December 29, 2015

The existence of economic laws and the nonexistence of behavioral laws

Comment on Lars Syll on ‘The non-existence of economic laws’

Blog-Reference

Economists, like most human beings, are most interested in watching other human beings, interpreting their actions, and second-guessing their motives. After all, between the individual human being and Nature or the Universe stands society and all the stories the respective societies tell about Nature or the Universe or reality or history or the hereafter. From the history of the sciences we know that virtually all of societal storytelling is logical and factual rubbish. The greater part of humanity never transcends parochial social rubbish. Plato famously described the epistemological condition with the cave metaphor and Buddha with the metaphor of the blind men and the elephant.

Accordingly, the representative economist is as deeply convinced as any flat-earther that economics is about the behavior of human beings as far as it relates to what Marshall called ‘the ordinary business of life’. And this is why standard economics is built upon the behavioral axiom that homo oeconomicus is a utility maximizer (Weintraub, 1985, p. 147).

And this is the fundamental methodological blunder because there is no behavioral assumption whatever that can play the role of an axiom. Why? Let us go back to Aristotle’s first principle of science “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Posterior Analytics)

Now, there is no proposition about human behavior that is ‘certain, true, and primary’ because human actions are original. This has been known to the scientists in all ages “The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition ... is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown, 2011, p. 211)

Scientists in all ages knew that there is, as a matter of principle, no such thing as a behavioral law or anything close to it. Economists, of course, are incompetent scientists and therefore never had much compunction to postulate/accept constrained optimization as their foundational premise. The other methodological lunacy has been to take equilibrium into the set of axioms (Weintraub, 1985, p. 147).

The representative economist has not got the point until this very day. As Krugman put it on his blog “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...”. More than 100 years after Jevons/Walras/Menger and the total failure of the neoclassical program this is simply self-debunking idiotism.

All the more so as economics, to begin with, is not a science of behavior (Hudík, 2011).* Economics is not a so-called social science like psychology/sociology and not a natural science like physics but a system science.

Methodologically correct economics starts with the systemic behavior of the monetary economy. There are systemic laws, for instance the Profit Law (2015) or the structural Law of Supply and Demand (2014) but no behavioral laws. Utility based demand and supply functions have traditionally been swallowed by economists hook line and sinker but will never be accepted by anybody with a modicum of scientific instinct. The economist’s proper task is to look out for objective systemic laws and to empirically verify/falsify them. Science is about the invariants beneath changes on the surface and not a commonsensical description of what happens here and now.

The representative economist never got the crucial methodological point and this is why economics is a failed science. Orthodoxy builds from false premises and Heterodoxy is stuck in the methodological cul-de-sac that economics is a social science. On this premise, all that is possible in economics is vacuous blather about beneficial/harmful self-interest, the alleged functioning of markets, the mind-boggling complexity of reality, and the ultimately incomprehensible governance of the Invisible Hand.

The fact of the matter is that the monetary economy is governed by systemic laws which are comprehensible to the scientific mind, which in turn necessarily excludes economists of the Walrasian, Keynesian, Marxian, and Austrian sect.

Egmont Kakarot-Handtke


References
Brown, K. (2011). Reflections on Relativity. Raleigh, NC: Lulu.com.
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Kakarot-Handtke, E. (2014). The Law of Supply and Demand: Here it is Finally. SSRN Working Paper Series, 2481840: 1–17. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Profit. SSRN Working Paper Series, 2575110: 1–18. URL
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

* See also cross-references 'Not a science of behavior'