April 19, 2016

Marginalism is the landmark of scientific incompetence

Comment on ‘Limits of marginal productivity theory’

Blog-Reference

You conclude: “It could be that marginal product theory — just like simple-minded talk of incentives — is as much ideology as science.”

It could also be that it is merely the usual brainless waffling economists’ are widely known for.

Standard economics is built upon this set of hard core propositions, a.k.a. axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to  equilibrium states.” (Weintraub, 1985, p. 147)

Marginalism follows logically from the green cheese behavioral assumption of constrained optimization HC2. What can be said with certainty is that the whole set of Walrasian axioms is methodologically inadmissible. By implication, standard marginalistic distribution theory falls flat.

It is of utmost importance to realize that the concept of marginal productivity is dead. So it is a welfare-diminishing waste of time to mention, to criticize, and to discuss it.

The root defect of the familiar distribution theories is that the representative economist cannot even tell the difference between income and profit (2012; 2014). This is not exactly a noteworthy achievement.

Marginal distribution theory is the widely visible landmark of economists’ scientific incompetence. The elimination of the misery demands a paradigm shift from microfoundations as embodied in HC1/HC5 to macrofoundations.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2012). Income Distribution, Profit, and Real Shares. SSRN Working Paper Series, 2012793: 1–13. URL
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
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

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COMMENT 'The zero productivity of economists' on Apr 20

All feathers are subject to the Law of Gravitation, but the trajectory of a flying feather on a windy day is a random walk with a downward bias. The underlying law is totally obscured by historical accident. The very characteristic of a scientist is to abstract from unique historical accident while the dilettante is inextricably glued to it. Every economist could know this from J. S. Mill.

“Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the social science, while we look at the facts in the concrete, clothed in all the complexity with which nature has surrounded them, and endeavour to elicit a general law by a process of induction from a comparison of details; there remains no other method than the à priori one, or that of ‘abstract speculation.’” (1874, V.55)

To tackle the problem of distribution by looking at a concrete case of wage setting at Aston Villa is a fine example for the methodological blunder that is rampant in economics. This nuisance comes under the general heading of methodological individualism.

“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 research program has abysmally failed. The scientific productivity of economists has been consistently zero since Jevons/Walras/Menger. How does it come that their wages have been greater zero? In economics, to be sure, there is no relationship between performance and reward at all.

Economics is not a science but an employment program for wannabe scientists. Keynes once proposed “to fill old bottles with banknotes, bury them at suitable depths in disused coalmines” and then “to dig the notes up again”. This is pretty much the same thing as discussing the marginal productivity theory over and over again. To make economics a science first of all requires to bury economists “at suitable depths in disused coalmines.”

Methodological individualism is finished. Marginalism is finished. For the correct distribution theory see (2014).

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). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741 1–23. 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

Immediately following 'The solemn burial of marginalism'.