May 28, 2015

Poor philosophy, poor science, poor job

Comment on Lars Syll on 'Adam Smith’s visible hand'


The classicals called themselves Political Economists and they never left anybody in doubt what agenda they pushed. However, there was an ambiguity right from the beginning. The classicals also had high scientific ambitions. They were aware that with simple good/bad moralizing they were in the same boat with religion — a no-go in the age of enlightenment.

“The backward state of the Moral Sciences can only be remedied by applying to them the methods of Physical Science, duly extended and generalized.” (Mill, 2006, p. 833)

There was a political need to formulate a new moral philosophy and Adam Smith responded to it.
“Adam Smith, when he wrote his Wealth of Nations ... understood by political economy  a branch of the science of the statesman or legislator, ...” (Halévy, 1960, p. 104)

To get economics off the ground as a science made it imperative to say something general about human behavior in the economic realm. J. S. Mill was the first to state a behavioral axiom.

“Just in the same manner [as geometry] does Political Economy presuppose an arbitrary definition of man, as a being who invariably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained in the existing state of knowledge.” (Mill, 1874, V.46)

Mill regarded this proposition as an empirical law which resembles, but has to be carefully distinguished from, universal deterministic physical laws. Empirical laws are neither deterministic nor universal, they express merely a local and temporary tendency.

“In political economy for instance, empirical laws of human nature are tacitly assumed by English thinkers, which are calculated only for Great Britain and the United States.” (Mill, 2006, p. 906)

This can be taken as a real-world description of human behavior in a concrete historical setting. Mill always remained within the confines of empirical science. However, the question is, what has this rather dull philosopy/psychology/sociology to do with econonomics and, more important, with science?

After some hundred years we know that to build economics upon the behavioral assumption of utility maximization leads only to general equilibrium theory — one of the greatest scientific embarrassments of all time.

The preoccupation with philosophy/psychology/sociology somehow took economists down the wrong path. After more than two hundred years they still do not know how the monetary economy works.

Does the world expect from economists to find out how people behave? No, this is the proper job of psychology, sociology, anthropology etcetera. Does the world expect from economists to figure out what profit is? Yes, of course, no philosopher, physicist, biologist, or sociologist will ever try to figure this out.

Have economists done their proper job? No (2014). The profit theory is false since Adam Smith gave his contemporaries the moral sentiments they so urgently needed.

Egmont Kakarot-Handtke

Halévy, E. (1960). The Growth of Philosophic Radicalism. Boston, MA: Beacon Press.
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL
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.