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'


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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.