January 31, 2016

Economists cannot do the simple math of profit — better keep them out of politics

Comment on ‘Paul Krugman, Bernie Sanders, and the Experts’

Blog-Reference and Blog-Reference and Blog-Reference on Feb 3

Economists are supposed to be experts on the economy. So it is quite natural to think that they know what profit is; after all, this is the pivotal phenomenon of their subject matter. Yet, this is definitely not the case. And this means that economists give economic policy advice without having a true understanding of the market economy. This holds for Walrasians, Keynesians, Marxians, and Austrians.

This is not to say, of course, that economists know nothing. In fact they know some easy to grasp practical, institutional or historical details. This, though, is not what science is all about. When the task is to explain how the universe works and the astronomer goes on describing in great detail how his kitchen works then one is inclined to think that this expert is a moron.

The situation is analogous in economics. You have much expert talk about whether the Fed should or should not lower the interest rate but all these guys have no idea of how the market system works because they have not figured out since Econ 101 what the crucial difference between profit and income is.

All this is by no means new or some hidden secret of the profession. Every economist knows, or can know because it is in the Palgrave Dictionary, that “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10)

So, the simple fact is that economists do not know what profit is, and this means that they do not know how the market system works, and this in turn means, that their economic policy advice has no sound scientific foundation.

When economists talk about the economy this is storytelling decorated with some charts of crossing curves and exemplified with some actual numbers. It looks more scientific than tea leaves reading but, clearly, an economic model that is based on nonentities and inconsistent concepts is not different in principle from a cup of tea leaves.

The fact of the matter is that economists are incompetent scientists who fail already at the level of elementary math. This assertion, of course, needs a formal proof.

This is the set of premises to start with (each step of the argument can be checked on the back of an envelope by inserting arbitrary numbers for L, W, R):
(0) The objectively given and most elementary configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.
(i) Yw=WL wage income Yw is equal to wage rate W times working hours. L,
(ii) O=RL output O is equal to productivity R times working hours L,
(iii) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

These premises are certain, true, and primary, and therefore satisfy all methodological requirements. The set of premises is minimal, that is, it cannot be reduced further, only expanded. The set contains no nonentities like maximization or equilibrium and no normative assertions. For the graphical representation see here.

At any given level of employment L, the wage income Yw that is generated in the consolidated business sector follows by multiplication with the wage rate W. On the real side, output O follows by multiplication with the productivity R. Finally, the price P follows as the dependent variable under the conditions of budget balancing, i.e. C=Yw and market clearing, i.e. X=O. Note that the ray in the southeastern quadrant is not a linear production function; the ray tracks any underlying production function. Note also that the wage rate W is an average if the individual wage rates are different among the employees, which is normally the case.

Under the conditions of market clearing and budget balancing in each period the price is derived as P=W/R (1), i.e. the market clearing price is always equal to unit wage costs. This is the most elementary form of the Law of Supply and Demand.

If the wage rate W is lowered, the market clearing price P falls. If the number of working hours L is increased the price remains constant, provided productivity R does not change. If productivity decreases the price P rises. If productivity increases the price falls. In any case, labor gets the whole product, the real wage W/P is invariably equal to the productivity R according to (1), and profit for the business sector as a whole is zero. All changes in the system are reflected by the market clearing price. The most elementary economy is reproducible for an indefinite number of periods. For the inclusion of money see (2014).

To define a reproducible minimal economy and to make its properties absolutely transparent has been the first step. With the second step the conditions of market clearing and budget balancing have to be lifted. This produces the phenomena of inventory changes (O-X>0 or <0) and of saving/dissaving (Yw-C>0 or <0) and of profit/loss (C-Yw>0 or <0).

One has three logical cases for the household sector Yw-C=Sm>0, <0, =0, that is, the household sector either saves Sm>0, dissaves Sm<0, or balances the budget Sm=0.

One has three logical cases for the business sector C-Yw=Qm>0, <0, =0, that is, the business sector either makes a profit Qm>0, a loss Qm<0, or breaks even Qm=0.

The balances of the two sectors add up to zero Sm+Qm=0. This follows directly from the definition of saving/dissaving Sm and profit/loss Qm.

This gives one the most elementary version of the profit law: profit is positive if the households dissave (increase debt/decrease financial assets) and negative if the households save. So profit for the economy as a whole has nothing to do with productivity, the wage rate, or risk or any other of the usual explanations which stem from the observation of a single firm among many others. In fact, exactly here is where error/mistake comes in because what is true for a single firm is not true for the economy as a whole. This logical blunder is well-known as fallacy of composition.

In science, there is no need at all to believe in anything. Science is not about credibility or expert opinion or whether the scientist is simpatico, but alone about proof, that is, logical and empirical consistency.

Imagine a simple experiment for the ongoing election campaigns. Ask every economist who comes along with a proposal of how to fix the economy about his underlying model. Check what this model says about profit. Admit only those economists to public discussion whose profit theory is correct — the silence will be deafening.

Egmont Kakarot-Handtke


References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL

***
REPLY  comment on anne of Jan 31

I summarized “The fact of the matter is that economists are incompetent scientists who fail already at the level of elementary math. Because of this their economic policy advice has no sound scientific foundation.” This summary is based on the shortest possible formal proof.

You say “Beyond this confusing criticism I have no idea what the essay is about and suggest a clear and simple summary. Unless a clear and simple summary is set down, I at least will never again read a sentence by this writer.”

This makes my point that economists (including anne) cannot grasp an elementary proof, much less formulate a consistent economic theory/model.

***
REPLY  comment on anne of Jan 31

(i) You know pretty well that it is a silly game to ask for a two-line summary of an argument that rectifies the conceptual foundations of economics.

(ii) It is well known that it takes more words to correct/explain a faulty proposition than to make one. To say ‘the sun goes up’ is short and immediately convincing, to explain why this is an optical illusion takes a whole book at minimum.

(iii) Marginalism had more than 140 years and a lot of manpower to fully develop an axiomatically ill-founded approach [“most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point” (Krugman)]. Fairness alone demands that you grant more than a two-liner for the refutation of entrenched neoclassical junk.*

(iv) To demand a catchy summary and then to complain that a lot has been left out which unfortunately makes the argument incomprehensible is an outworn catch-22.

(v) If you need more information for understanding new economics you will surely find it. If you “will never again read a sentence by this writer” that is perfectly in order and the inalienable privilege of all irredeemable proto-scientific economists.

* See ‘Economists and methodology: the horror of all horrors

***
REPLY  comment on anne of Jan 31 on Feb 1

(i) My post has been cut off in the middle. For the intact text see here.

(ii) My key point is “So, the simple fact is, that economists do not know what profit is, and this means that they do not know how the market system works, and this in turn means, that their economic policy advice has no sound scientific foundation.”

(iii) I give a formal proof for the known fact that profit theory is false since Adam Smith (2014). Every intelligent non-economist can check this proof.*

(iv) From this proof follows: neither you nor any of the expert-economists you quote/defend/support has realized until this very day that their underlying model is logically and empirically defective and therefore unacceptable (2015).

(v) Now you ask me “Again and finally, discuss a single tangible economic problem with feeble me and I will bother reading another line. Structural change in the Chinese economy? Growth in India? Dependence on commodity exports in Africa? I am waiting.”

(vi) Clearly, there is no point in discussing these issues with an economist who cannot tell the difference between profit and income. But it would be a good idea to inform yourself first about the correct employment theory.** Then we can together answer the question why the Fed’s 2 percent inflation target is the most stupid idea so-called expert-economists ever came up with.

(vii) Incompetent economists are a menace to their fellow citizens.


References
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL

* See the post ‘How the intelligent non-economist can refute every economist hands down
** See the post ‘How to save the economy from storytelling economists

***
REPLY  comment on anne of Feb 1 on Feb 2, summary of the correct employment equation

The price mechanism does not work as standard economics imagines. As a matter of fact, overall employment increases if the average wage rate increases relative to average price and productivity. This gives one the lever to improve the employment situation all over the world and to fend off deflation without rising debt and without artificial capacity growth. To increase the average price relative to the average wage rate and productivity increases unemployment. This is current Fed policy.

***
REPLY comment on Ken Zimmerman of Feb 4

You say: “If scientists didn’t believe there was something to observe, there are ways to do those observations that will help the scientist understand the observed, and that all the work of observing would lead to better understanding why would they waste the time doing it? Science itself is just one big belief, on big faith.”

You are a bit behind the curve as far as the relationship between theory and observation is concerned. And, worse, you have not yet gotten the fundamental distinction between belief (= religion) and knowledge (= science).

What commonsensers and naive empiricists have never understood is that science starts where their myopic common sense ends. Here is the classical example.

Roughly speaking, Aristotle put the Law of Motion thus: every body moves to his natural place of rest. Then he took a stone and threw it skywards. The stone came down some meters away. Never in the history of mankind had a law better been empirically tested and confirmed without exception.

Against this, Galileo said, roughly, every body moves in a straight line until eternity. An empirical proof could not be given until space flight was possible.

Nevertheless, this counter-intuitive assertion reappears as the first axiom of motion in Newton’s Principia. (Axiomata Sive Leges Motus, Wikipedia)

And this is what Galileo told naive empiricists and commonsensers and brain-dead realists about the essence of science: “I shall never be able to express strongly enough my admiration for the greatness of mind of these men who conceived this [heliocentric] hypothesis and held it to be true. In violent opposition to the evidence of their own senses and by sheer force of intellect, they preferred what reason told them to that which sense experience plainly showed them ... I repeat, there is no limit to my astonishment when I reflect how Aristarchus and Copernicus were able to let conquer sense, and in defiance of sense make reason the mistress of their belief.” (quoted in Popper, 1994, p. 84)

The only thing scientists believe in is formal and empirical proof. Economics is a failed science. It has been logically and empirically refuted. There is no such thing as an economic expert. Peer review does not work in economics because author and reviewer share the same false belief (2013).


References
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality., chapter Science: Problems, Aims, Responsibilities, pages 82–111. London, New York, NY: Routledge.

***
REPLY comment on Norman L. Roth on Feb 4

You certainly have to take Georgescu-Roegen off the list because he and I are of one mind: “Knight lamented that there are many members of the economic profession who are ‘mathematicians first and economists afterwards.’ The situation since Knights time has become much worse. There are endeavors that now pass for the most desirable kind of economic contributions although they are just plain mathematical exercises, not only without any economic substance but also without mathematical value. Their authors are not something first and something else afterwards; they are neither mathematicians nor economists.” (Georgescu-Roegen, 1979, p. 317)

So, yes, I think and even prove that economists are “incompetent scientists who fail at the level of elementary math.” *


References
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic Issues, 13(2): 317–328. URL

* See also ‘How the intelligent non-economist can refute every economist hands down

***
REPLY  comment on Ken Zimmerman of Feb 5

In methodology, there is the distinction between the context of discovery and the context of justification. What Kuhn and others have put forth was a sociology/history of how major paradigm shifts have happened. Mirowski did the same in the field of economics, e.g. (2009). With rare exceptions, though, economic methodology has entirely degenerated to storytelling and gossiping “Much of the work in methodology over the last ten years has thus consisted of methodological analysis of what economists do and how they argue.” (Dow, 1997, p. 78)

The context of discovery appeals very much to so-called social scientists. This is because the only way they can understand the world is in the form of a narrative, i.e. Galileo said the earth moves, the Pope did not like it, he mobilized the Inquisition, Galileo was put on trial, he did not recant, after his conviction he said the historical words ‘Eppur si muove’. This is the stuff Hollywood then makes a sitcom of.

With regard to the context of justification Kuhn stated: “First, a theory should be accurate within its domain, that is, consequences deducible from a theory should be in demonstrated agreement with the results of existing experiments and observations. (quoted in Redman, 1993, p. 3)

This is pretty much in accordance with what I said, isn’t it?

The unbridgeable difference between genuine scientists and so-called social scientists is that the former seek a clear decision between true or false while the latter are happy with storytelling in the vast realm between true/false where “nothing is clear and everything is possible.” (Keynes, 1973, p. 292).*

To see the crucial point it suffices to compare the scientist Newton and the economist Adam Smith: “But he [A. Smith] had no such ambitions; in fact he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter, 1994, p. 185)

Economics never moved above the heads of the dullest readers until this day.

References
Dow, S. C. (1997). Mainstream Economic Methodology. Cambridge Journal of Economics, 21: 73–93.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Mirowski, P., and Plehwe, D. (2009). The Road From Mont Pelerin. The Making of the Neoliberal Thought Collective. Cambridge, MA, London: Harvard University Press.
Redman, D. A. (1993). Economics and the Philosophy of Science. New York, NY, Oxford: Oxford University Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.

* See ‘Economics as fool’s paradise

***
REPLY comment on Ken Zimmerman of Feb 6

Economics claims to be a science: “Starting with Adam Smith’s history of astronomy, the main theorists of classical economics sought to capture the essence of the scientific method in order to employ in the sphere of economic research.” (Mirowski, 1995, p. 198)

What is the essence of science? “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

In more than 200 years economists have not produced much of scientific value but very much of silly storytelling.

In view of obvious scientific failure, economists have to make up their minds: (i) to stick to storytelling and to voluntarily get out of science, or (ii), to comply with the methodology and ethics of science and to come up eventually with the true theory of how the economy works.

As Eichner put it more specifically: “Economics as a discipline therefore has a choice: It can retain the neoclassical core of its theory or, alternatively, it can one day become a science. It cannot have it both ways.” (1983, p. 518)

Make no mistake, when the dust is settled and the history of science becomes written neither an orthodox nor a heterodox economist of the last 200 years will appear in the index under the heading Scientists.


References
Eichner, A. S. (1983). Why Economics Is Not Yet a Science. Journal of Economic Issues, 17(2): 507–520. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.

***
REPLY  comment on Jon Cloke of Feb 6

Entertainment is about like/dislike, science is about true/false.

The problem with Krugman is that his economic policy arguments have no sound theoretical foundation. He, for example, uses still IS-LM or a variant thereof. Because the IS-LM model is provable false since Keynes/Hicks this is a reliable indicator of logical incompetence (2014).

Whatever Krugman argues for or against is his personal opinion. Having disqualified himself, he has no legitimacy to speak in the name of science.

References
Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL

January 30, 2016

The economist’s hajj from Mordor to Mecca

Comment on David Sloan Wilson on ‘Economics — still in the land of Mordor’

Blog-Reference and Blog-Reference on Feb 2

Always, when economics is in the methodological doldrums it looks around for success stories. In the 1890s Newtonian physics fell somewhat out of favor as archetype and the heterodox economist Thorstein Veblen asked “Why is Economics Not an Evolutionary Science?” The next was Marshall with his famous call for a new methodological hajj “The Mecca of the economist lies in economic biology.”

Now David Sloan Wilson tells economists “The [neoclassical] edifice is based upon a conception of human nature that is profoundly false, defying the dictates of common sense, before we even get to the more refined dictates of psychology and evolutionary theory.”

Strictly speaking this is an old hat since J. S. Mill: “The science then proceeds to investigate the laws which govern these several operations, under the supposition that man is a being who is determined, by the necessity of his nature, to prefer a greater portion of wealth to a smaller ... Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed.” (1874, V.38)

The first thing every layman recognizes is that there is something wrong with equilibrium economics in general and with constrained optimization in particular. Hence, there have been countless attempts to borrow from Darwinism which seems to be more conversant with Human Nature than economics. Closer inspection, though, showed quickly that all suggestive resemblances between natural and economic evolution remain on the surface.

“In a recent series of publications, ‘Generalized Darwinism’ has been proposed as a new overarching research strategy that is based on the assumption of a fundamental homology between evolution in nature and the evolution of the economy. The principles of variation, selection, and retention that have been distilled from evolutionary biology by isolating abstraction are claimed to be generally valid. It is suggested to apply these abstract principles as a unifying framework for all evolutionary theories. By a brief reconstruction of the different historical forms of Darwinism we have shown that the identification of these abstract principles with Darwinism is misleading. Moreover, on a priori grounds other principles — non-Darwinian or even anti-Darwinian ones like, e.g., orthogenesis, saltationism, or neo-Lamarckism — could claim a similar plausibility in explaining economic evolution.

The crux with such allegedly unifying abstract principles derived by isolating abstraction from findings in other domains is that they provide but an abstract hull. In order to become a useful heuristic device, they need to arrive at domain-specific explanation which, in turn, would require to add substance by hypotheses on the disciplinary ‘details’ of actual evolutionary processes, e.g. in the economy. This is, of course, what is done in the first place in a bottom-up research strategy as it has fruitfully been practiced in the development of Darwinism in evolutionary biology." (Levit et al., 2011, p. 559)

David Sloan Wilson advertises a common sense approach. This, of course, appeals to all economists who have not much more than that. As a matter of fact, Wilson’s approach is fundamentally flawed. The first thing is to be clear about the subject matter: economics is not about psychology, human behavior, sociology, politics, biology, evolution, etcetera. Economics is about the properties and the working of the economic system. All Human-Nature approaches are a detour.

Because of this, economics has to develop its own methodology and neither copy it from Newton nor from Darwin, nor from chaos theory, nor from complexity theory, nor from anywhere else.*

Where Wilson is right is that neoclassical economics is unacceptable. This, though, is known since more than 140 years.

Egmont Kakarot-Handtke


References
Levit, G. S., Hossfeld, U., and Witt, U. (2011). Can Darwinism be "Generalized" and of What Use Would This Be? Journal of Evolutionary Economics, 21(4): 545–562. DOI10.1007/s00191-011-0235-3. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL

* See ‘How to restart economics

Related 'The three pillars of English philosophy: Individualism, Darwinism, Political Economics'

How Heterodoxy keeps the Naked-Emperor-Zombie alive

Comment on Asad Zaman on ‘Fundamental Flaws of Conventional Economics’

Blog-Reference

All thinking economists are agreed: orthodox economics is, as Keen famously put it, a naked emperor (2011), or as Quiggin put it, a zombie (2010). This is not news, the embarrassment is well advanced in years “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)

The list of defects is indeed almost endless — and exactly this is the problem. As a matter of methodological principle, the proof of one inconsistency should be enough to refute a theory. Ironically, Orthodoxy has delivered this proof themselves “The enemies, on the other hand, have proved curiously ineffective and they have very often aimed their arrows at the wrong targets. Indeed if it is the case that today General Equilibrium Theory is in some disarray, this is largely due to the work of General Equilibrium theorists, and not to any successful assault from outside.” (Hahn, 1980, p. 127)

The orthodox approach is refuted by every trick in the book — yet it is still trolling around with silly model bricolage. It seems that critique and refutation are not enough to get rid of a failed approach. This, though, is also well known.

• “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
• “If we feel misgivings ..., all we have to do is to start appropriate research. Anything else is pure filibustering.” (Schumpeter, 1994, p. 577)
• “There is no evidence to suggest that economists abandon degenerating programs in the absence of a progressive alternative.” (Weintraub, 1985, p. 148)
• “There is no alternative that is so obviously superior that it would justify everyone abandoning the current orthodoxy.” (Hausman, 1992, p. 255)
• “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)

Let us call this the problem of the missing alternative or the nothing-to-choose dilemma. What is common to Orthodoxy and Heterodoxy is the incompetence to find a superior alternative to what is easily recognizable as a failed approach: “Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992, p. 248) This is a program for secular stagnation. Until a promising alternative is available, the Zombie cannot die.

Repetitive critique of Orthodoxy is a waste of time. Students need to know how the market economy works and need no historical account of how their ancestors messed up both theory and methodology. The sooner all this scientific garbage is referred to the historians of economic thought, the better.

Asad Zaman has not yet got the point but repeats the multitude of already known defects. The curious fact is that Keynes has already pointed the way: “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (1973, p. xxi)

These premises are well-known since more than 140 years “For it would not be too much of an oversimplification to present the field as having progressed smoothly and steadily, developing theories of ever greater power and broader scope within an essentially unchanged explanatory framework, based on the concepts of optimizing individual behavior and market equilibrium, that were already central to economic thought in the previous century.” (Woodford, 1999, p. 2)

Or, in the blog-version of Krugman: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”.

And here you have it! What we know with absolute certainty is that the new economic paradigm has to be free of these green cheese assumptions. So, there is no need at all to take notice of any peer reviewed article or textbook or any post which contains maximization-and-equilibrium. Economic policy proposals of marginalists can simply be laughed out of every debate. Because of this, there is no need at all to criticize and discuss DSGE or RBC or the freshwater/saltwater junk on a heterodox blog. What is more, there is no need to criticize and discuss Walrasianism, Keynesianism, Marxianism, and Austrianism. All this is obsolete stuff.

The ground has been cleared over and over again. Debunking has been wildly successful, now the only worthwhile task is construction, or, to paraphrase the great economist and methodologist J. S. Mill: ‘Doubtless, the most effectual mode of showing how the science of Economics may be constructed, would be to construct it ...’ (2006, p. 834)*

Egmont Kakarot-Handtke


References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Hahn, F. H. (1980). General Equilibrium Theory. Public Interest. Special Issue: The Crisis in Economic Theory, pages 123–138.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
Keen, S. (2011). Debunking Economics. London, New York, NY: Zed Books, rev. edition.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, NY, Melbourne: Cambridge University Press.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, NJ, Oxford: Princeton University Press.
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
Woodford, M. (1999). Revolution and Evolution in Twentieth-Century Macroeconomics.
Mimeo, pages 1–32. URL

* See ‘How to restart economics

January 29, 2016

How to restart economics

Comment on Jeff on ‘Is there a core of heterodox economics that we can all believe in?’

Blog-Reference

You conclude your post with “Start with these assumptions and you fix most of the biggest problems with modern economics.”

Yours is the correct way to proceed: to first of all clearly speak out one’s core premises (= hypotheses = postulates = assumptions = principles = axioms). And at this very first step economists fail already. Heterodoxy is a case in point as the title of this thread testifies. At the moment, there is no common core of heterodox economics.

Your approach is in full agreement with the 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.” (Aristotle)

However, while your approach is correct in general it is not correct in detail. Roughly speaking, it is not elementary enough. More specifically, your premise #1 is provably false.

THIS is the correct core of premises:
(A0) The objectively given and most elementary configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.
(A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L,
(A2) O=RL output O is equal to productivity R times working hours L,
(A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

These premises are certain, true, and primary, and therefore satisfy all methodological requirements. The set of premises is minimal, that is, it cannot be reduced further, only expanded. The set contains no nonentities like maximisation or equilibrium and no normative assertions. The graphical representation of the pure consumption economy is shown on Wikimedia.



At any given level of employment L, the wage income Yw that is generated in the consolidated business sector follows by multiplication with the wage rate W. On the real side, output O follows by multiplication with the productivity R. Finally, the price P follows as the dependent variable under the conditions of budget balancing, i.e. C=Yw and market clearing, i.e. X=O. Note that the ray in the southeastern quadrant is not a linear production function; the ray tracks any underlying production function. Note also that the wage rate W is an average if the individual wage rates are different among the employees, which is normally the case.

Under the conditions of market clearing and budget balancing in each period the price is given by P=W/R (1), i.e. the market clearing price is always equal to unit wage costs. This is the most elementary form of the Law of Supply and Demand.

If the wage rate W is lowered, the market clearing price P falls. If the number of working hours L is increased the price remains constant, provided productivity R does not change. If productivity decreases the price P rises. If productivity increases the price falls. In any case, labor gets the whole product, the real wage W/P is invariably equal to the productivity R according to (1), and profit for the business sector as a whole is zero. All changes in the system are reflected by the market clearing price.

This has been the first step. With the second step, the conditions of market clearing and budget balancing have to be lifted. This produces the phenomena of inventory changes (O-X>0 or <0) and of saving/dissaving (Yw-C>0 or <0) and of profit/loss (C-Yw>0 or <0).

To take the economic system as a whole as analytical starting point is the correct way. To start with assumptions about individual behavior is methodologically incorrect. This blunder is the defining characteristic of microeconomics. It is just the other way round: given the minimalist core propositions (A0) to (A3) one has to proceed top-down by successive differentiation until one arrives at the individual agent.

Conclusions for Heterodoxy: (1) Throw out the neoclassical set of premises [“most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point” (Krugman)] (2) Take the premises (A0) to (A3) as common core of economic analysis. (3) Differentiate the common core, that is, increase complexity successively, and derive all observable economic phenomena and relationships consistently from the common core. (4) Take the first opportunity to test one of the derived complex relationships. (5) If the relationship is corroborated continue with differentiation and solve concrete economic problems, otherwise look for a new set of foundational premises.

The acceptance of the premises (A0) to (A3) depends alone on the outcome of empirical tests and not at all on whether one likes them or not, and certainly not on any political prejudice. There is no need at all to believe in anything. Heterodoxy defines itself by superior knowledge and not by belief or political opinion.

Egmont Kakarot-Handtke


Related 'First Lecture in New Economic Thinking'. For more details see cross-references Paradigm shift.

January 28, 2016

End of a storyteller

Comment on Lars Syll on ‘Krugman — a Vichy Left coward?’

Blog-Reference and Blog-Reference

Krugman is accused for supporting “political figures he likes, notably Hillary Clinton.” What could possibly be wrong with that? Nothing, of course, except that Krugman is an economist. What is indeed wrong, is that economics is a science and as a scientist Krugman has no political mandate. Most people do not get the point because they think science is just another sitcom format.

Long before the hijacking of economics by morons, J. S. Mill, the great economist and methodologist, was well aware that there is a categorical difference between politics and science: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science ....” (Mill, 2006, p. 950)

In no uncertain terms Mill told his fellow economists: politics and science have to be separated and there is no revolving door between the two. The first thing to notice is that this message was obviously wasted on Krugman.

To speak of economics tout court is always misleading because there is political and theoretical economics and there is storytelling and something like the true theory. The crucial distinction is:
(i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works.
(ii) In political economics anything goes; in theoretical economics scientific standards are observed. The standards are well-defined as material and formal consistency.

Theoretical economics has to be judged according to the criteria true/false and nothing else. The criteria of political economics are good/bad or like/dislike. Political economics has produced nothing of scientific value in the last 200 years.

Accordingly, Krugman has to be criticized for having made the wrong choice between political economics (= agenda pushing and storytelling) and theoretical economics (= science) and for trespassing the line between the two. He has to be criticized for being an incompetent scientist (2014) and thrown out of the scientific community. Being out of science, he can no longer be criticized for preferring one politician above the other.

Political economics is when one lousy scientist calls the other lousy scientist a Vichy Left coward. In order to make economics a science one has to get rid of all this garbage.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected
View of the Principles of Evidence and the Methods of Scientific Investigation,
volume 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.


***

REPLY, comment on anne

The proper task of economics is to develop the true theory. Whatever the political goals are, without the true theory economic policy is pointless, i.e. ineffective or even counter-productive. The separation of politics and economics implies that the overarching economic goals are determined in the political sphere according to agreed-upon rules. The economist qua economist is not legitimized to determine the overarching economic goals.

There is neither a political nor a moral justification for an economist to give economic policy advice without sound scientific foundation. Economists owe society the true theory, not less, not more. As long as they do not have the true theory, the political sects of Walrasians, Keynesians, Marxians, Austrians better shut up.

Krugman's policy proposals have no sound scientific foundation. His models are provable false. Economists should simply resists the temptation to say what ought to be. It suffices to say what is, i.e. how the economy works.

January 27, 2016

Economists and methodology: the horror of all horrors

Comment on ‘Deduction — induction — abduction’

Blog-Reference and Blog-Reference on Jan 28

Economists are feeble thinkers. We take Keynesians as an exemplary case here, but the argument applies in full generality to Walrasians, Marxians, and Austrians.

As a centerpiece of the General Theory Keynes formulated the foundational syllogism of macroeconomics. “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (1973, p. 63)

This elementary two-liner is conceptually and logically defective because Keynes did not come to grips with profit and therefore “discarded the draft chapter dealing with it” (Tómasson et al., 2010, p. 12). As a result, all I=S models including the Keynesian multiplier are false until this very day (2011).

To see the enormity of intellectual failure one has to let this sink in: Keynes had no idea of the fundamental concepts of his discipline, viz. profit and income. This did not hinder him to talk a lot about capitalism and Laissez-faire and, worst of all, economic methodology. Keynes’s economic policy proposals never had a sound theoretical foundation but were at best commonsensical. The scientific horror, though, did not stop there. After-Keynesians did not realize until this day that there is something fundamentally wrong with Keynes’s two-liner and I=S but still hallucinate about ex ante/ex post (2014).*

So we have two indicators of the logical incapacity of present day economists: Keynesians are since more than 80 years in the dark. Sorta-kinda neoclassicals, who are not aware that ‘maximization-and-equilibrium’ (Krugman) is a methodologically inadmissible axiomatic starting point, are since more than 140 years in the dark. This, though, is still not the worst.

Keynes was by no means an exception. Economists in general do not understand what profit is.** This means that all models in which profit appears or, worse, does not at all appear explicitly are definitely false. So, economists in general are since Adam Smith in the dark. This, though, is still not the worst.

People who have no idea of the foundational concepts of their discipline, viz. profit and income, philosophize endlessly about methodology and mathiness and axiomatics and deduction/induction and probability. Because they have disqualified themselves on their own turf neither Keynesians nor sorta-kinda neoclassicals nor the rest of the profession can be taken seriously for one split-second in matters of methodology.

All that an economist has to know about methodology is that every theory/model has to satisfy the conditions of both formal and material consistency (Klant, 1994, p. 31). Economic models do not satisfy this conditions. Because of this, economics is a failed science.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL

* For details see ‘I=S: Mark of the Incompetent
** For details see ‘How the intelligent non-economist can refute every economist hands down

Related 'Economists’ slapstick methodology' and 'Agenda pushing or science?' and 'Why the Naked-Emperor-Zombie cannot die' and 'Lousy scientists' and 'Confused Orthodoxy vs. confused Heterodoxy'


***

ADDENDUM Unskilled users, comment on Lars Syll on Jan 27

You say: “The hypothetico-deductive method (in case we treat the hypothesis as absolutely sure/true, we rather talk of an axiomatic-deductive method) basically means that ...”

This is not quite correct. Popper describes the the axiomatic-deductive method thus: “The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; no claim of truth is implied in the term ‘axiom’ as here used). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations.” (1980, p. 71)

Axioms are defined by their role and, as Popper explicitly states “no claim of truth is implied” initially. So, to associate ‘absolutely true’ and ‘axiomatic-deductive method’ is false and misleading.

Schumpeter understood this very well and he, too, made no categorical distinction between hypothesis and axiom: “... the things (propositions) that we take for granted may be called indiscriminately either hypotheses or axioms or postulates or assumptions or even principles, and the things (propositions) that we think we have established by admissible procedure are called theorems.” (1994, p. 15)

As a rule, the proof of axioms is in the deductively derived conclusions. If what the theory says should be the case is actually the case, then the axioms are indirectly corroborated. If not, they are refuted qua modus tollens. This was already obvious to J. S. Mill. “The ground of confidence in any concrete deductive science is not the à priori reasoning itself, but the accordance between its results and those of observation à posteriori.” (2006, p. 896-897)

You say “In mathematics, the deductive-axiomatic method has worked just fine. But science is not mathematics. Conflating those two domains of knowledge has been one of the most fundamental mistakes made in the science of economics.”

It is obvious that economists misunderstood and misapplied mathematics. And it is trivially true, of course, that ‘science is not mathematics’. The point is that there is a ‘logical parallelism’ between the two. Einstein put the crucial methodological issue with perfect clarity thus “A complete system of theoretical physics consists of concepts and basic laws to interrelate those concepts and of consequences to be derived by logical deduction. It is these consequences to which our particular experiences are to correspond, and it is the logical derivation of them which in a purely theoretical work occupies by far the greater part of the book. This is really exactly analogous to Euclidean geometry, except that in the latter the basic laws are called ‘axioms’; and, further, that in this field there is no question of the consequences having to correspond with any experiences. But if we conceive Euclidean geometry as the science of the possibilities of the relative placing of actual rigid bodies and accordingly interpret it as a physical science, and do not abstract from its original empirical content, the logical parallelism of geometry and theoretical physics is complete.” (Einstein, 1934, pp. 164-165)

Note that ‘axioms’ is in inverted commas to indicate that in physics its meaning is physical. Einstein knew already long before Lars Syll that ‘science is not mathematics’ but he knew how to merge them.

The logical parallelism between science and mathematics has puzzled many people “I find it quite amazing that it is possible to predict what will happen by mathematics, which is simply following rules which really have nothing to do with what is going on in the original thing.” (Feynman, 1992, p. 171) [note: the meaning of prediction is different from soothsaying]

There is no need here to discuss why this logical parallelism works so splendidly (Velupillai, 2005). Suffice it to say that there is no good reason whatever to maintain that — as a matter of principle — the axiomatic-deductive method cannot work in economics. Just the contrary “My opinion continues to be that axiomatics, like every other tool of science, is no better than its user, and not all users are skilled.” (Clower, 1995, p. 308)

The fact of the matter is that economists have not been very skilled users of the scientific method up to now. This is due to a lack of scientific competence which seems to be hereditary among both orthodox and heterodox economists.


References
Clower, R. W. (1995). Axiomatics in Economics. Southern Economic Journal, 62(2): 307–319. URL
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund.
Popper, K. R. (1980). The Logic of Scientific Discovery. London, Melbourne, Sydney: Hutchison, 10th edition.
Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.
Velupillai, K. (2005). The Unreasonable Ineffectiveness of Mathematics in Economics. Cambridge Journal of Economics, 29: 849–872.

January 25, 2016

Every thinking economist is heterodox by default, but how do we proceed from here?

Comment on Asad Zaman on ‘Is there a core of heterodox economics that we can all believe in?’

Blog-Reference

Economists do not understand how the market system works. Every interested non-economist gets this intuitively by reading one of the popular textbooks: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley, 2006, p. 17)

Because of this, every thinking economist finds himself by default in the heterodox camp. But here only one obvious fact is agreed upon, the rest is blank “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)

Construction, though, never happened. What we have is an incoherent multitude of individual approaches. Heterodoxy never rose above naive empirical/historical/partial/ sociological commonsense analysis and never formulated anything in the way of a general theory of how the monetary economy works.

Asad Zaman poses the all-decisive question ‘What is the core of Heterodoxy?’ and he gives tentative answers. Asad Zaman is right, Heterodoxy is at the cross-roads and has to define itself and its future.

Therefore, it is of utmost importance to distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics scientific standards are observed.

Theoretical economics has to be judged according to the criteria true/false and nothing else. What the fundamental decision between theoretical and political economics implies is well-known since the founding fathers: “Mill had grasped clearly in the Logic the distinction between positive and normative propositions, writing that: ‘a scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision’.” (Whitaker, 1975, p. 1047)

What Mill and all methodologists say is that there is a fundamental difference between politics and science and that, by consequence, both should be kept apart. This separation is analogous to the separation of church and state, or the separation of legislative, judicature, and executive, or the separation of state and economy.

The classicals defined themselves as Political Economists and their task as: “The fundamental problem, therefore, of the social science, is to find the laws according to which any state of society produces the state which succeeds it and takes it place.” (Mill, 2006, p. 912)

Now, this is the definition of sociology and political science but not of economics. The task of economics is to find out how the actual economy works. Economics is not a social science but a system science. The current state of economics is that of a failed science.

The core problem of economics as a science is, of course, that it is traditionally closely entangled with politics. The biggest threat to theoretical economics is that it gets hijacked by those with a political agenda. It does not matter whether this agenda is good or bad in predetermined moral terms. Science is committed to its own criteria or it ceases to be science.

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)

Since the classicals economics has failed to develop the true theory. This means in concrete terms that the economic policy proposals of Walrasians, Keynesians, Marxians, and Austrians have no sound scientific foundation. This is (i) a violation of scientific standards and ethics, and (ii), explains why economic problems cannot, as a rule, be solved but only shifted.

In sum: Zaman’s proposals remain in the sphere of political economics and amount to the replacement of Agenda O by Agenda H. My proposal is to leave the sphere of political economics altogether, to focus on theoretical economics, and to make economics a science.

The proper task of economics is to develop the true theory. Whatever the political goals are, without the true theory economic policy is pointless, i.e. ineffective or even counter-productive. The separation of politics and economics implies that the overarching economic goals are determined in the political sphere according to agreed-upon rules. The economist qua economist is not legitimized to determine the overarching economic goals.

There is neither a political nor a moral justification for an economist to give economic policy advice without sound scientific foundation. Economists owe society the true theory, not less, not more. As long as they do not have the true theory, the political sects of Walrasians, Keynesians, Marxians, Austrians, or Orthodoxy/Heterodoxy better shut up.

At the moment, neither orthodox nor heterodox economists have a core of scientific knowledge they can rely upon. They are loosely held together by political opinion. This is neither an acceptable nor a tenable situation.

Egmont Kakarot-Handtke


References
McCauley, J. L. (2006). Response to "Worrying Trends in EconoPhysics". EconoPhysics Forum, 0601001: 1–26. URL
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund.
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, NY, Melbourne: Cambridge University Press.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge, MA: MIT Press.
Whitaker, J. K. (1975). John Stuart Mill’s Methodology. Chicago Journals, 83(5): 1033–1050. URL

January 24, 2016

The three pillars of English philosophy: Individualism, Darwinism, Political Economics

Comment on ‘David Sloan Wilson on economics and new developments in evolutionary theory’

Blog-Reference

Wilson summarizes “In short, all of the components of economic theory that made Krugman regard evolutionary theory as a ‘sister field’ in 1996 require foundational changes.”

Foundational changes are indeed required in economics (2014). And it is not the first time that the representative economist is inclined to think that —  after copying from Newtonian physics did not work  —  it is a brilliant idea to copy Darwinian/Neo-Darwinian evolution. As a matter of fact, Veblen kicked off heterodox economics with the question “Why is Economics Not an Evolutionary Science?” Not much came from it because Heterodoxy never rose above naive empirical/historical/partial/sociological commonsense analysis and never formulated anything in the way of a general theory of how the monetary economy works.

The first thing to notice is that Wilson does not introduce a new idea into economics or promotes a ‘foundational change’ but firmly remains within the narrow boundaries of age-old English philosophy.

This philosophy consists of three tightly interlocked meme*
(i) Individualism — variation — pluralism — enlightened self-interest — egoism — selfishness — greed —  pursuit of self-defined happiness;
(ii) Evolution — Darwinism — variation — competition — selection/survival (natural/social) — breeding/eugenics — human progress (Übermensch/super-race);
(iii) Political economics — utilitarianism — competition — creative destruction — Invisible Hand — equilibrium/optimum — strong/dominant nation state — commonwealth.

Exemplary interlocks: (iii)/(ii) e.g. Malthus/Darwin; (i)/(ii) e.g. selfish gene/Dawkins; (iii)/(ii) e.g. Keynes as member of the Eugenics Society; (ii)/(iii) e.g. Social Darwinism**; (i)/(ii)/(iii) e.g. Laissez-faire.

Last, but not least: (i)/(iii) yields the job description for neoclassical economists and a guideline for peer review selectors of what to take in and what to keep out of the economics meme-pool: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow, 1994, p. 1)

This program has run against the wall — scientifically and practically. Wall Street as concrete manifestation of neoclassical economics has become the epitome of human alienation/corruption and economic failure. So, methodological individualism is put back into the box of tools and ‘other social categories’ are taken out, viz. multi-cellular organisms, social insect colonies, bee hives, and other biological manifestations of altruism/cooperation.

Krugman is replaced by Kropotkin! What a turn of events! Why the Russian anarchist Kropotkin*** who found out that in Siberia ‘cooperation and mutual aid is the foundation for dealing with the larger struggle for survival’?

Neither the sorta-kinda-maximization-and-equilibrium Krugman nor the evolutionary anarchist Kropotkin is needed, dear evolutionary economists, the gussied up classics Malthus/Darwin will do. Tune individualism a little down and tune cooperation a little up, that’s all. But don’t call evonomics/evolutionary economics a foundational change.

A truly foundational change requires five steps: (i) to throw the obsolete English philosophy out of the window, (ii) to stop copying/invading other sciences, be it physics, biology, anthropology, sociology, psychology, or what not, (iii) to stop dabbling in politics without sound scientific foundation, (iv) to throw out maximization-and-equilibrium, (v) to make economics a science that stands on its own methodological feet and on entirely new axiomatic foundations.

Egmont Kakarot-Handtke


References
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge.  American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL

* Wikipedia
** Wikipedia
*** Wikipedia

January 23, 2016

Time to come up to speed

Comment on UnlearningEcon of Jan 23 on ‘Against anti-economics’

Blog-Reference

Economists do not understand how the market system works (2015). Every interested non-economist with a modicum of scientific instinct or background in the genuine sciences gets this after reading one of the popular textbooks: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley, 2006, p. 17)*

Because of this, every thinking economist finds himself by default in the heterodox camp. But here only one obvious fact is agreed upon, the rest is blank “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)

Construction never happened. Since Veblen kicked off heterodox economics with the question “Why is Economics Not an Evolutionary Science?” Heterodoxy never rose above naive empirical/historical/partial/sociological commonsense analysis and never formulated anything in the way of a general theory of how the monetary economy works.

So, there is nothing to choose. Economics is a failed science. Heterodoxy offers no hope. For lack of an alternative, Orthodoxy vegetates as a scientific zombie (Quiggin, 2010). There is only one way out “... to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)

UnlearningEcon concludes “I think this is a sad state of affairs.” What she/he overlooks is that this applies as well to Heterodoxy. Critique of the secular stagnation of Orthodoxy is justified but not enough; in the longer run it even becomes self-defeating “... we may say that ... the omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend, 2004, p. 72)

What is common to Orthodoxy and Heterodoxy is “a failure of reason to find suitable alternatives.” Because all are agreed “that the point of the criticism is to clear the ground for construction” traditional Heterodoxy has now to get on its feet and become constructive Heterodoxy.

Egmont Kakarot-Handtke


References
Feyerabend, P. K. (2004). Problems of Empiricism. Cambridge: Cambridge University Press.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
McCauley, J. L. (2006). Response to "Worrying Trends in EconoPhysics". EconoPhysics Forum, 0601001: 1–26. URL
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, NY, Melbourne: Cambridge University Press.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, NJ, Oxford: Princeton University Press.

* See also ‘How the intelligent non-economist can refute every economist hands down

Preceding 'Agenda pushing or science?'


***

REPLY  Nonentity modeling, comment on sam on Jan 25

You correctly argue that “...this doesn’t imply that equilibrium itself is a good modeling assumption.”

Equilibrium does not exist in the economy. It is a nonentity like the Easter Bunny. By consequence nonequilibrium does not exist either.

Because of this, equilibrium cannot be put into the premises of a theory/model. This is not a question of modeling strategy. It is a methodological blunder of the worst sort to take a nonentity into the axiom set.

This, though, is exactly, was Krugman does, that is, “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”.

All theories/models that are based on maximization-and-equilibrium are false and forever unacceptable. Not to realize this is scientific incompetence.


***

REPLY Senseless model bricolage, comment on Luis Enrique of Jan 26

You say economists have “many models, which use equilibrium solution concepts, ... ‘disequilibrium processes’ are also done.”

This, indeed, is the very problem because neither equilibrium nor disequilibrium exists in the economy. So, what economists are in effect doing is what the genuine scientist Feynman called cargo cult science which is roughly defined as: The outer form looks like science, but it is not science, and it does not work.

The middle-of-the-road economist is like an engineer who is constructing the next perpetual motion machine. The more intelligent economists realized this, of course, “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)

Economists are doing all sort of things, except science (2013).


References
Clower, R. W. (1994). Economics as an Inductive Science. Southern Economic Journal, 60(4): 805–814.
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL

January 21, 2016

Full methodological illiteracy

Comment on Asad Zaman on ‘Axiomatic economics — the Bourbaki-Debreu delusion’

Blog-Reference

Asad Zaman interprets the history of science thus: “The scientific method arose as a rejection of the axiomatic method used by the Greeks for scientific methodology. It was this rejection of axiomatics and logical certainty in favour of empirical and observational approach which led to dramatic progress in science.”

Zaman’s understanding of methodology is substandard, to say the least. It is a widely known fact that modern physics is unthinkable without the prior move from Euclidean to non-Euclidean axioms. The following quotes speak for themselves and they say exactly the opposite of Zaman.

“This seemingly pre-established harmony between the mathematics and the subsequent physics has been a cause for puzzlement among historians and philosophers of science. One example of such a coincidence is the relationship between the mathematics of Hilbert space and the formulation of Quantum Mechanics. Another very good example is the development of Riemannian Geometry prior to the emergence of GTR. It was as if Gauss, Riemann, Ricci and Levi-Civita had Einstein in mind when constructing their non-Euclidean geometries.” (Zahar, 1980, p. 4)

“A complete system of theoretical physics consists of concepts and basic laws to interrelate those concepts and of consequences to be derived by logical deduction. It is these consequences to which our particular experiences are to correspond, and it is the logical derivation of them which in a purely theoretical work occupies by far the greater part of the book. This is really exactly analogous to Euclidean geometry, except that in the latter the basic laws are called ‘axioms’; and, further, that in this field there is no question of the consequences having to correspond with any experiences. But if we conceive Euclidean geometry as the science of the possibilities of the relative placing of actual rigid bodies and accordingly interpret it as a physical science, and do not abstract from its original empirical content, the logical parallelism of geometry and theoretical physics is complete.” (Einstein, 1934, pp. 164-165)

“Some day, when physics is complete and we know all the laws, we may be able to start with some axioms, and no doubt somebody will figure out a particular way of doing it so that everything else can be deduced.” (Feynman, 1992, p. 50)

For anyone who can read, this does not sound like a ‘rejection of axiomatics’ by cutting-edge physics. Neither did Einstein ever reject ‘the axiomatic method used by the Greeks’. Just the contrary!

“Experience can of course guide us in our choice of serviceable mathematical concepts; it cannot possibly be the source from which they are derived; experience of course remains the sole criterion of the serviceability of a mathematical construction for physics, but the truly creative principle resides in mathematics. In a certain sense, therefore, I hold it to be true that pure thought is competent to comprehend the real, as the ancients dreamed.” (Einstein, 1934, p. 167)

For ancients read ancient Greeks, the inventors of science and the axiomatic-deductive method: “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. (Aristotle, Posterior Analytics).

With Zaman’s methodology, Heterodoxy will not produce any scientific knowledge of anything.

Egmont Kakarot-Handtke


References
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Zahar, E. (1980). Einstein, Meyerson and the Role of Mathematics in Physical Discovery. The British Journal for the Philosophy of Science, 31(1): 1–43. URL

Related 'Axiomatics — the heterodox bugbear' and 'Bagehot’s wisdom and the silliness of modern economists' and 'Economists’ slapstick methodology' and 'Lousy scientists'

***

REPLY Heterodoxy methodology — back to the future, comment on Bruce Wilder on Jan 22

You propose “to grant broad assent to Alan Kirman.” Since Kirman gives a condensed version of the well-researched history of General Equilibrium Theory (Ingrao et al., 1990) there cannot be anything other than assent.

The point is, what are the conclusions of the demise of GET? Basically we have two:
(i) Paradigm shift: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)
(ii) To abandon the axiomatic-deductive method because “It was this rejection of axiomatics and logical certainty in favor of empirical and observational approach which led to dramatic progress in science.” (Zaman)

It should be clear to everyone by now that there is no such thing as a choice or trade-off between logical and material consistency. Science requires always both “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

Since the axiomatic-deductive method guarantees logical consistency it cannot be abandoned. But alone it is insufficient. The results of axiomatic-deductive operations must be observable (=material consistency).

By the way, has Zaman ever heard that the concept of Atom goes back to the ancient Greeks and does he think that they derived it from observation? Or does he think that Plank saw a Quantum under the microscope? Galileo did not figure out the Law of the Falling Bodies empirically by jumping off the tower of Pisa but by first studying Euclid.

Zaman’s naive realism/empiricism is not a tenable methodological position. It is outdated since more than 2500 years.*

Conclusion: The demise of GET (and by consequence RBC, DSGE etc) makes a paradigm shift, i.e. a replacement of the axiomatic foundations of economic theory, necessary. That is the proper task of Heterodoxy.


References
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.

* See ‘Bagehot’s wisdom and the silliness of modern economists

***

REPLY Comment on Silwyson of Jan 27

You comment on my post: “You have glossed over an important part of your Einstein quote: “experience of course remains the sole criterion of the serviceability of a mathematical construction ...”

Be sure that I have chosen this quote exactly because Einstein clarifies here in one brief statement the relationship between empiricism and formalism.

For more details about the correct understanding of methodology see ‘How to restart economics

***

REPLY Comment on Silwyson of Jan 30

You say “Economists do not understand science.” Yes, indeed, but this includes Zaman and you. You cite Aristotle and Galileo, so let us look closely into the matter.

Roughly speaking, Aristotle put the Law of Motion thus: every body moves to his natural place of rest. Then he took a stone and threw it skywards. The stone came down some meters away. Never in the history of mankind had a law better been empirically tested and confirmed without exception.

Against this, Galileo said, roughly, every body moves in a straight line until eternity. An empirical proof could not be given until space flight was possible.

Nevertheless, this counter-intuitive assertion reappears as the first axiom of motion in Newton’s Principia. (Axiomata Sive Leges Motus, Wikipedia)

And this is what Galileo told naive empiricists and commonsensers and brain-dead realists about the essence of science: “I shall never be able to express strongly enough my admiration for the greatness of mind of these men who conceived this [heliocentric] hypothesis and held it to be true. In violent opposition to the evidence of their own senses and by sheer force of intellect, they preferred what reason told them to that which sense experience plainly showed them ... I repeat, there is no limit to my astonishment when I reflect how Aristarchus and Copernicus were able to let conquer sense, and in defiance of sense make reason the mistress of their belief.” (quoted in Popper, 1994, p. 84)


References
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality., chapter Science: Problems, Aims, Responsibilities, pages 82–111. London, New York, NY: Routledge.

Economists’ slapstick methodology

Comment on Lars Syll on ‘Axiomatics — the economics fetish’

Blog-Reference and Blog-Reference

When the promoters of the so-called social sciences, which have produced not much of real scientific value in the last 2500 years, wreck their brains about the methodology of the genuine sciences, which started with the simple Law of the Lever and arrived in the meantime at the field equations of mass-space-time, the situation instantaneously becomes comical.

Heterodox economists in particular cannot see how axiomatics could help in the development of economic theory. They simply do not want to start research with some abstract axioms but with concrete facts. What they miss is the difference between the development and the representation of a theory.

Of course, Newton did not first write down a set of axioms and then started to think about gravitation. But after he had figured out the Law of Gravitation (by thinking about falling bodies under the apple tree, as folklore has it) he demonstrated in his Principia how this Law could be logically derived from the elementary axioms of motion just like the Pythagorean theorem had been derived from Euclid’s axioms.

“... it was ... [this] quality that struck readers of the Principia. At the head of Book I stand the famous Axioms, or the Laws of motion: … For readers of that day, it was this deductive, mathematical aspect that was the great achievement.” (Truesdell, quoted in Schmiechen, 2009, p. 213)

In his statements about methodology “... Newton had insisted on the certainty of an approach founded on rigorous method.” (Westfall, 2008, p. 346)

In view of Newton’s overwhelming success, this message was well received in the so-called social sciences: “Like most of his fellow moral philosophers, Hume thought it was worth a try to make all sciences as rigorous as Newtonian physics ...” (Redman, 1997, p. 111)

Eventually the message hit economics: “His [Adam Smith’s] method is always the method of Newton, which we have already seen applied to psychology and morals: to attain, by generalization, certain simple truths, from which it will be possible to reconstruct, synthetically, the world of experience.” (Halévy, 1960, p. 100)

Basically, this idea is sound. In fact it is identical with Einstein’s methodology.

“The basic concepts and laws which are not logically further reducible constitute the indispensable and not rationally deducible part of the theory. It can scarcely be denied that the supreme goal of all theory is to make the irreducible basic elements as simple and as few as possible without having to surrender the adequate representation of a single datum of experience.” (1934, p. 165)

What Einstein describes here is nothing else than what in mathematics is called axiomatization. To recall, Einstein cooperated with Hilbert who was the towering figure of axiomatics at that time and instrumental in the formulation of the field equations. Modern physics is unthinkable without the prior move from Euclidean to non-Euclidean axioms.

No physicist would ever think of axiomatics as a fetish. Every time he uses a piece of mathematics the physicist indirectly benefits from axiomatics without thinking or talking much about it. Axiomatics is only a more formal expression for the physicists idea of the formulation of a unified theory.

“Some day, when physics is complete and we know all the laws, we may be able to start with some axioms, and no doubt somebody will figure out a particular way of doing it so that everything else can be deduced.” (Feynman, 1992, p. 50)

Thus, axiomatics has always been, in a direct or indirect way, the physicists great helper. In marked contrast, economists since Adam Smith messed things up. In our days, Orthodoxy got the axiomatic foundations of general equilibrium theory wrong and Heterodoxy has none at all. This methodological slapstick performance produced a heap of incoherent, contradictory, inconsistent models with no counterpart whatsoever in the real world.

Clearly, Walrasianism, Keynesianism, Marxianism, and Austrianism have to give way to an axiomatically unified economic theory — the sooner, the better.

Egmont Kakarot-Handtke


References
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Halévy, E. (1960). The Growth of Philosophic Radicalism. Boston, MA: Beacon Press.
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, MA, London: MIT Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition. URL
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.

Immediately preceding 'Axiomatics — the heterodox bugbear'


***

REPLY  The universe and the goldfish bowl, on Jan 22

On Geoff Davis
Einstein worked 10 years on the field equations, which describe — roughly speaking — the universe, and you argue “On the other hand, sometimes a rough back of the envelope calculation is all the mathematics you need to check whether your hypothesis compares well with observations or not.”

Of course, if you want to describe the goldfish bowl the back of the envelope is all you need. Your argument is a bit silly. Why don’t you tell the guys who are working hard on string theory that you can do it on an envelope and without the Schrödinger equation?

The most important thing is to be clear about the subject matter. Economics is about how the (world-) economy works, it is not about the mom-and-pop store which every half-baked consultant can easily overlook and model with a spreadsheet.

What we are talking about here is Debreu’s axiomatization of General Equilibrium which is a Walrasian total model and not a Marshallian partial (goldfish bowl) model.

By the way, with every back-of-the-envelope calculation you benefit indirectly from the axiomatization of algebra and geometry. But this is usually beyond the bowl-horizon of engineers and hobby economists.

On Asad Zaman
You argue rather confused:
(i) “The scientific method arose as a rejection of the axiomatic method used by the Greeks for scientific methodology.”*
(ii) “Human behavior cannot be axiomatized.” (preceding post)

While (ii) is correct (i) is provable false; see my refutation on the parallel thread.**

From (ii) follows that the DSGE approach has to be abandoned because it is based on a behavioral axiom. 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.” Constrained optimization is a behavioral axiom (=starting point) of DSGE and as such methodologically inadmissible.***

From the fact that Orthodoxy badly messed up axiomatization does not follow that (i) the axiomatic-deductive method has been abandoned in the genuine sciences, and (ii) that the method is a priori inapplicable in economics.

What instead follows is that the neo-Walrasian axioms have to be replaced “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)

There is only one way for Heterodoxy to beat Orthodoxy and this is a paradigm shift, i.e. the replacement of orthodox axioms by heterodox axioms. To denounce the axiomatic-deductive method as fetish is a sure indicator of scientific incompetence. The fact of the matter is that the axiomatic-deductive method is Heterodoxy’s most powerful tool — if applied properly for the formulation of ‘a completely new research program and conceptual approach’.

The current state of economics is this: Orthodoxy got the axiomatic foundations wrong and Heterodoxy has none at all. Anyone surprised that economics is a failed science? Anyone aware that economic policy proposals have no sound scientific foundation? And with orthodox and heterodox economists who have at best a commonsensical goldfish-bowl-modl of how the economy works, is anyone surprised that economic problems cannot be solved but only worsend or shifted?


References
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.

* Lars P Syll Blog
** ‘Full methodological illiteracy
*** ‘Lars Syll creatively destructs Wren-Lewis


***

REPLY  The methodology of confused agenda pushers, comment on Geoff Davies of Jan 23

You mix up two issues that are related but need to be kept apart in order to get out of the morass between true/false where blathering is rife.

With regard to precision it is well-known that there are different degrees of precision in different walks of life, e.g. theoretical physics and engineering, therefore “... the following maxim holds for all sciences: Never aim at more precision than is required by the problem at hand. (Popper, quoted in Redman, 1993, p. 105)

This settles the matter because in a monetary economy we have a natural precision of two decimal places. This translates into the rule to express every economic statement about the nominal sphere in rational numbers.  This in turn is sufficient to debunk Debreu’s approach which presupposes the real number space: “Unfortunately, we are stuck with the need to justify the use of irrational numbers such as square-root2, pi or e as economically meaningful prices and/or quantities.” (Nadal, 2004, p. 36)

In rather general terms we can agree that the use of irrational numbers is what Keynes called mock precision. On the other hand, one should not be content with a precision of less than two decimal places for nominal relationships.

Precision indeed relates to to question of axiomatization because Debreu’s axioms are defined in the rational number space, but the precision of concepts like income or profit is something different from numerical precision. The crucial point is that from vague premises any conclusion and the opposite can be derived and this is a senseless exercise: “Meanwhile, the best safeguard against overestimation of the range of applicability of economic propositions is a careful spelling out of the premises on which they rest. Precision and rigor in the statement of premises and proofs can be expected to have a sobering effect on our beliefs about the reach of the propositions we have developed.” (Hutchison, 1960, p. xxiii)

To repeat: numerical precision and ‘precision and rigor in the statement of premises’ are related but fundamentally different things.

The difference between political economists (=agenda pushers) and theoretical economists (=scientists) is that the former plead for ‘better vaguely right than precisely wrong’ and the latter plead for ‘better precisely right than vaguely wrong’. After all, political economists want to make their case here and now and are not so much interested in epistemic truth. Economics since Adam Smith is political economics and political economics is scientifically worthless.

It becomes a bit boring to reiterate that there is a difference between mathematics and physics or any other science. It is well-known among methodologists that “Formal axiomatic systems must be interpreted in some domain ... to become an empirical science.” (Boylan et al., 1995, p. 198)

And, lo and behold, this is what genuine scientists always have done with overwhelming success “It is clear that the system of concepts of axiomatic geometry alone cannot make any assertions as to the relations of real objects of this kind, which we will call practically-rigid bodies. To be able to make such assertions, geometry must be stripped of its merely logical-formal character by the co-ordination of real objects of experience with the empty conceptual framework of axiomatic geometry. To accomplish this, we need only add the proposition: — Solid bodies are related, with respect to their possible dispositions, as are bodies in Euclidean geometry of three dimensions. Then the propositions of Euclid contain affirmations as to the relations of practically-rigid bodies.” (Einstein, 1921)

The scientific incompetence of economists consists in taking the nonentities ‘maximization-and-equilibrium’ (Krugman) as axioms which are not by any stretch of the imagination related to anything in the real world. It should be pretty obvious to Zaman and you* that the axiomatic-deductive method works only if the premises are “certain, true, and primary” (Aristotle), otherwise garbage-in-garbage-out. In more concrete terms: from the ‘maximization-and-equilibrium’ garbage follows the DSGE garbage, and this is not the fault of the axiomatic-deductive method.


References
Boylan, T. A., and O’Gorman, P. F. (1995). Beyond Rhetoric and Realism in Economics. Towards a Reformulation of Economic Methodology. London: Routledge.
Einstein, A. (1921). Geometry and Experience. Website. URL
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York, NY: Kelley.
Nadal, A. (2004). Behind the Building Blocks. Commodities and Individuals in General Equilibrium Theory. In F. Ackerman, and A. Nadal (Eds.), The Flawed Foundations of General Equilibrium, pages 33–47. London, New York, NY: Routledge.
Redman, D. A. (1993). Economics and the Philosophy of Science. New York, NY, Oxford: Oxford University Press.

* For more refutation go to my blog and enter Zaman in the search-field


***

REPLY Can’t get out behind the curve?, comment on larrymotuz of Jan 25

You say: “The ‘truth’ content of axioms cannot be proven.” WOW, YES, this is exactly what axiom means and this should be known to every economist since more than 200 years: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.” (Mill, 2006, p. 746)

And here you have it in a nutshell: both Orthodoxy and Heterodoxy have failed at the opus magnum. That is the core of the whole methodological mess.

The fact that axioms need something like empirical proof has not escaped genuine scientists (which excludes economists) “This indicates that any attempt logically to derive the basic concepts and laws of mechanics from the ultimate data of experience is doomed to failure. If then it is the case that the axiomatic basis of theoretical physics cannot be an inference from experience, but must be free invention, have we any hope that we shall find the correct way?” (Einstein, 1934, pp. 166-167)

To your knowledge, genuine scientists (which excludes economists) have found the correct way and it has been clearly defined as scientific methodology: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

It seems that Zaman, Davies, Motuz and all the other hobby economists/retired engineers simply cannot get their heads around the most elementary methodological concept or even to look it up in Wikipedia: “An axiom or postulate as defined in classic philosophy, is a statement that is so evident or well-established, that it is accepted without controversy or question. Thus, the axiom can be used as the premise or starting point for further reasoning or arguments .... The word comes from the Greek axíōma ‘that which is thought worthy or fit’ or ‘that which commends itself as evident.’

The fact of the matter is that since more than 200 years economic axioms are not worthy or fit. And this is why economics is a failed science.


References
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund. URL


***

REPLY  Deep in the methodological woods, comments

(i) On Geoff Davies of Jan 26

This thread is about axiomatics. You say ‘Numerical precision is very context-dependent, so it’s pointless making general statements.’ This is (i) trivially true and (ii) far beside the point, which is conceptual precision/consistency of foundational propositions of theories and not the numerical precision of empirical estimations.

(ii) On Paul Schächterle of Jan 26

As a rule, the proof of axioms is in the deductively derived conclusions. If what the theory says should be the case is actually the case, then the axioms are indirectly corroborated. If not, they are refuted qua modus tollens. “Whether an axiom is or is not valid can be ascertained either through direct experimentation or by verification through the result of observations, or, if such a thing is impossible, the correctness of the axiom can be judged through the indirect method of verifying the laws which proceed from the axiom by observation or experimentation. (If the axiom is deemed to be incorrect it must be modified or instead a correct axiom must be found.) (Morishima, 1984, p. 53)

All this is well-known since Newton: “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.” (quoted in Westfall, 2008, p. 642)

For more proof of Zaman’s and your insufficient understanding of axiomatics see: ‘Full methodological illiteracy

(iii) Methodological junk since Jevons/Walras/Menger

The axioms (= premises = starting point = foundational propositions) of standard economics, that is, “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point” (Krugman), are pure methodological junk, yet Heterodoxy has not managed since more than 140 years to replace them. The methodological incompetence of both orthodox and heterodox economists is abysmal. For details see ‘Are economists natural born scientific failures?’ and ‘Economics as fool’s paradise


References
Morishima, M. (1984). The Good and Bad Use of Mathematics. In P. Wiles, and G. Routh (Eds.), Economics in Disarry, pages 51–73. Oxford: Blackwell.
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.

Concluding post see 'Economists and methodology: the horror of all horrors'