeed incomplete; but in these fields we do not find, and have not found for some considerable time, that fundamental disagreement among competent writers about the mere direction of approach, or that utter failure of promising lines of inquiry to yield results of any great importance, which Kant declared to be the marks of a science still groping in the dark. (J. R. Hicks)

Nor do the modern variants add anything whatever on this score. For Debreu profits are simply a nonissue, while Arrow and Hahn make only passing reference to profits — and that only as a historical introduction. Whatever may be the usefulness of these idealized theoretical constructs, they cannot be said to throw any light on the profit issue; surely, therefore, they fail to capture the essence of a capitalist market economy. (M. Obrinsky)

Profit is the pivotal concept for the analysis of how the economy works. Without a correct profit theory, economics is vacuous. The conventional profit theory is logically indefensible. It is a unique fact of the history of economic thought that neither Classicals, nor Walrasians, nor Marshallians, nor Keynesians, nor Marxians, nor Institutionalists, nor Monetary Economists, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor Econophysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Hence, they 'fail to capture the essence'. There are many opinions but no scientific understanding of the market economy, neither on the national nor on the global level. Rational economic policy or the implementation of a rational economic order is, therefore, a priori impossible. Economists have no true conception of the most important phenomenon in their universe.

***

AXEC204

Key Issues: Various Delusions

Were we seriously, by a single phrase, to attempt to characterize the modern age, — the age of Keynes, Samuelson, Hicks, Arrow, Debreu, and so on — we should call it the age of delusion, because it seems to involve nothing so much as a generalized delusion that sheer analytical technique might somehow permit us to resolve most of our problems. (Clower and Howitt, 1997, p. 31)

All too often, researchers, referees, and editors fail to ask these scientific questions. Instead, they ask the same questions that jugglers' audiences ask — Have virtuosity and skill been demonstrated? Was something difficult done? Often, these questions can be answered favorably even where no substantive contribution is being made. It is much easier to demonstrate technical virtuosity than to make a contribution to knowledge. (Summers, 1991, p. 146)

***

Methodology:

It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. (Arrow, 1994, p. 1)

Acceptance, though, is more an insistent autosuggestion.

But just as in the past, the economists' claim of ‘doing science’ hardly convinced their contemporaries outside of a very limited circle of followers. (Benetti und Cartelier, 1997, p. 204)

Equilibrium:

Whatever the source of the concept [equilibrium] the notion that a social system moved by independent actions in pursuit of different values is consistent with a final coherent state of balance, and one in which outcomes may be quite different from those intended by the agents, is surely the most important intellectual contribution that economic thought has made to the general understanding of social processes. (Arrow and Hahn, 1991, p. 1)

Economic equilibrium, though, is a NONENTITY like absolute space, the ether, epicycles, or the perpetual motion machine.

If economists find it difficult to free themselves from the commitment to equilibrium explanations, the reason is not really hard to understand. When it comes to explaining change, there are few more appealing stratagems than reducing change to stasis. The commitment to equilibrium explanation is metaphysically if not empirically as well grounded in economics as it is in physics or biology. The trouble is that the appeal to equilibrium is not well-founded in economic data the way it is in evolutionary or mechanical dynamics. (Rosenberg, 2001, p. 180)

But there is something scandalous in the spectacle of so many people refining the analysis of economic states which they give no reason to suppose will ever, or have ever, come about. (Hahn, 1984, p. 88)

Behavioral axioms:

In particular, it is supposed, in the main, that there is perfect competition and that the choices of economic agents can be deduced from certain axioms of rationality. (Arrow and Hahn, 1991, p. v)

I would identify the crucial moment at which we committed ourselves to this rather futile path as coinciding with the appearance of the Theory of Value. (Kirman, 2006, p. 247)

The [neo-Walrasian] program is organized around the following hard-core propositions:
HC1. There exist economic agents.
HC2. Agents have preferences over outcomes.
HC3. Agents independently optimize subject to constraints.
HC4. Choices are made in interrelated markets.
HC5. Agents have full relevant knowledge.
HC6. Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub, 1985, p. 109)

One remarkable feat in the foregoing, apart from the untenable behavioral assumptions, is to put equilibrium into the premises and to nourish the self-delusion that this petitio principii contributes to the general understanding of social processes. (Imagine a physicist demanding that all cosmic phenomena must be discussed with reference to an equilibrium state of the universe — no Big Bang, no slow-motion explosion of the universe, no Hubble constant.)

Another failed attempt to axiomatize:

Three fundamental economic axioms underlie any economy, regardless of environment and institutions, whether it be present-day America, Europe, Communist countries, or tribal organizations. These are truths that cannot be repealed by governments, and they cannot be ignored with impunity. ... These axioms of economics are:
a) Pursuit of Self-interest
b) Imputation of Values
c) Time-discount
(Piquet, 1978, p. 21)

In fact, the attempts to axiomatize human behavior can be traced back to Hutcheson, Hume's and Smith's celebrated teacher:

In the first equation, Hutcheson equates the “moral Importance of any Character, or the Quantity of publick Good produc'd by him” with the “compound Ratio of his Benevolence and Ability”. With the use of the variables
M=the moral impact of the agent's action on the public,
B=the benevolence of the agent, and
A=the ability of the agent,
Hutcheson obtains Axiom 1: M=BxA. (Redman, 1997, p. 116)

Behavioral axiomatization is deeply ingrained in economics, that is to say, with the Scottish School's focus on the "mysteries in the mind of man" economics started off on the wrong foot. Rather, it is the "mysteries of the economic system" that economists have to resolve.

Throughout its history, the idea of some "Fundamental Assumption", some basic "Economic Principle" about human conduct, from which much or most of economics can ultimately be deduced, has been deeply rooted in the procedure of economic theory. Some such notion is still, in many quarters, dominant at the present time. For example, it has recently been stated that the task of economics is "to display the structure and working of the economic cosmos as an outgrowth of the maximum principle.” (Hutchison, 1937, p. 636)

No way leads from some principle about human conduct to the understanding of the working of the economic cosmos. The proof is in the current state of conventional economics.

***

A mistake often made is to improvidently mingle axiom (logical/mathematical sphere) and law (physical sphere) or, what Aristotle called, causa formalis and causa efficiens. The locus classicus of outright confusion is Jevons:

The science of Economics, however, is in some degree peculiar, owing to the fact ... that its ultimate laws are known to us immediately by intuition, or, at any rate, they are furnished to us ready made by other mental or physical sciences. That every person will choose the greater apparent good; that human wants are more or less quickly satiated; that prolonged labor becomes more and more painful; are a few of the simple inductions on which we can proceed to reason deductively with great confidence. From these axioms we can deduce the laws of supply and demand, the laws of that difficult conception, value, and all the intricate results of commerce, so far as data are available. (Jevons, 1911, p. 18)

For Evans economists, even mathematical economists like Jevons, Walras, and most certainly Marshall, were on the wrong track and had little useful to contribute if they believed in the analysis of value or utility. (Weintraub, 2002, p. 61)

***

The intellectual heirs are even farther on the wrong track.

Premises:

... a commodity is a good or a service completely specified physically, temporally, and spatially. ... It is also assumed that the quantity of any one of them can be any real number. (Debreu, 1959, p. 32)

The real-number assumption makes sense only with regard to the intended proof of existence, not with regard to the quantities actually bought and sold in any real-world market. The chosen mathematical tool requires distorting reality (see Nadal, 2004, p. 36). Hence, its application cannot be justified in theoretical economics. To shape reality in order to make a tool applicable is more than a delusion; it is a blatant methodological blunder (for details, see Toolism! A Critique of Econophysics URL and Objective Principles of Economics URL).

In any case, I cannot see any role for real numbers in quantitative economics and, hence, none whatsoever for real analysis and the proof techniques allied to it. (Velupillai, 2005, p. 867)

Mathematics:

The mathematical language used to formulate a theory is usually taken for granted. However, it should be recognized that most of mathematics used in physics was developed to meet the theoretical needs of physics. ... The moral is that the symbolic calculus employed by a scientific theory should be tailored to the theory, not the other way round. (Wittgenstein, quoted in Schmiechen, 2009, p. 368)

Economists habitually borrow prefabricated mathematics and tailor the theory. Debreu is a case in point. This wrong sequence makes mathematics ineffective.

Mathematics is not really of much fundamental use in a science unless that science is able to constitute its basic concepts with “exact axioms” and precise numerical results. (Weintraub, 2002, p. 26)

Root structure:

But this [establishing the analytic mother-structure] required one very crucial maneuver that was nowhere stated explicitly: namely, that the model of Walrasian general equilibrium was the root structure from which all further work in economics would eventuate. (Weintraub, 2002, p. 121)

This, unfortunately, was the wrong answer to Mill's key question:

What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy. (Mill, 2006, p. 746)

Neither Orthodoxy nor Heterodoxy has hitherto provided an acceptable set of hard core propositions, a.k.a root structure, a.k.a Set of Axioms. This set cannot possibly be subjective-behavioral. While it is true that axiomatization is indispensable, it is equally true that a behavioral assumption cannot take the role of an economic axiom. Heterodoxy has not got the first point, Orthodoxy not the second. Economic axioms deal only with economic magnitudes. Neither utility, equilibrium, force, nor ergodicity, for example, are proper economic concepts and are therefore unfit to make an appearance in a set of economic axioms.

Formal axiomatic systems must be interpreted in some domain ... to become an empirical science. (Boylan and O'Gorman, 1995, p. 198)

It is of some importance to keep the domains apart at the axiomatic level, in particular economics and psychology.

***

To think that the formal basis of standard economics is sound has been part and parcel of the widespread self-delusion among economists. Without correct conceptual foundations, though, the most powerful analytical technique cannot achieve much. The criteria of science are formal and material consistency. Legacy economics does not satisfy these criteria. Some economists even entertain the methodological delusion that there is something to choose:

Is it better to start deductively from axioms or inductively from facts? When the time comes to choose between internal consistency and consistency with observations, which side should we take? (Blinder, 1987, p. 135)

No side at all! Again, it is both formal and material consistency. This synthesis is still outstanding. Conventional economics is many things to many people, but not science to scientists.


References
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Arrow, K. J., and Hahn, F. H. (1991). General Competitive Analysis. Amsterdam, New York, etc.: North-Holland.
Benetti, C., and Cartelier, J. (1997). Economics as an Exact Science: the Persistence of a Badly Shared Conviction. In A. d’Autume, and J. Cartelier (Eds.), Is Economics Becoming a Hard Science?, 204–219. Cheltenham, Brookfield: Edward Elgar.

Boylan, T. A., and O’Gorman, P. F. (1995). Beyond Rhetoric and Realism in Economics. Towards a Reformulation of Economic Methodology. London: Routledge.
Blinder, A. S. (1987). Keynes, Lucas, and Scientific Progress. American Economic Review, 77(2): 130–136. URL
Clower, R. W., and Howitt, P. (1997). Foundations of Economics. In A. d’Autume, and J. Cartelier (Eds.), Is Economics Becoming a Hard Science?, 17–34. Cheltenham, Brookfield: Edward Elgar.
Debreu, G. (1959). Theory of Value. An Axiomatic Analysis of Economic Equilibrium. New Haven, London: Yale University Press.
Hahn, F. H. (1984). Equilibrium and Macroeconomics. Cambridge: MIT Press.
Jevons, W. S. (1911). The Theory of Political Economy. London, Bombay, etc.: Macmillan, 4th edition.
Kirman, A. (2006). Demand Theory and General Equilibrium: From Explanation to Introspection, a Journey down the Wrong Road. In P. Mirowski and D.W. Hands (Eds.), Agreement on Demand: Consumer Theory in the Twentieth Century, 246–280. Durham, London: Duke University Press.
Hutchison, T. W. (1937). Expectation and Rational Conduct. Zeitschrift für Nationalökonomie / Journal of Economics, 8(5): 636–653. URL
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Nadal, A. (2004). Behind the Building Blocks. Commodities and Individuals in General Equilibrium Theory. In F. Ackerman and A. Nadal (Eds.), The Flawed Foundations of General Equilibrium, 33–47. London, New York: Routledge.
Piquet, H. S. (1978). The Economic Axioms. Their Bearings on Inflation, Interest Rates, and Unemployment. New York: Vantage.
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, London: MIT Press.
Rosenberg, A. (2001). The Metaphysics of Microeconomics. In U. Mäki (Ed.), The Economic World View. Studies in the Ontology of Economics, 174–188. Cambridge: Cambridge University Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition.
Summers, L. H. (1991). The Scientific Illusion in Empirical Macroeconomics. Scandinavian Journal of Economics, 93(2): 129–148. URL
Velupillai, K. (2005). The Unreasonable Ineffectiveness of Mathematics in Economics. Cambridge Journal of Economics, 29: 849–872.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.

© 2013 EKH, except original quotes

Key Issues: Sloppiness, multi-senseism, storytelling ― thriving in the thickness of confusion

... economics is a big omnibus which contains many passengers of incommensurable interests and abilities. (Schumpeter, 1994, p. 827)

***

... he [Adam Smith] disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along. (Schumpeter, 1994, p. 185)

But though the Wealth of Nations contained no really novel ideas and though it cannot rank with Newton's Principia or Darwin's Origin as an intellectual achievement, it is a great performance all the same .... (Schumpeter, 1994, p. 185)

With Adam Smith, economics had a clumsy start and, despite great performances of whatever sort, fell further back over the long haul in comparison to physics and biology.

***

A good principles of economics teacher is a good storyteller. (Colander, 1995, p. 169)

Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. ... Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from “the richness of context.” (Coates, 2007, p. 87)

What a tricky business this all is! In his Treatise on Money, Mr. Keynes told the world that savings and investment are only equal in conditions of equilibrium; that an excess of investment over saving means rising prices, and vice versa. In his General Theory, he told us that saving and investment are always equal, and that this is a mere identity or truism, without significance for the determination of prices. As far as I can make out, there are relevant and important senses in which all these statements are each of them right and each of them wrong. (Hicks, 1939, p. 184)

This is the articulate methodological commitment to inconclusiveness that, on a deeper level, unites economists of all camps: "... there are relevant and important senses in which all these statements are each of them right and each of them wrong. " Many senses make no sense at all. However, empirical and logical inconclusiveness quite effectively secured the ecological niche of Political Economy as a separate science. Demarcation does not work in the "thickness of confusion" (Suppes, 1968, p. 654).

Contradictory statements are reconciled routinely by relating them to one of the following distinctions: short run/long run, ex ante/ex post, identity/equality. Inconclusiveness helps passably against outright refutation. With regard to empirical testing, the commitment to inconclusiveness implies the — self-defeating — assertion that in economics no experimentum crucis is feasible. All questions that cannot possibly be decided by experiment are out of science in the first place.

... you cannot prove a vague theory wrong. (Feynman, 1992, p. 158)

With enough fog emitted, almost anything becomes possible. (Mirowski, 2013, p. 344)

... nothing is clear and everything is possible. (Keynes, 1973, p. 292)

You can define anything you want, but as a sage once said,  “A rose by any other name will smell as sweet!” (P. Davidson, RWER-Blog, July 2, 2013)

For, on principle, we may call things what we please. (Schumpeter, 1994, p. 598)

This is a tough question to adjudicate on scientific grounds since the issue is largely definitional and, as Lewis Carroll pointed out, everyone is entitled to his own definitions. (Blinder, 1987, p. 131)

Let us mean by current income the value of current output, ... (Keynes, 1933, p. 699)

... twentieth-century neoclassical theory resembles nothing so much as the child's game of Mr. Potatohead – the fun comes in mixing and matching components with little or no concern for the coherence of the final profile. (Mirowski, 1995, p. 294)

Trying to pin down the essential ideas is sometimes difficult because neoclassical economics always seems to be a moving target. (Boland, 1992, p. 213)

Since everybody is indeed free to define whatever appears to be appropriate, it seems that a definition could not pose any real problem. This, indeed, is not true because the full freedom of definition holds but for the first definition. The subsequent definitions must be consistent with their predecessors. This continuously restricts the freedom of definition. It is by no means the case that anything can be defined as desired. This is a methodological illusion that is rather widespread among economists. It explains, for the most part, the discipline's state of manifest confusion. A consistent and agreed-upon framework of concepts is indispensable. Keynes' aforementioned determination of income, for example, invalidates the General Theory and all its legitimate and illegitimate offshoots (IS–LM, AD–AS) in one sentence (see Keynes's Missing Axioms URL or Why Post Keynesianism is Not Yet a Science URL).

***

We know from the history of science that entrenched classificatory schemes and misleading descriptive vocabularies have impeded scientific advance as much or more than the complexities and observational inaccessibility of the subject matter. (Rosenberg, 1980, p. 114)

As was standard with Marshall, the narrative told one story, the mathematics another. (Mirowski, 1995, p. 299)

Is it not a fact, which stares at us from the histories of all sciences, that it is much more difficult for the human mind to forge the most elementary conceptual schemes than it is to elaborate the most complicated superstructure when those elements are well in hand? (Schumpeter, 1994, p. 602)

The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts. (Schmiechen, 2009, p. 344)

The currently prevailing pattern of economic theorizing exhibits the following three characteristics: (1) a syncopated style of argument fluctuating back and forth between literary and symbolic modes of expression, (2) naive translation, or the loose paraphrasing of formulae into sentences, and (3) loose verbal reasoning for certain aspects of theoretical argumentation where explicit symbolic formulation is lacking. (Dennis, 1982, p. 698)

Thus, economics is apparently the study of the economy, the study of the coordination process, the study of the effects of scarcity, the science of choice, and the study of human behavior. One possible conclusion to draw from this lack of agreement is that the definition of economics does not really matter. (Backhouse and Medema, 2009, p. 221)

The truth is, most persons, not excepting professional economists, are satisfied with very hazy notions. (Fisher, quoted in Mirowski, 1995, p. 86)

I think it is the lack of quite sharply defined concepts that the main difficulty lies, and not in any intrinsic difference between the fields of economics and other sciences. (von Neumann, quoted in Mirowski, 2002, p. 146 fn. 49)

Precision and rigor in the statement of premises and proofs can be expected to have a sobering effect on our beliefs about the reach of the propositions we have developed. (Hutchison, 1960, p. xxiii)

There has been no rigor and precision in the definition of income and profit for more than two centuries. The reach of conventional propositions is zero. That is more than sobering.

***

To be sure, economics may perform a valuable social role without adding any significant understanding to knowledge of the economy – a “good myth,” economically speaking, can work not only in primitive tribal cultures but also in modern societies. ... Indeed, ... the religious function may have been the most important role throughout the history of modern economics since the Enlightenment. (Nelson, 2006, pp. 300-301)

Myth, well told, is still the most convincing way to explain how the world and humankind came to be in their present form. To recall, Zeus was the god of the sky and thunder. He oversaw the universe, assigned the various gods their roles, and was known for his erotic escapades. Zeus was emotional, spontaneous, and had a lot of trouble with other gods, goddesses, and humans. At Prometheus, for example, he was angry for three things: being tricked on sacrifices, stealing fire for man, and for refusing to tell him which of his children would dethrone him. To handle his problems, Zeus regularly fell back on chicanery, force, and violence (for an overview, see Wikipedia URL). Since antiquity, everybody "understands" Zeus, and he easily provokes like/dislike. Purified from all religious connotations, Greek myth is the stuff psychology, literature, soap operas, blogs, newspapers, and history are made of to this day. Let us call this all-embracing panorama of human motives and actions the gossip model of the world. It affords immediate access to subjective understanding, which, however, is barely distinguishable from a projection. With the gossip model, everything and its opposite can be explained. That makes it both popular and preposterous. Utility maximization is the economist's reduced version of the gossip model. Science started the very day when Greek philosophers threw the gossip model out of the window.

... observed acts of behavior allow an indefinite number of interpretations regarding the plans from which they are assumed to have sprung. (Morgenstern, 1941, p. 381)

Now, at any rate, we have an explanation for why the assumptions of economic theory about individual action have not been improved, corrected, sharpened, specified, or conditioned in ways that would improve the predictive power of the theory. None of these things have been done by economists because they cannot be done. The intentional nature of the fundamental explanatory variables of economic theory prohibits such improvement. (Rosenberg, 1992, p. 149)

***

Economics as a discipline faces the following alternative. If it wants to be accepted as a science, it has to stick to the rules. The rules are quite simple: material and logical consistency. No excuses (complexity, Duhem-Quine, etc.). If economics cannot deliver on principle, it has to join the Geisteswissenschaften/Humanities and try its luck with Verstehen/understanding. Feynman defended the standards in quite certain terms: "You don't like it? Go somewhere else!" Since J. S. Mill spoke — excusatory — of Political Economy as an inexact and separate science, economists attempted to water down the rules and to tergiversate material or logical consistency or both. Lower standards or Verstehen can, by its very nature, not lead to much more than a gossip model of the world. Homo oeconomicus may be replaced by the far more realistic homo socialis; this improvement, though, still remains within the confines of the gossip model and is not sufficient for a better understanding of how the economy works. No behavioral approach, whatever, is adequate. It is not a question of realism; it is a question of methodology. There is no such thing as an inexact and separate science. There is no hiding behind complexity. There is only science and non-science. The Unity of Sciences does not mean unity of science and its look-alikes.

***

The solution consists of replacing behavioral assumptions, both the sloppy and the axiomatized ones, with structural axioms. Structural axiomatization has the accessory advantage of putting off muddleheads, commonsensers, wishwashers, smatterers, storytellers, and all those "whom any discovery that brought quietus to a vexed question would inevitably vex because it would end the fun of arguing around it and about it and over it" (Peirce, 1931, 5.520). Objective/structural/systemic axiomatization strictly excludes the explanation or prediction of human behavior. Hence, there is no empty talk about it.

Filibuster economics may indeed have performed a multitude of useful social roles, but this is of no consequence for its scientific status. Social utility is not a criterion for the assessment of a theory. Sloppiness, incoherent definition, green cheese assumptionism, and self-protecting inconclusiveness are detrimental to the growth of knowledge. Social utility cannot exculpate proto-scientific garbage.

A Supreme Being would have no need for axioms, but they are often found quite useful for mere men. (Strotz, 1953, p. 390)

More specific: The rigor and objectivity of structural/systemic axiomatization is needed in order to abandon the endemic sloppiness of economic argument and finally to advance from proto-science to science.


References
Backhouse, R. E., and Medema, S. G. (2009). On the Definition of Economics. Journal of Economic Perspectives, 23(1): 221–233.
Blinder, A. S. (1987). Keynes, Lucas, and Scientific Progress. American Economic Review, 77(2): 130–136. URL
Coates, J. (2007). The Claims of Common Sense. Moore, Wittgenstein, Keynes and the Social Sciences. Cambridge, New York, etc.: Cambridge University Press.
Boland, L. A. (1992). The Principles of Economics. Some Lies My Teacher Told Me. London, New York: Routledge.
Colander, D. (1995). The Stories We Tell: A Reconstruction of AS/AD Analysis. Journal of Economic Perspectives, 9(3): 169–188. URL
Dennis, K. (1982). Economic Theory and the Problem of Translation (I). Journal of Economic Issues, 16(3): 691–712. URL
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hicks, J. R. (1939). Value and Capital. Oxford: Clarendon Press, 2nd edition.
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York: Kelley
Keynes, J. M. (1933). Mr. Robertson on "Saving and Hoarding". Economic Journal, 43(172): 699–712. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.
Mirowski, P. (2013). Never Let a Serious Crisis Go to Waste. London, New York: Verso.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania, PA: Pennsylvania State University Press.
Peirce, C. S. (1931). Collected Papers of Charles Sanders Peirce, volume I. Cambridge: Harvard University Press. URL
Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.
Rosenberg, A. (1992). Economics - Mathematical Politics or Science of Diminishing Returns? Chicago: University of Chicago Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Strotz, R. H. (1953). Cardinal Utility. American Economic Review, 43(2): 384–397. URL
Suppes, P. (1968). The Desirability of Formalization in Science. Journal of Philosophy, 65(20): 651–664.

Related Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist URL


© 2013 EKH, except original quotes

Key Issues: Hilbert-Bourbaki-Mill and von Neumann's monster-structure

... for nothing is farther from the axiomatic method than a static conception of the science. We do not want to lead the reader to think that we claim to have traced out a definitive state of the science. (Bourbaki, 2005, p. 1274)

When we assemble the facts of a definite, more-or-less comprehensive field of knowledge, we soon notice that these facts are capable of being ordered. This ordering always comes about with the help of a certain framework of concepts [Fachwerk von Begriffen ] .... The framework of concepts is nothing other than the theory of the field of knowledge. ... If we consider a particular theory more closely, we always see that a few distinguished propositions of the field of knowledge underlie the construction of the framework of concepts, and these propositions then suffice by themselves for the construction, in accordance with logical principles, of the entire framework. ... The procedure of the axiomatic method, as it is expressed here, amounts to a deepening of the foundations of the individual domains of knowledge — a deepening that is necessary for every edifice that one wishes to expand and to build higher while preserving its stability. (Hilbert, 2005, pp. 1107-1109), original emphases

What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy. (Mill, 2006, p. 746)

Could all the phaenomena of nature be deduced from only thre [sic] or four general suppositions there might be great reason to allow those suppositions to be true. (Newton, quoted in Westfall, 2008, p. 642)

I find it quite amazing that it is possible to predict what will happen by mathematics, which is simply following rules which really have nothing to do with what is going on in the original thing. (Feynman, 1992, p. 171)

From the axiomatic point of view, mathematics appears thus as a storehouse of abstract forms — the mathematical structures; and it so happens — without our knowing why — that certain aspects of empirical reality fit themselves into these forms, as if through a kind of preadaptation. (Bourbaki, 2005, p. 1276)

***

However, there also occur structures entirely without application, the so-called monster-structures (Bourbaki, 2005, p. 1275, fn. 9).

From the structural axiomatic point of view, the subjective-behavioral axioms yielded such a formalism without application. Its sole merit was "that of showing the exact bearing of each axiom, by observing what happened if one omitted or changed it."

Bourbaki cannot be made accountable for the conventional monster-structure. The same holds for Hilbert and, of course, Mill.

..., it was the von Neumann perspective that shaped general equilibrium theory ..., and thus reconstituted economic theory. (Weintraub, 2002, p. 78)

As a student of Hilbert and a proponent of axiomatization, von Neumann immediately realized that Walras's mathematics was insufficient:

The so-called "mathematical" economists in the narrower sense — Walras, Pareto, Fisher, Cassel, and hosts of other later ones — especially, have completely failed even to see the task that was before them. Professor Hicks has to be added to this list, which is regrettable because he wrote several years after decisive work had been done — in principle — by J. von Neumann and A. Wald. (Morgenstern, 1941, p. 369)

Von Neumann did not realize, though, that Walras' supply-demand-zero-profit-equilibrium was mistaken in the first place and never represented any feasible economy. It was only Walras's formalism that was eventually repaired. For von Neumann, general equilibrium was first and foremost a mathematical puzzle. To crack the nut, he advocated the fixpoint approach. With explicit disregard of economic content, the axiomatization of Walrasian economics was completed by Debreu and others. This, however, could not change the fact that equilibrium is a NONENTITY. What, in effect, had been solved was an angels-on-the-pinpoint problem. This subsequently became the core competence of standard economics. It is a curious fact that the physicists and mathematicians who came in great numbers with advanced tools to economics to help the indigenous folk (Mirowski, 1995) in effect moved the whole thing deeper into the Walrasian cul-de-sac.

It is difficult to contemplate the evolution of the economic science over the last hundred years without reaching the conclusion that its mathematization was a rather hurried job. (Georgescu-Roegen, 1979, p. 271)

Axiomatization in economics suffers from many misunderstandings (see also Crisis and Methodology: Some Heterodox Misunderstandings URL). This, clearly, is not an argument against the method but against economists.

The method of reasoning by chains of syllogisms is nothing but a transformation mechanism, applicable just as well to one set of premisses as to another; it could not serve therefore to characterize these premisses. (Bourbaki, 2005, pp. 1267-1268)

The deductive method does not prove that the premises are true. The truth of theorems and the truth of premises are entirely different questions. The deductive method guarantees that the conclusions are true if the premises are true.

***

Outside pure mathematics, the usefulness of axiomatization crucially depends on the real-world domain. Not everything is axiomatizable. There is, for example, no such thing as a behavioral axiom. By borrowing from physics and mathematics, the neoclassicals got the essentials wrong from the very beginning.

The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition ... is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions. (Brown, 2011, p. 211)

Jevons' rhetorical question points exactly to the source of neoclassical confusion:

Must not the same inexorable reign of law which is apparent in the motions of brute matter be extended to the subtle feelings of the human heart? (Jevons, quoted in Mirowski, 1995, p. 219 )

Jevons had, with the laws of motion, the archetype of science on his mind:

But it was a second and more important quality that struck readers of the Principia. At the head of Book I stand the famous Axioms, or the Laws of motion … For readers of that day, it was this deductive, mathematical aspect that was the great achievement. (Truesdell, quoted in Schmiechen, 2009, p. 213)

What Jevons did not understand was that the trinity of law, axiom, and behavior does not work because behavior is original, as the scientists of all ages knew well (for details, see Objective Principles of Economics URL). With far-fetched analogies and his shallow scientific understanding, Jevons placed neoclassical economics on poor foundations (for details, see The Logic of Value and the Value of Logic URL), and there it stood, with some formal improvements, until recently.

For an outside observer without prior knowledge of habitual human reactions, behavior appears at first random. This is the point to start with, not introspection. The laws of motion of the human heart are pure kitsch and remain so in the abstract form of the first derivative of a utility function. From the marginal principle follows nothing that could help to understand how the market economy works. To think of human behavior in terms of deterministic laws is an unforgivable analytical blunder. It is the structure that is deterministic (see the Period Core), not the behavior.

***

... if we wish to place economic science upon a solid basis, we must make it completely independent of psychological assumptions and philosophical hypotheses (Slutzky, quoted in Mirowski, 1995, p. 362, see also Hudík, 2011).

This is the defining property of the objective/structural/systemic axiom set.


References
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
Bourbaki, N. (2005). The Architecture of Mathematics. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, Vol. II, 1265–1276. Oxford, New York: Oxford University Press.
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Georgescu-Roegen, N. (1979a). Energy and Economic Myths, chapter Measure, Quality, and Optimum Scale, 271–296. New York, Toronto: Pergamon.
Hilbert, D. (2005). Axiomatic Thought. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, Vol. II, 1107–1115. Oxford, New York: Oxford University Press.
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Vol. 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, Vol. 1. Norderstedt: Books on Demand, 2nd edition.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.

Related Euclid, Newton . For details about the Period Core, which represents a structural law, see The Synthesis of Economic Law, Evolution, and History URL.


© 2013 EKH, except original quotes

Key Issues: No go ― issues that have been decided

In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened. (Morgenstern, 1941, pp. 369-370)

 

I was delighted to find in a dictionary the word mumpsismus, which means stubborn persistence in an error after it has been exposed. (Joan Robinson, quoted in Arouh, 1987, p. 395)

It is a thoughtlessness of Heterodoxy to make fun of stubborn persistence because exactly this persistence indicates that the falsification mechanism does not work properly. In any science, this is cause for alarm.

Much of economic theory is based on three questionable assumptions: (1) the world is deterministic; (2) decision makers act as if they know the values of all relevant parameters; and (3) consumers and firms, respectively, act as if they were maximizing utility and profit. (Stigum, 1991, p. 29)

When Phil Anderson first heard about the theory of Rational Expectations in the famous 1987 Santa Fe meeting [of physicists and economists], his befuddled reaction was: You guys really believe that? (Bouchaud, 2009, pp. 7-8), original emphasis

Pure economics has a remarkable way of producing rabbits out of a hat — apparently a priori propositions which apparently refer to reality. (Hicks, 1939, p. 23)

Direct empirical evidence on individual behavior is difficult — some would say impossible — to come by. ... The von Neumann-Morgenstern axioms are routinely violated. It is remarkable how little impact this evidence has had on modern economics. (Blinder, 1987, p. 135)

... a science of political economy would need to have measurable quantities of its conceptual building blocks, and ways of measuring its “results.” (Weintraub, 2002, p. 26)
Political Economy ... presupposes all the physical sciences; it takes for granted all such of the truths of those sciences as are concerned in the production of the objects demanded by the wants of mankind; or at least it takes for granted that the physical part of the process takes place somehow. (Mill, 2004, p. 102)

Indeed, here [with the production function] we find the neoclassical economist dictating the laws of physics to the physicist! (Mirowski, 1995, p. 328)

It is not a question of realism/unrealism but of true/false. Physicists, for example, do not reject unrealistic abstractions and idealizations as long as these do not distort the object of inquiry beyond recognition and there is perfect unanimity that a construct like a perpetual motion machine is impossible in principle and not merely infeasible in practice. General equilibrium is the economic counterpart of a perpetual motion machine. A number of premises contradict known physical laws, hence, they are not unrealistic but inadmissible. General equilibrium is, in the first place, a physical nonentity. That is why physicists are regularly befuddled at their first encounter with conventional economics. They spontaneously recognize green cheese assumptionism and wonder how anyone can take it seriously.

... theories of each ontological level must be consistent with all other theories pertaining to that reality, including those at other levels. Although each theory and mode of theorizing is different, no theory can overturn an acceptable theory at another ontological level. For example, reigning socio-economic principles cannot overturn the known and received laws of biology or physics. ... This meta-theoretical principle ... is required to avoid contradictions within a theoretical structure. (Hodgson, 2001, p. 328)

Neo-classical economics has been falsified. (McCauley, 2006, p. 15)

 ***

Let us mean by current income the value of current output, .... If we define Savings as the excess of income during a period over expenditure on consumption during that period, it follows that Savings are exactly equal to the value of output added to accumulated wealth, i.e. to Investment. (Keynes, 1933, p. 699), original emphasis

Much confusion is dispelled if one notes that the putative equation of the concept of income and the concept of output is the font of most of the theoretical novelty of the General Theory . (Mirowski, 1995, p. 307)

The putative equation has been falsified. (Kakarot-Handtke, 2013)

***

Instead, what uniquely characterizes a scientific approach is a certain epistemology, or way of validating ideas. ... The set of rules for eschewing what is false is the epistemology of science, and it involves applying a series of tests to what anyone may assert to be true. (Eichner, 1983, p. 508)

However, falsification is not always deemed to be sufficient.

The main reason for the considerable acceptance of the [orthodox] approach is that fundamental rule of scientific combat: it takes a theory to beat a theory. No amount of skepticism about the fertility of a theory can deter its use unless the skeptic can point to another route by which the scientific problem ... can be studied successfully. (Stigler, 1983, p. 541)

But until a viable competitor is created, the neoclassical economists will be uninterested in a priori discussion of the realism of assumptions which cannot be independently tested as is the case with the maximization assumption. (Boland, 1992, p. 19)

There is no alternative that is so obviously superior that it would justify everyone abandoning the current orthodoxy. (Hausman, 1992, p. 255)

There is no evidence to suggest that economists abandon degenerating programs in the absence of a progressive alternative. (Weintraub, 1985, p. 148)

There is indeed abundant evidence of intellectual inertia. Moreover, the logic of Stigler's justification is thoroughly flawed: no one is entitled to further promote a falsified solution just because the correct solution has not yet been found by someone else. This can only happen because the falsification mechanism does not work properly, which is characteristic of a proto-science. When the acceptance of Orthodoxy is not justified by solid scientific merits but by pointing out that a better alternative is not available, which may even be the case, something went wrong. When a hypothesis has been falsified, the options are: develop an alternative, help somebody else to develop an alternative, or get out of the way.

Yet most economists neither seek alternative theories nor believe that they can be found. (Hausman, 1992, p. 248)

Measured in terms of innovative performance, most economists lack scientific acumen. To them, it may therefore come as a surprise that the subjective-behavioral approach has been finally beaten, according to Stigler's rule of scientific combat, because its conception of profit is untenable and a superior alternative is in place.

Profit theory has long been regarded as one of the more unsatisfactory branches of economics. ... One reason for this is that economists have not asked the right questions about profit. (Murad, 1953, p. 1)

The structural axiomatic Profit Law replaces orthodox and heterodox profit theories. To discuss Walrasian or Keynesian models as if they had not already been refuted violates scientific standards. At long last, the profit issue has been decided. Only one question remains: how fast can conventional economics get out of the proto-scientific embarrassment? Who gets out first: the students, the teachers, the referees? Much depends on the actual distribution of sagacity/dullness in the respective populations. In the past, it has not been favorable.

***

... suppose they [the economists] did reject all theories that were empirically falsified ... Nothing would be left standing; there would be no economics. (Hands, 2001, p. 404), original emphasis

Actually, there is no economics.

All there is are economists with various personal opinions gathering around various flagpoles. To be sure, there is no fundamental rule of combat and no mumpsismus in science. Yet there is conjecture and refutation and the acceptance of refutation and the development of something better. All the rest is a no-go.

Walrasian as well as Keynesian economics have been falsified. Both are out of science. This defines the zero-point of economic research.

It is not much, but knowing that you know nothing is the beginning of wisdom. (Buiter, 2009)

References
Arouh, A. (1987). The Mumpsismus of Economics and the Role of Time and Uncertainty in the Progress of Economic Knowledge. Journal of Post Keynesian Economics, 9(3): 395–423. URL
Blinder, A. S. (1987). Keynes, Lucas, and Scientific Progress. American Economic Review, 77(2): 130–136. URL
Boland, L. A. (1992). The Principles of Economics. Some Lies My Teacher Told Me. London, New York: Routledge.
Bouchaud, J. P. (2009). The (Unfortunate) Complexity of the Economy. EconoPhysics Forum, 0904.0805: 1–9. URL
Buiter, W. H. (2009). The Unfortunate Uselessness of Most ’State of the Art’ Academic Monetary Economics. Financial Times, March 3rd. URL
Eichner, A. S. (1983). Why Economics Is Not Yet a Science. Journal of Economic Issues, 17(2): 507–520. URL
Hands, D.W. (2001). Reflection without Rules. Economic Methodology and Contemporary Science Theory. Cambridge, New York, etc: Cambridge University Press.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Hicks, J. R. (1939). Value and Capital. Oxford: Clarendon Press, 2nd edition.
Hodgson, G. M. (2001). How Economics Forgot History. The Problem of Historical Specificity in Social Science. London, New York: Routledge.
Kakarot-Handtke, E. (2013). Why Post Keynesianism is Not Yet a Science. Economic Analysis and Policy, 43(1): 97–106. URL
Keynes, J. M. (1933). Mr. Robertson on "Saving and Hoarding". Economic Journal, 43(172): 699–712. URL
McCauley, J. L. (2006). Response to "Worrying Trends in Econophysics". EconoPhysics Forum, 0601001: 1–26. URL
Mill, J. S. (2004). Essays on Some Unsettled Questions of Political Economy, chapter On the Definition of Political Economy; and the Method of Investigation Proper to It., 93–125. Electronic Classic Series PA 18202: Pennsylvania State University. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Murad, A. (1953). Questions for Profit Theory. American Journal of Economics and Sociology, 13(1): 1–14. URL
Stigler, G. J. (1983). The Process and Progress of Economics. Journal of Political Economy, 91(4): 529–545. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.

Related 'Crisis and Methodology, Sec. 4 URL' and 'Why Post Keynesianism is Not Yet a Science URL' and 'The Logic of Value and the Value of Logic, Sec. 1, Entities and Nonentities URL'


© 2013 EKH, except original quotations

Key Issues: NONENTITY ― the emptiness of economic thinking

The discussions among physicists, for example, became enormously productive just by no longer applying concepts like perpetual motion machine or epicycle because these words signify NONENTITIES. It took some time to find this out. The specific difficulty with NONENTITIES is sometimes that they cannot be readily recognized or disproved. It is simple with the Easter Bunny and rather demanding with the concept of absolute space.

Likewise, students of economics can gain a wealth of time by immediately stopping to read an article or a book as soon as the concept of equilibrium is introduced.

Equilibrium, or by implication, disequilibrium, is a NONENTITY. Of course, there are some other NONENTITIES in conventional economics, but equilibrium is the most wasteful.

Identifying NONENTITIES is one of the defining activities of science. In took the physicists about eighteen centuries to find out that epicycles are NONENTITIES. As John Stuart Mill put it: "Mankind in all ages have had a strong propensity to conclude that wherever there is a name, there must be a distinguishable separate entity corresponding to the name; ..."

General equilibrium is the economic counterpart of a perpetual motion machine; no real thing could possibly correspond to the name. The scientific content of all variants of equilibrium models is nil — it is superstition wrapped in mathematics. The fact that conventional economics clings to equilibrium does not testify to equilibrium but against conventional economics.

Whether economists get rid of their idiosyncratic NONENTITIES faster than physicists did cannot be said after only two centuries at the proto-scientific stage of development. At times, fundamental changes happen overnight.


© 2013_12 EKH, except original quotes

Key Issues: Political economics ― at wits' end

Political economics is defined as either not to understand, not to accept, or not to live up to the standards of both material and formal consistency. It is the very opposite of theoretical economics.

***

A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. (Haack, 1997, p. 1)

Apologetics may be a laudable objective. Its practical importance is unquestioned. People need to be shown that the institutions of their own society are good, those of others bad. But there is no place for apologetics in science. Scientific economics inquires only into the How and Why, not into the Good or Bad, of what is. From the scientific point of view preoccupation with Good and Bad is worse than useless since it not only fails to illumine anything but keeps the lightbeam of inquiry from being turned in directions where answers to significant questions can be found. (Murad, 1953, p. 2)

However much economists may evoke their purity, they want to change the world. They want to contribute to the solution of urgent practical problems. (Klant, 1988, pp. 112-113)

... homini oeconomici are never trustworthy when they pretend to serve some interests which are not those of themselves. (Bonilla, 2002, p. 357)

Indeed, when pressed, most economic theorists admit that they do economics because it is fun. (Varian, 1997, p. 109)

Problems of means and ends are not solved by romancing about them, or moralizing, in whatever pretty or edifying phrases. Better let them alone, since bad policies are worse than none. (Knight, 1949, p. 1274)

Economists, like other human beings, live under the institutions of a historic society and under the standards of its civilization. They share in its beliefs and values, prejudices and interests, horizons and limitations. They depend for their living, advancement, and recognition on the institutions of the society in which they live, e.g. on universities, research institutes, publishers, press, government, and business establishments. Most of this institutions have other, more important, objectives than the “untrammeled pursuit of truth,” and even those which have this objective are dependent on the rest of society and must make their adjustments and compromises. (Lange, 1946, p. 23)

A science is an integrated body of knowledge, and it is pursued and developed by a group of interacting practitioners called scientists. The validation and extension of that body of knowledge is the intellectual goal of the scientists, although of course the pursuit of that goal in turn serves whatever personal goals – such as prestige, reputation, and income – the scientists seek. (Stigler, 1983, p. 529)

Ironically, economists have entangled themselves in an idiosyncratic version of the Epimenides paradox. From the behavioral axiom that all rational agents promote their self-interest follows that whatever proposal economists make must either be in the self-interest of economists or irrational.

The leading economists, considered as a group, generally gave (and give) the impression of reasonably happy people, well trained for their research, satisfied with their careers, enjoying academic discourse, and well able to cope with their personal problems. (Niehans, 1994, p. 317)

There remains only the vocational problem: where is the integrated body of knowledge that defines science?

***

A paradigmatic specimen:

... when it is a matter of finding the cause of general changes in the price of commodities, and especially the influence on those of credit and the institutions regulating credit, some maintain that cheap and easy credit, in other words, a low rate of interest, will tend to increase the amount of means of payment in circulation and the demand for goods and this will tend to increase the general level of prices; while others maintain the contrary, that cheap credit means the same things as cheaper costs of production and so tends to lower the level of prices, not to raise it; and naturally ... there is no lack of more moderate opinion between the two extremes, eclectics who say that the influence of credit on prices is sometimes in one direction, sometimes in another and is sometimes nil. (Wicksell, quoted in Deane, 1983, p. 8)

In contrast to scientists, the group of interacting practitioners called economists produces much opinion and little knowledge.

***

... a theory is to be preferred which is accepted by an academic community, i.e. which has proved to be most persuasive. (Dow, 1997, p. 79)

By supplanting material and logical consistency with a social criterion, economics deliberately opts out of science. A majority of academics, as such, never was and never will be a truth criterion. This also holds for other social or political criteria. Politicians in particular have no voice in scientific matters; their acceptance/ nonacceptance is a non-issue.

That government activism was doomed to failure was exactly what politicians, central bankers and business leaders of the Thatcher and Reagan periods wanted to hear. (Kaletsky, 2009, p. 154)

But in the introduction to Book IV we read that Political Economy ‘proposes to enrich both the people and the sovereign,’ and it is this definition which expresses both what Smith wanted above everything and what interested his readers more than anything else. (Schumpeter, 1994, p. 186)

It has been well said by M. Say that it is not the province of the Political Economist to advise – he is to tell you how you may become rich, but he is not to advise you to prefer riches to indolence, or indolence to riches. (Ricardo, quoted in Redman, 1997, p. 303)

A scientific observer or reasoner, merely as such, is not an adviser for practice. (Mill, 2006, p. 950)

Marx defined political economy’s task as being “to lay bare the economic laws of motion of modern society.” (Hudson, 2010, p. 12)

Thirty years after Laplace wrote this apotheosis of mechanics, something happened that tended to prove that mechanics has the power over existence as he described it. In 1846 a French astronomer, Urbain Leverrier, at the end of some calculations in which he confronted the astronomical observations of the known planets with the results of an appropriate mechanical system, was led to proclaim that there existed a still unknown planet, which, moreover, must be visible in a certain region of the sky. Direct observation of that region soon confirmed the existence of that planet, now called Neptune. Neptune, therefore, was discovered not by scanning the firmament with telescope, but "at the tip of a pencil." We can very well imagine the dream that this feat must have inspired in all social scientists, especially in economists. It is the dream of being able to predict the location of any share on the firmament of the Stock Exchange Market, whether tomorrow or one year from now, by solving certain equations that govern the motion of that market. Undoubtedly, the essence of that dream must still be nursed in the subconscious of many modern economists. The role of such a hope in the founding of the Cowles Commission is evidenced by several articles in the early volumes of Econometrica. (Georgescu-Roegen, 1979, pp. 319-320)

The performance of economic research programmes is partly dependent on the social hullabaloo. (Klant, 1994, p. 44)

***

In short, it is no longer the reasoning which determines what the conclusion shall be, but it is the conclusion which determines what the reasoning shall be. This is sham reasoning. (Peirce, 1931, 1.57)

A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent. (Haack, 1997, p. 1)

So we really ought to look into theories that don't work, and science that isn't science. (Feynman, 1974, p. 11)

***

One is led to conclude that economics as a scientific discipline is still somewhat hanging in the air. There is no harm in this admission. (Koopmans, 1957, p. 141)

The claim to the scientific nature of economics is prey to suspicion the moment that it fails to be self-evident. (Benetti and Cartelier, 1997, p. 211)

New Economic Thinking is hard to win. (Mirowski, 2013, p. 4)

I think that the discipline is in need of a major overhaul. (Hausman, 1992, p. 263)

Economics as a discipline therefore has a choice: It can retain the neoclassical core of its theory or, alternatively, it can one day become a science. It cannot have it both ways. (Eichner, 1983, p. 518)

Economics today is a discipline that must either die or undergo a paradigm shift ... (Kaletsky, 2009, p. 156)

Changing paradigms is not easy. Too many have invested too much in the wrong models. Like the Ptolemaic attempts to preserve earth-centric views of the universe, there will be heroic efforts to add complexities and refinements to the standard paradigm. The resulting models will be an improvement and policies based on them may do better, but they too are likely to fail. Nothing less than a paradigm shift will do. (Stiglitz, 2010)

Nothing is more difficult than to turn an entire discipline around, asking in effect to jettison its own history over the last 200 years. (Blaug, 1990, p. 205)
In fact, nothing is simpler, as soon as a superior alternative has been developed. Since Newton, physicists have done a lot of paradigm shift while economists spent their time complaining that it is not easy. Yes, it is nowhere easy. Yet, it is the new thinking that is the tough part and economists have not been particularly successful at it.

Few people, and least of all we economists ourselves, are prone to offer us congratulations on our intellectual achievements. Moreover, our performance is, and always was, not only modest but also disorganized. (Schumpeter, 1994, p. 6)

As Joan Robinson put it: Scrap the lot and start again. Both critique and advocacy of conventional economics are pointless exercises.

Paradigm Shift means in practical terms to establish a superior axiomatic basis. Superior relates to material and logical consistency. All social and political criteria are irrelevant.

***

A method of obtaining accurate premises is needed because science can only be true if its premises are true. (Redman, 1997, p. 328)

Political economics starts with subjective-behavioral premises and serves diverse purposes. Behavior logically implies intentionality. By consequence, inquiry turns to second-guessing the intentions of dimly known or assumed agents, e.g., the invisible hand. This kind of knowledge, though, is essentially different from scientific knowledge. Invisible hand explanations quite naturally merge with suggestive speculations about benevolent/malevolent hidden agents or forces. In the final analysis, any talk about market forces is a mixture of storytelling and animism. In marked contrast, theoretical economics starts with objective-structural premises. The sole task of theoretical economics is to explain how the actual economy works. The sole criteria of theory assessment are material and formal consistency.

Political economics is definitely on the wrong side of the line that demarcates science and non-science. To recall, political economists never came to grips with the fundamental economic concepts of income and profit. This is not a basis for making strong assertions about the functioning of the market system. Lacking a correct profit theory, the elaborate corpus of conventional market theory is expendable.

But it is all a matter of chance: in order to solve a difficult problem one needs not only understanding but also luck. (Popper, 1994, p. 99)

Political economists lack both, therefore, the method of obtaining accurate premises eludes them.


References
Benetti, C., and Cartelier, J. (1997). Economics as an Exact Science: the Persistence of a Badly Shared Conviction. In A. d’Autume and J. Cartelier (Eds.), Is Economics Becoming a Hard Science?, 204–219. Cheltenham, Brookfield: Edward Elgar.
Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield: Edward Elgar.
Bonilla, J. P. Z. (2002). Economists: Truth-Seekers or Rent-Seekers? In U. Mäki (Ed.), Facts and Fiction in Economics, 356–375. Cambridge: Cambridge
University Press.
Deane, P. (1983). The Scope and Method of Economic Science. Economic Journal, 93(369): 1–12. URL
Dow, S. C. (1997). Mainstream Economic Methodology. Cambridge Journal of Economics, 21: 73–93.
Eichner, A. S. (1983). Why Economics Is Not Yet a Science. Journal of Economic Issues, 17(2): 507–520. URL
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic Issues, 13(2): 317–328. URL
Feynman, R. P. (1974). Cargo Cult Science. Engineering and Science, 37(7): 10–13. URL or URL
Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Hudson, M. (2010). The Use and Abuse of Mathematical Economics. real-world economics review, (55): 2–22. URL
Kaletsky, A. (2009). Goodbye, Homo Economicus. real-world economics review, 50: 151–156. URL
Klant, J. J. (1988). The Natural Order. In N. de Marchi (Ed.), The Popperian Legacy in Economics, pages 87–117. Cambridge: Cambridge University Press.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Knight, F. H. (1949). Truth and Relevance at Bay. American Economic Review, 39(6): 1273–1276. URL
Koopmans, T. C. (1957). Three Essays on the State of Economic Science. New York, Toronto, London: McGraw-Hill.
Lange, O. (1946). Scope and Method of Economics. Review of Economic Studies, 13(1): 19–32. URL
Mankiw, N. G. (2006). The Macroeconomist as Scientist and Engineer. Journal of Economic Perspectives, 20(4): 29–46. URL
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, Vol. 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Mirowski, P. (2013). Never Let a Serious Crisis Go to Waste. London, New York: Verso.
Murad, A. (1953). Questions for Profit Theory. American Journal of Economics and Sociology, 13(1): 1–14. URL
Niehans, J. (1994). A History of Economic Theory. Baltimore, London: Johns Hopkins University Press.
Peirce, C. S. (1931). Collected Papers of Charles Sanders Peirce, Vol. I. Cambridge: Harvard University Press.
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality, chapter Science: Problems, Aims, Responsibilities, 82–111. London, New York: Routledge.
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, London: MIT Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Stigler, G. J. (1983). The Process and Progress of Economics. Journal of Political Economy, 91(4): 529–545. URL
Stiglitz, J. (2010a). Needed: A New Economic Paradigm. FT.com. Financial Times. URL
Varian, H. R. (1997). What Use is Economic Theory? In A. d’Autume and J. Cartelier (Eds.), Is Economics Becoming a Hard Science?, 108–119. Cheltenham, Brookfield: Edward Elgar.


Refers to The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment URL, and Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist URL


© 2013_11 EKH, except original quotes