October 15, 2015

The Science-of-Man fallacy

Comment on ‘Don’t throw away Angus Deaton with the bathwater of the Riksbank prize — he’s good!’

Blog-Reference and Blog-Reference

What Angus Deaton is practicing is essentially sociology. Sociology belongs to the so-called social sciences. Strictly speaking, the social sciences are what Feynman called cargo cult sciences (see Wikipedia).

The program of the social sciences has been defined by Hume: “It is evident, that all the sciences have a relation, greater or less, to human nature: and that however wide any of them may seem to run from it, they still return back by one passage or another. Even. Mathematics, Natural Philosophy, and Natural Religion, are in some measure dependent on the science of MAN; since the lie under the cognizance of men, and are judged of by their powers and faculties.” (Hume, 2012, Introduction)

Hume’s program has been explicitly taken over by Pareto: “The foundation of political economy and, in general, of every social science, is evidently psychology. A day will come when we shall be able to deduce the laws of social science from the principles of psychology ...” (Pareto, 2014, p. 20)

Pareto gives us the Science-of-Man fallacy in a nutshell. As a matter of fact, no way leads from the understanding of human behavior or the ‘principles of psychology’ to the understanding of how the actual economy works.

The crucial point is that economics deals — in the first place — not with individual human behavior or society at large (Hudík, 2011). This is the realm of psychology, sociology, anthropology, history, political science, etcetera. Insofar as economics deals with behavioral assumptions like utility maximization, greed, power grabbing, etcetera, it is a dilettantish variant of Psycho-Sociology or PsySoc.

What is the real subject matter of economics? As a first approximation, one can agree on the general characteristic that the economy is a complex system. However, with the term system one usually associates a structure with components that are non-human. In order to stress the obvious fact that humans are an essential component of the economic system the market economy should be characterized more precisely as a complex hybrid human/system entity or SysHum.

The scientific method is straightforwardly applicable to the sys-component but not to the hum-component. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons the analysis has to start with the objective system-component (2014).

Methodologically, the economic system is the foreground. Common sense wrongly insists that the hum-component must always be in the foreground. This is the Science-of-Man fallacy which compares to Geo-centrism. The economic system has its own logic which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the Invisible Hand.

Economic analysis has to make the Invisible Hand visible, that is, it has first of all to uncover the systemic laws of the monetary economy.

The Science-of-Man approach has abysmally failed in economics. Heterodoxy better gets out of PsySoc before the so-called social sciences — and this is overdue — are for cogent methodological reasons expelled from the sciences.

Egmont Kakarot-Handtke


References
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Hume, D. (2012). A Treatise of Human Nature. Project Gutenberg EBook. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Pareto, V. (2014). Manual of Policical Economy. Oxford: Oxford University Press. URL


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ICYMI  (comment on anne of October 15, on October 16)

Cargo cult is a well defined description of the actual state of economics: “Suffice it to say that, in my opinion, what we presently possess by way of so-called pure economic theory is objectively indistinguishable from what the physicist Richard Feynman, in an unflattering sketch of nonsense ‘science,’ called ‘cargo cult science’.” (Clower, 1994, p. 809)

The precise meaning is: “So I call these things cargo cult science, because they follow all the apparent precepts and forms of scientific investigation, but they're missing something essential, ...”*

What is missing is an understanding of what science is all about. Feynman had this understanding, the representative economist never came even close to it, see ‘The Farce That Is Economics: Richard Feynman On The Social Sciences.’ (Tavares, 2014)

As a simple rule of thumb it holds: the student who accepts supply-demand-equilibrium as an explanation of how the market system works disqualifies himself irrevocably as scientist. The actual state of economics is that the representative economist cannot even tell the difference between profit and income (2015). Economists have no idea of the most important phenomenon of their universe and hallucinate that economics is a science.


References
Clower, R. W. (1994). Economics as an Inductive Science. Southern Economic Journal, 60(4): 805–814.
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Tavares, E. (2014). The Farce That Is Economics: Richard Feynman On The Social Sciences. Zerohedge blog post. URL

* See here