January 25, 2016

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

Comment 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 losely 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