Comment on Lars Syll on ‘The Coase Theorem’
Blog-Reference
It is — first and foremost — important to distinguish between political and theoretical economics. In political economics anything goes, in theoretical economics, scientific standards are observed.
General equilibrium theory is outside of science for several compelling reasons. The first inexcusable methodological blunder 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)
It is simply inadmissible to put assumptions like equilibrium, decreasing returns, perfect competition, etcetera into the premises. This mistake/error 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.
Political economics in general and equilibrium economics, in particular, is scientifically worthless. The fact that neither the representative economist nor the Law and Economics movement has realized this until this day is self-disqualifying.
The corollary of the methodological headstand is the abuse of mathematics. Alejandro Nadal correctly observes:
“In its development, economics as a discipline has been obsessed with the use of mathematical models to build a theory of competitive markets. The only function for the very awkward assumptions … was to allow the theoretician to have access to certain mathematical theorems.” (See intro)
This abuse is not corrected with Marshall's silly prescript ‘Burn the mathematics.’ Again, it is theory that has at first to be put on its feet.
“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)
To make a long methodological story short: the fatal defect of Orthodoxy is that all its theorems are derived from behavioral axioms. Yet, no specific behavioral assumption whatever can serve as a starting point for economic analysis. From this follows for New Economic Thinking that the behavioral axioms have to be replaced (2014). To flip from headstand to footstand is called in science a Paradigm Shift.#1
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Mirowski, P. (1989). The Rise and Fall of the Concept of Equilibrium in Economic Analysis. Louvain Economic Review, 55(4): 447–468. URL
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand BoD, 2nd edition. URL
#1 For details of the big picture see cross-references Paradigm Shift