January 20, 2015

Beauty or horseshit?

Comment on 'On abstraction and idealization in economics'

Blog-Reference and parallel Blog-Reference

Lars Syll writes: “When applying deductivist thinking to economics, neoclassical economists usually set up “as if” models based on a set of tight axiomatic assumptions from which consistent and precise inferences are made. The beauty of this procedure is of course that if the axiomatic premises are true, the conclusions necessarily follow.” (see intro)

We all can agree on this. What is a bit irritating is the fact that on the LPS blog not long ago a discussion was initiated under the title 'Axiomatic economics  total horseshit'. See here.

This thread in turn was the reaction to two preceding discussions on the RWER blog. The first thread bore the title 'Proper use of math in economics' and repeated Marshall's famous phrase 'Burn the mathematics'. See here.

The second thread bore the title “The failure of economics is due to the use of axiomatic method”. See here.

An even earlier discussions of this important methodological issue has taken place on the LPS blog under the title 'Debreu and the Bourbaki delusion of deductive-axiomatic economics'. See here.

While the tone in this contributions varies from the emotional to the rational the message consists invariably in the same logical shortcut: neoclassical economics is crap, the neoclassical approach is built upon axioms, therefore, the axiomatic-deductive method is inapplicable in economics.

Where do we agree? Yes, the neoclassical approach is unacceptable for compelling methodological reasons. What Hans Albert has said in 1963 about 'attempts to immunize economic statements and sets of statements (models) from experience through the application of conventionalist strategies' was right then and is right now.

Since its very beginning, neoclassical theory violates the scientific criteria of material and formal consistency. However, this is not easy to see, because the fault is not to be found in the superstructure. Keynes knew this.
“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.” (1973, p. xxi)

And Hutchison knew this.
“For it can fairly be insisted that no advance in the elegance and comprehensiveness of the theoretical superstructure can make up for the vague and uncritical formulation of the basic concepts and postulates, and sooner or later ... attention will have to return to the foundations.” (1960, p. 5)

And Hutchison drew the correct conclusion: “attention will have to return to the foundations.” That means, the neoclassical axioms have to be replaced. This is, in methodological terms, what a paradigm shift is all about.

Lars Syll's proposal to ignore or even to abolish the axiomatic-deductive method is counterproductive. Unfortunately, the methodological essentials of theory construction were never well understood by Heterodoxy (2012). It is a fact, that not only Orthodoxy is in a state of manifest confusion but Heterodoxy too.

This, indeed, is the correct way to proceed:
“We should also like to underline Debreu’s effective reference to Bacon when he says that “citius emergit veritas ex errore quam ex confusione.” It would be a mistake to lower the level of analysis and clarification. The only way possible is a thorough reexamination of the theory’s basic hypotheses, i.e., a true paradigmatic revolution.” (Ingrao and Israel, 1990, p. 362)

With regard to neoclassical axiomatization the great heterodox economist Georgescu-Roegen has said all:
“Here, just in the art of painting, we should not blame colors for the horrible works some “painters” may produce with them.” (1979, p. 323)

Egmont Kakarot-Handtke


References
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic Issues, 13(2): 317–328. URL
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York, NY: Kelley.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
Kakarot-Handtke, E. (2012). Crisis and Methodology: Some Heterodox Misunderstandings. SSRN Working Paper Series, 2083519: 1–22. 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.