May 10, 2015

The Big Bang Theory of economics

Comment on Lars Syll on ‘Why the ergodic theorem is not applicable in economics’

Blog-Reference

It should be clear by now — long after Mirowski's classic ‘More Heat than Light’ (1995) — that physical conceptions are inapplicable in economics. This holds for equilibrium, field, ergodicity, the quantum wave function, special/general relativity, and all the rest.

What can be actually learned from physics is that each discipline has to work out its own framework of concepts and its own mathematical tools.

It is bizarre enough to see people who cannot tell the difference between profit and income (2015) wrecking their brain about ergodicity and relativity in economics. But it blows the mind to see Samuelson, the very same who introduced ergodicity and other physicalisms into economics, upbraiding the profession:

“Now what in the world has all this to do with economics? There is really nothing more pathetic than to have an economist or a retired engineer try to force analogies between the concepts of physics and the concepts of economics. How many dreary papers have I had to referee in which the author is looking for something that corresponds to entropy or to one or another form of energy. Nonsensical laws, such as the law of conservation of purchasing power, represent spurious social science imitations of the important physical law of the conservation of energy; and when an economist makes reference to a Heisenberg Principle of indeterminacy in the social world, at best this must be regarded as a figure of speech or a play on words, rather than a valid application of the relations of quantum mechanics.” (Samuelson, 1975, p. 332)

This was an extremenly rare event, Samuelson had the right intuition: all this has nothing to do with economics. So, throw all physical concepts and analogies out of the window. Equilibrium first, then ergodicity, then the rest.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Profit. SSRN Working Paper Series, 2575110: 1–18. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Samuelson, P. A. (1975). Maximum Principles in Analytical Economics. Synthese, 31(2): 323–344. URL