Comment on Asad Zaman on ‘The Keynesian Revolution and the Monetarist Counter-Revolution’
Blog-Reference
Keynes’ lasting scientific contribution relates to methodology. He spoke it out loud, so that every fellow economist could hear it: Throw over the classical axioms and put economics on new foundations: “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)
With the revolutionary shift in mathematics and physics from Euclidean to non-Euclidean axiomatics (Hilbert, Einstein) right before his eyes, Keynes called his fellow economists to arms. “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight — as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (1973, p. 16)
As Asad Zaman puts it: “Keynes followed scientific methodology to create a new theory which rejected all three axioms of CET [Classical Economic Theory], so that Keynesian theory would match the experienced realities of the Great Depression. This is the distinguishing feature of science, that theories are devised and changed in light of experience.” (See intro)
To change a theory means to change the axiomatic foundations. This is what a paradigm shift is all about. Consequently, Keynes formulated the foundational syllogism of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (1973, p. 63)
This elementary two-liner, though, 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, the whole Post-Keynesian theoretical superstructure is false (2011; 2014).
Because Keynes did not get the macrofoundations right the Keynesian Revolution ultimately failed. Just like the Walrasians, Keynes had no idea of the fundamental concepts of economics, viz. profit and income.
In the neoclassical synthesis of Samuelson, Keynes’ new ‘non-Euclidean axioms’ and the old ‘Euclidean axioms’ of marginalism were cobbled together. Textbooks consisted of two well-balanced halves: micro and macro. Needless to emphasize that both halves did not fit together. Economic textbooks are blatantly inconsistent since 1948.
Gradually, the majority of economists fell entirely back to the pre-Keynesian formal foundations of marginalism. As Krugman put it “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
It is pretty obvious to anyone with a modicum of scientific instinct that the axiomatic starting point of the neoclassical paradigm is methodologically unacceptable (2013). By sticking to the obsolete microfoundations Orthodoxy violates scientific standards that hold since the ancient Greeks introduced the axiomatic-deductive methodology.
As Morgenstern reminded economists already back in 1941: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (1941, pp. 369-370)
Orthodox economists will burn in scientific hell because they stick to microfoundations that are false since Jevons/Walras/Menger. Post-Keynesian economists will burn in scientific hell because they stick to macrofoundations that are false since Keynes.
The axiomatic foundations of economics are provably false for more than 140 years. Because of this, economic policy advice of BOTH Walrasians AND Keynesians has no sound scientific foundation (2015).
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. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. Basingstoke: Macmillan.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
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
