August 4, 2015

Lucas’s humbug

Comment on ‘Macroeconomic ad hocery’


“Whether we like it or not, we have no philosopher’s stone for touching quickly a humbug.” (Georgescu-Roegen, 1971, p. 67)

In the deeper meaning, ad hoc is the opposite of science. For example: you have an explanation why and how the apple falls, why and how the moon circles the earth, and when comets reappear. The beauty of science is, as Newton demonstrated, that all these phenomena, and vastly more, can be derived from a handful of elementary premises.

“Could all the phaenomena of nature be deduced from only thre [sic] or four general suppositions there might be great reason to allow those suppositions to be true.” (Newton, quoted in Westfall, 2008, p. 642)

In contradistinction, ad hocery is — in the most extreme case — to construct as many incoherent models as there are economic phenomena. This is, by and large, what the different economic schools actually do.

Newton stated his ‘general suppositions’ at the very first pages of Principia as axioms. The classical economists understood this methodological procedure very well.

“To Senior belongs the signal honor of having been the first to make the attempt to state, consciously and explicitly, the postulates that are necessary and sufficient in order to build up … that little analytic apparatus commonly known as economic theory, or to put it differently, to provide for it an axiomatic basis.” (Schumpeter, 1994, p. 575)

Orthodoxy, too, subscribed to this procedure.
“As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states. By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program. "Taken to be true" means that the hard-core functions like axioms for a geometry, maintained for the duration of study of that geometry.” (Weintraub, 1985, p. 147)

Now, it should be pretty obvious what ad hoc means: every model that cannot be logically derived from HC1 to HC5 is ad hoc.

Thus far, Lucas's argument is cogent and fully in harmony with what Heterodoxy says: “... nothing can be derived from an analytical model that is not logically contained in its axiomatic basis.” (Georgescu-Roegen, 1979, p. 321)

Lucas’s logical blunder consists first and foremost in the claim that Orthodoxy's hard core is an acceptable formal basis. It is not.

“In fact, the history of every science, including that of economics, teaches us that the elementary is the hotbed of the errors that count most.” (Georgescu-Roegen, 1970, p. 9)

There cannot be a microfoundation of macroeconomics because the axiomatic foundation of micro itself is methodologically unacceptable.

The scientific dilettantism of Lucas in particular and of the representative economist in general consists in not intuitively realizing that there is no such thing as a behavioral axiom. However, this becomes crystal-clear not before one takes objective axioms as the formal foundation of all of economics (2014).

All of microeconomics is false because the axiomatic hard core is false. This is, ultimately, the reason why the microfoundation project is proto-scientific humbug.

Egmont Kakarot-Handtke

Georgescu-Roegen, N. (1970). The Economics of Production. American Economic Review, Papers and Proceedings, 60(2): 1–9. URL
Georgescu-Roegen, N. (1971). The Entropy Law and the Economic Process. Cambridge, MA: Cambridge University Press.
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic Issues, 13(2): 317–328. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.