January 1, 2015

Economists do not solve problems, they are the problem

Comment on 'Economists -- not mathematics -- solve economic problems'

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It is widely known that the representative economist does not understand how the economy works. Many explanations have been advanced. One of them is that economists have serious troubles with mathematics. The trouble, though, is twofold: economists either reject or accept mathematics but always for the wrong reason.

When economics was young, calculus was the new and tremendously successful tool. So economists copied it (Mirowski, 1995) and this is how marginalism became the chief tool of explanation. This was the first methodological mistake.

“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)

It has been realized by many observers that utility maximization, equilibrium, perfect competition, etcetera was the unacceptable part of economic theory and not the application of mathematics.

“When very sound and proper mathematics is misused and misapplied to fairyland problems without any basis in the real world, that fact that the mathematics itself is impeccable makes the whole obnoxious game just that more offensive.” (Blatt, 1983, p. 173)

To blame mathematics for its abuse in economics is simply wrong-headed.

“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)

Ultimately economists got the basic concepts wrong. Conventional economics rests on behavioral assumptions that are formally expressed as axioms (McKenzie, 2008). Axioms are indispensable to build up a theory that epitomizes formal and material consistency. The fatal flaw of the standard approach is that human behavior does not yield to axiomatization.

As a matter of fact, no way leads from psychologism of any sort to the understanding of how the actual economy works. The solution consists in replacing behavioral axioms by objective structural axioms (2014).

Egmont Kakarot-Handtke


References
Blatt, J. (1983). How Economists Misuse Mathematics. In A. S. Eichner (Ed.), Why
Economics is Not Yet a Science, pages 166–186. Armonk, NY: M.E. Sharpe.
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics:
Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
McKenzie, L. W. (2008). General Equilibrium. In S. N. Durlauf, and L. E. Blume
(Eds.), The New Palgrave Dictionary of Economics Online, pages 1–18. Palgrave
Macmillan, 2nd edition. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited,
volume 1. Norderstedt: Books on Demand, 2nd edition. URL
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham,
NC, London: Duke University Press.