September 9, 2015

Two steps towards truth

Comment on ‘Are all models wrong?’

Blog-Reference and Blog-Reference

“So the idea of truth (of an 'absolute' truth) ... is our main regulative idea.” (Popper, 1994, p. 161)

To give up the idea of truth is to give up science and this leaves one with no alternative but to settle questions by applying the full spectrum of political means, as humankind has done before science could establish itself.

Economics is still at the proto-scientific stage: “Within the whole of his [the economist's] science, or what he insists on calling science, no generally recognised result is to be found, as is also the case for theology and for roughly the same reasons; there is no single doctrine taken to be a scientific truth without the diametrically opposed view being similarly upheld by authors of high repute.” (Wicksell, quoted in Deane, 1983, p. 8)

One possible reaction to this embarrassment is to give up the idea of objective truth in economics. This attitude is rather popular among heterodox economists — and it is self-defeating.

“If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug, 1990, p. 111)

Without this aspiration economics degenerates to mere opinion, political economics, and in the last consequence to a rather ordinary power struggle.

The procedure is quite different when truth is the regulative idea. This is common knowledge since J. S. Mill: “A method of obtaining accurate premises is needed because science can only be true if its premises are true. Because facts alone cannot bring us to the truth, he seeks the answer in logic. Mill praised the Schoolmen for recognizing that scientific procedure consists in ascertaining premises and deducing conclusions. (Redman, 1997, p. 328)

The first step is to recognize that all models are wrong that are built upon the following premises: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/prices, and ergodicity. All these items are economic nonentities.

The second step is to replace these unacceptable premises. This is not an easy task, yet Heterodoxy has one decisive advantage vis-à-vis Orthodoxy: “It is the optimistic theory that science, that is real knowledge about the hidden real world, though certainly very difficult, is nevertheless attainable, at least for some of us.” (Popper, 1994, p. 192)*

Egmont Kakarot-Handtke

Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield, VT: Edward Elgar.
Deane, P. (1983). The Scope and Method of Economic Science. Economic Journal, 93(369): 1–12. URL
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality., chapter Models, Instruments, and Truth, pages 154–184. London, New York, NY: Routledge.
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, MA, London: MIT Press.

* For details see cross-references Paradigm shift