June 11, 2015

Sloppiness as economic methodology

Comment on ‘Ditch ‘ceteris paribus’!’


Bruce Edmonds asserts “Natural language accounts get around this [drawback of formal models] by utilizing the shared knowledge of the appropriate context ....”

This brings us almost verbatim back to Keynes who was a tireless proponent of the Cambridge School of Loose Verbal Reasoning.
“Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. ... Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from ‘the richness of context’.” (Coates, 2007, p. 87)

In other words, the reader is encouraged to substitute almost any meaning he likes. The result is well-known. Keynes loose verbal reasoning triggered an enthusiastic exegesis movement that circled for some decennia around the question ‘What Keynes really meant?’ Predictably, the question has never been answered. Richness of meaning only generated a wealth of blah.

But Keynes made also one very precise statement in his General Theory, viz.
“Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (Keynes, 1973, p. 63)

Unfortunately, this simple syllogism contains a fundamental conceptual error (2011) which makes nonsense of all I=S-models beginning with Hicks's IS-LM and straightforwardly continuing to Krugman's and Wren-Lewis's confused blogs. After more than 75 years Keynes's definitional sloppiness is still with us.

Since Adam Smith, economics has never been in any danger to ‘precise everything away.’ To the contrary, sloppiness enabled a senseless productivity. Neither Walrasian pseudo-rigor nor Keynesian looseness has produced anything that satisfies the scientific standards of material and formal consistency.

The call for more natural-language economics can only prolong the agony.

Egmont Kakarot-Handtke

Coates, J. (2007). The Claims of Common Sense. Moore, Wittgenstein, Keynes and the Social Sciences. Cambridge, New York, NY, etc.: Cambridge University Press.
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.