December 31, 2014

Replacing the neoclassical axioms

Comment on "The failure of economics is due to the use of axiomatic method"

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You write: “F. Y. Edgeworth, founder of neoclassical economics expressed his 1st principle of economics in his Mathematical Physics as a “self interest” axiom based upon the premise that individuals seek maximizing returns.”

In fact, the attempts to axiomatize human behavior can be traced back to Hutcheson, Hume's and Smith's celebrated teacher (Redman, 1997, p. 116).

From whom did the Scottish philosophers and economists borrow? Of course from Newton.

“Smith certainly used the Principia as an analogy for finding laws of motion of the social world, ...” (Redman, 1997, p. 211)

And how did the Principia start? At the head of Book I stand the famous ‘Axioms, or the Laws of motion.’

But as clueless epigones the social scientists did not really grasp the Newtonian style. What should be obvious is that human behavior does not yield to the axiomatic method (2014).

Therefore, it is not sufficient to replace ‘unrealistic’ behavioral axioms by more ‘realistic’ ones.

The simple reason is that NO way leads from ANY behavioral assumption to the understanding of how the economy works. One has to go one step further.

“... 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)

In other words, the methodological underpinning of economics is deficient (2013). That is: subjective-behavioral axioms have to be replaced by objective-structural axioms. The latter define the fundamental systemic relationships.

Human behavior should be left to psychology, sociology, and anthropology. Economists can only talk nonsense about it.

“The purpose ... is to criticise the notion that economics is a science of behaviour or that a science of behaviour is fundamental to economics. This plausible and, as I believe, mistaken idea has sometimes been called (methodological) psychologism, ... If it [my argument] is correct, then all the attempts to derive an adequate model of economic behaviour (as practised, for example, by the representatives of ‘behavioural’ or ‘psychological economics’) are misconceived.” (Hudík, 2011, p. 147)

A paradigm shift requires to replace the familiar behavioral axioms by structural axioms. Nothing else will do. The behavioral assumption of constrained optimization is not at all fundamental to economics.

Egmont Kakarot-Handtke


References
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of
Economic Methodology, 18(2): 147–162.
Kakarot-Handtke, E. (2013). Crisis and Methodology: Some Heterodox Misunderstandings.
SSRN Working Paper Series, 2083519: 1–25. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working
Paper Series, 2418851: 1–19. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and
the Classical Economists. Cambridge, MA, London: MIT Press.