September 30, 2015

How Orthodoxy buffaloed Heterodoxy

Comment on ‘Deductivism — the original sin of ‘modern’ economics’

Blog-Reference

“The tension between deductive and inductive modes of scientific inquiry is at least as old as written history.” (Clower and Howitt, 1997, p. 21)

In economics this tension has often been misinterpreted as alternative. “Is it better to start deductively from axioms or inductively from facts? When the time comes to choose between internal consistency and consistency with observations, which side should we take?” (Blinder, 1987, p. 135)

Wrong question! There is nothing to choose! Science is defined by both material and formal consistency. It was already clear to Bacon that science moves forward on two legs, that is, by the alternating interaction of facts and axioms.

“There remains simple experience; which, if taken as it comes, is called accident, if sought for, experiment. The true method of experience first lights the candle [hypothesis], and then by means of the candle shows the way [arranges and delimits the experiment]; commencing as it does with experience duly ordered and digested, not bungling or erratic, and from it deducing axioms [theories], and from established axioms again new experiments.” (Novum Organum, 1620; quoted in Wikipedia)

For economics, Schumpeter has settled the question: “... there is not and cannot be any fundamental opposition between ‘theory’ and ‘fact finding,’ let alone between deduction and induction.” (1994, p. 45)

Why, then, is there still a discussion between Orthodoxy and Heterodoxy about deduction and induction? Because both have not really got the point.

Orthodoxy explicitly lays down its premises: “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)

Where does the fundamental error/mistake of Orthodoxy come in? Quite simple: HC2, HC4, and HC5 are inadmissible as axioms.

Where does the error/mistake of Heterodoxy come in? Quite simple: instead of replacing the defect orthodox axioms by correct heterodox axioms Heterodoxy argues against the axiomatic-deductive method as such.

By giving the silly behavioral assumption of constrained optimization the status of an axiom Orthodoxy triggered in Heterodoxy the outsized Pavlovian reflex to abhor axiomatization as such. This, unfortunately, amounts to methodological self-mutilation.

The original sin of modern economics is that Orthodoxy got the axiomatic foundations wrong and Heterodoxy has none at all. By no strech of the imagination has economics solved the ‘central problem of depression-prevention’. The manifest failure of economics is not explicable by Deductivism but is the result of pervasive methodological incompetence.

Egmont Kakarot-Handtke


References
Blinder, A. S. (1987). Keynes, Lucas, and Scientific Progress. American Economic Review, 77(2): 130–136. URL
Clower, R. W., and Howitt, P. (1997). Foundations of Economics. In A. d’Autume, and J. Cartelier (Eds.), Is Economics Becoming a Hard Science?, pages 17–34. Cheltenham, Brookfield, VT: Edward Elgar.
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

For details on axiomatization in general and the set of structural axioms in particular see the cross-references.