February 5, 2015

Forget equilibrium

Comment on Lars Syll on 'Finding equilibrium'

Blog-Reference

It is a rather old problem with these savants:
“These savants, as Galileo put it, first decided how the world should function in accordance with their preconceived principles. ... He openly criticized scientist and philosophers who accepted laws which conformed to their preconceived ideas as to how nature must behave.” (Kline, 1982, p. 48)

Equilibrium, or by implication disequilibrium, is a nonentity. However, it is a fact — not only in the realm of science — that people have a strong proclivity to occupy themselves with nonentities. As J. S. 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; ..." (2006, p. 756)

The inexcusable methodological blunder with equilibrium is this:
“... you shouldn't find the fixed equilibria first and then see if an economy converges to it; rather, the convergence process will itself constitute the equilibrium, if any exist.” (Mirowski, 1989, p. 459)

In brief, it is inadmissible to put assumptions like equilibrium, decreasing returns, perfect competition etcetera into the premises (2014). This mistake is known since antiquity as petitio principii and J. S. Mill, the founder of economic methodology, dealt with it at length in his System of Logic.

Equilibrium economists have not solved anything.

“It is utopian, as a matter of economics, because in effect it simply assumes from the outset a perfect solution to the very problem that an economic system is supposed to solve.” (Nelson, 2006, p. 62)

Therefore, the title of the book is, to begin with, misleading. Economists have not found equilibrium but simply put it into the hat. Economic methodologists who overlook this constructive defect, and there are many, are not up to their task.

What follows from all this?

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. Even better, with immediate effect journals do no longer accept papers that apply equilibrium.

Identifying nonentities is one of the defining activities of science. The discussions among physicists became enormously productive just by no longer applying concepts like perpetual motion machine or epicycle because these refer to nonentities. It is perfectly analogous with equilibrium.

The representative economist does not understand what Aristotle already understood.

“When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Resume of Posterior Analytics)

Equilibrium is neither a certain, true nor primary premise. To cling any longer to equilibrium is self-disqualifying.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Kline, M. (1982). Mathematics. The Loss of Certainty. Oxford, New York, NY: Oxford University Press.
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, volume 8 of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund.
Mirowski, P. (1989). The Rise and Fall of the Concept of Equilibrium in Economic Analysis. Louvain Economic Review, 55(4): 447–468. URL
Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania, PA: Pennsylvania State University Press.