April 30, 2016

Society, you have a problem

Comment on Peter Radford on ‘Market Reflex’

Blog-Reference

(i) The claim ‘Free markets work best when left alone’ is either a political or a scientific statement. If it is politic it needs only repetition, if it is scientific it needs proof.

(ii) NO scientific proof of the claim exists. General Equilibrium Theory as the most ambitious attempt is known to be a failure, e.g. (Ackerman et al., 2004).

(iii) The question about the functionality of the market system as a WHOLE cannot be decided in the political sphere with claims and counter-claims. BOTH, pro-market and anti-market ideology is sitcom stuff.

(iv) Economics claims to be a science and science is about proof and proof is about formal AND material consistency. “The chief demerit is inconsistency, ...” (Popper, 1994, p. 160)

(v) The Econ 101 student is taught supply-demand-equilibrium and he accepts this for the rest of his life as a satisfactory explanation — imperfections, stickiness, and distributional bias easily granted as properties of real life — of how the market system works. This has nothing to do with ideology but with flunking an intelligence test.

(vi) The crucial point is that the price mechanism does NOT work as standard economics hallucinates. Economists are PROVABLY wrong with regard to the two most important features of the economy: (1) the profit mechanism, and (2), the price mechanism. This holds for Orthodoxy but also for Heterodoxy.

(vii) The primary fault of economics is not that it is an ideology but that it is a failed science. The Palgrave Dictionary sums up: “A satisfactory theory of profits is still elusive.” (Desai). This means more than 200 years after Adam Smith neither the Walrasian, nor the Keynesian, nor the Marxian, nor the Austrian school can tell the difference between income and profit. Hence, they fail to capture the essence of the market economy. Clearly, when you do not understand profit you cannot understand how the market system works.

(viii) Standard profit theory is PROVABLE false. Therefore, the familiar story of the price mechanism is PROVABLE false. Therefore, the assertion ‘Free markets work best when left alone’ is PROVABLY false (2015).

(ix) Economic policy proposals of ALL schools lack sound scientific foundations.

Society, you have a problem: some feeble-minded poultry entrails readers are telling you how to run the economy.

Egmont Kakarot-Handtke


References
Ackerman, F., and Nadal, A. (Eds.) (2004). Still Dead After All These Years: Interpreting the Failure of General Equilibrium Theory. London, New York, NY: Routledge.
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality., chapter Models, Instruments, and Truth, pages 154–184. London, New York, NY: Routledge.