September 15, 2016

Marshall and the Cambridge school of plain economic gibberish

Comment on Lars Syll on ‘Proper use of math’


“The currently prevailing pattern of economic theorizing exhibits the following three characteristics: (1) a syncopated style of argument fluctuating back and forth between literary and symbolic modes of expression, (2) naive translation, or the loose paraphrasing of formulae into sentences, and (3) loose verbal reasoning for certain aspects of theoretical argumentation where explicit symbolic formulation is lacking.” (Dennis, 1982, p. 698)

As many have noted, current economics in the incarnation of Walrasianism, Keynesianism, Marxianism, Austrianism is not science but gibberish decorated with more or less mathematics. How did we get stuck in this bottomless swamp?

To make the world we live in understandable to ourselves we have not only myth and science but also common sense ― uneasily sitting between the two. John Stuart Mill had no friendly word for common sense: “People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcileable with the theory they held and with a totally different one. It seems strange that such an instance as this, ... , should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.” (2006, p. 783)

The message that common sense is not merely a huge obstacle to science but its very ANTITHESIS got lost on Keynes. Before starting work on the General Theory, he had made up his mind: “In the early thirties he confessed to Roy Harrod that he was ‘returning to an age-long tradition of common sense’.” (Coates, 2007, p. 11)

Now, economics deals not only with individuals and social relations but the economic system as a whole and Keynes had to come to grips with ‘definitions and ideas’. In fact, he did not. He spent an immense amount of his time on Book II ‘and still left his successors in confusion’ (Moggridge, 1976, p. 33).

Being more an agenda pusher than a scientist, Keynes, like Marshall before him, had the ambition to gain the applause of the practical man, the politician, the businessman, and the general public represented by the business journalist ― however, without ever giving up the appearance of a scientist. “By choosing definitions on the ground that they correspond with actual usage Keynes was formulating an ordinary language social science, one that bears a resemblance to those argued for by philosophers of hermeneutics.” (Coates, 2007, p. 90)

Keynes related his definition of income expressly to ‘the practices of the Income Tax Commissioners.’ He was in grave doubt whether ‘it might be better to employ the term windfalls for what I call profits.’ But he was quite sure that ‘saving and investment are, necessarily and by definition, equal ― which after all, is in full harmony with common sense and the common usage of the world.’ (Keynes, quoted in Coates, 2007, pp. 93, 91)

As a result, the opportunistic commonsenser Keynes never arrived at a clear idea of the fundamental economic concepts income and profit, and he knew it: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010, pp. 12-13, 16)

In the discussions following the publication of the General Theory Keynes had ‘no desire’ that the particular forms of his ‘comparatively simple fundamental ideas ... should be crystallized at the present state of the debate’ (cited in Rotheim, 1981,  p. 571). Keynes kept the discussion within the compass of common sense, where ‘nothing is clear and everything is possible’. (1973, p. 292)

Keynes followed the philosophically well-established Cambridge tradition of loose verbal reasoning: “Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. ... Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from ‘the richness of context.’” (Coates, 2007, p. 87)

This spurious freedom of reading into the GT or out of it whatever seemed convenient lead to the vacuous discussion of “what Keynes really meant” and the phenomenon that virtually everybody can call himself a Keynesian. This, though, did not help much: “Looking back over the last 70 years it is an inescapable fact that the theoretical arm of the Keynesian Revolution never got off the ground.” (Rogers, 2010, p. 152)

Like Walrasianism, Keynesianism is a failed approach. But both have still some application as scientific fig leaf in politics which explains their zombiesque survival.

The Cambridge tradition, continual failure notwithstanding, still holds the majority among retarded economists: “For Keynes as for Post Keynesians the guiding motto is ‘it is better to be roughly right than precisely wrong!’” (Davidson, 1984, p. 574). This contrasts with the motto of science “it is better to be precisely right than roughly wrong!”

The methodological debate between rigorous Orthodoxy and loose Heterodoxy quite naturally ended in the cul-de-sac: “Mathematical economics, it seems, had the great virtue of demonstrable irrelevance, which was morally preferable to spurious relevance.” (Porter, 1994, p. 155)

The fact of the matter is that both Orthodoxy and Heterodoxy got the foundational concepts wrong. Without consistent conceptual foundations, though, economics will never get out of the self-made thickness of confusion: “I mean by this that formalization eliminates provincial and inessential features of the way in which a scientific theory has been thought about. ... Formalization is a way of setting off from the forest of implicit assumptions and the surrounding thickness of confusion, the ground that is required for the theory being considered. ... In areas of science where great controversy exists about even the most elementary concepts, the value of such formalization can be substantial.” (Suppes, 1968, pp. 654-655)*

Formalization is indispensable in economics but it presupposes the clarification of the elementary concepts. With vacuous concepts/nonentities formalization degenerates to mathiness. There is nothing to choose between Keynesian loose verbal reasoning and Walrasian mathiness.

Economists of ALL schools have messed up the elementary concepts of profit and income. With Marshall and Keynes as leading spokesmen, the Cambridge school of loose verbal reasoning is an outstanding example of utter scientific incompetence until this day.

Egmont Kakarot-Handtke

Coates, J. (2007). The Claims of Common Sense. Moore, Wittgenstein, Keynes and the Social Sciences. Cambridge, New York, NY, etc.: Cambridge University Press.
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Dennis, K. (1982). Economic Theory and the Problem of Translation (I). Journal of Economic Issues, 16(3): 691–712. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. London, Basingstoke: Macmillan.
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.
Moggridge, D. E. (1976). Keynes. London, Basingstoke: Macmillan.
Porter, T. M. (1994). Rigor and Practicality: Rival Ideals of Quantification in Nineteenth-Century Economics. In P. Mirowski (Ed.), Natural Images in Economic Thought, pages 128–170. Cambridge: Cambridge University Press.
Rogers, C. (2010). The Principle of Effective Demand: The Key to Understanding the General Theory. In R. W. Dimand, R. A. Mundell, and A. Vercelli (Eds.), Keynes’s General Theory after Seventy Years, IEA Conference Volume No. 147, pages 136–156. Houndmills, Basingstoke, New York, NY: Palgrave Macmillan.
Rotheim, R. J. (1981). Keynes’ Monetary Theory of Value (1933). Journal of Post Keynesian Economics, 3(4): 568–585. URL
Suppes, P. (1968). The Desirability of Formalization in Science. Journal of Philosophy, 65(20): 651–664.
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 cross-references Paradigm shift

Related 'Keynesianism: The triumph of blathering over thinking' and 'How Keynes got macro wrong and Allais got it right' and 'Economists and the destructive power of stupidity' and 'Economics ― worse than fake'