Blog-Reference and Blog-Reference on Nov 8
“If we can single out one person as the father of modern economics, it would have to be Paul Samuelson. His Economics: An Introductory Analysis ... became the best selling textbook in history.”#1
Samuelson laid the foundations of what developed into DSGE, which represents the momentary mainstream. Lucas, the public face of DSGE, fondly remembered that “he was bewitched by the beauty and power of Samuelson’s Foundations of Economic Analysis.” We know by now that DSGE in all its variants is an abysmal failure. The actual state is that there is no such thing as economics that fits the scientific criteria of material and formal consistency.
The point is that Samuelson messed up economics back in 1948 but his intellectual children did not realize it to this very day, to say nothing about rectification.
Initially, things moved in the right direction: “As an undergraduate in the 1930s, Samuelson saw the economics he studied as a disparate collection of ad hoc explanations. ... What the discipline needed, he believed, was a set of unifying, fundamental principles, like those Euclid had provided for geometry and Newton for physics.” (see #1)
Samuelson realized clearly that the enormously productive and successful physics/ mathematics of the first part of the century were driven by the idea of first principles/ultimate reality/axiomatization, with Einstein and Hilbert as key figures.
“When we assemble the facts of a definite, more-or-less comprehensive field of knowledge, we soon notice that these facts are capable of being ordered. This ordering always comes about with the help of a certain framework of concepts ... The framework of concepts is nothing other than the theory of the field of knowledge. ... If we consider a particular theory more closely, we always see that a few distinguished propositions of the field of knowledge underlie the construction of the framework of concepts, and these propositions then suffice by themselves for the construction, in accordance with logical principles, of the entire framework.” (Hilbert)
No doubt, Samuelson’s basic idea was right. Economics was ripe for axiomatization and unification. But then he went off to make economics what Feynman called a cargo cult science, that is, he copied the outer form from wildly successful physics/mathematics without ever grasping the methodological essentials.
And this is what we have today. There is Orthodoxy with ― behavioral ― microfoundations and it has been nicely defined by Krugman: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”#2
Methodologically, these premises are forever unacceptable.#3 One tends to think that some smart person would, for example, soon have realized that it is inadmissible to take equilibrium into the premises. This is what is known since antiquity as petitio principii. Yet, it did not happen.
Next, there is Keynesianism with ― structural/systemic ― macrofoundations.#4
These formal foundations are conceptually and logically defective because Keynes never came to grips with profit. Methodologically, Keynes’ hardcore premises are forever unacceptable.
In Samuelson’s synthesis, the defective Walrasian microfoundations and the defective Keynesian macrofoundations were cobbled together. Samuelson’s textbook consisted of two well-balanced halves: micro and macro. Needless to emphasize that both halves did not logically fit together.
Science is committed to material and formal consistency. Samuelson’s textbook had ― with a probability close to 1 ― the lowermost scientific content of all textbooks ever written. Supply-demand-equilibrium will forever stand out as the silliest model in the history of sciences.
The fact of the matter is: the micro axioms are inconsistent, the macro axioms are inconsistent, and the synthesis of the two sets is by consequence also inconsistent. No hardcore wherever one looks.
By implication, economic policy guidance NEVER had sound theoretical foundations. Whatever economists in general or Samuelson, in particular, have argued for or against the market economy has NO scientific content at all. Whatever one hears from the right side or the left side about how the economy works is not more than unfounded political blather.
Contemporary economics in its orthodox and heterodox variants is the epitome of a collective aberration that started with the father of modern economics 70+ years ago and is still going on. Scientifically rather untalented, Samuelson’s professional offspring never figured out the methodological hardcore of economics.#5 To this day, economics in its actual realization as Walrasianism, Keynesianism, Marxianism, Austrianism is a heap of proto-scientific garbage.
#1 See ‘Euclidean economics’, Kelvin Rowley profiles the leading figure in postwar economics, Paul Samuelson
#2 More detailed, the starting point is given with these hardcore 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)
#3 For details and proofs see blog and working papers
#4 Keynes started the macrofoundations research program in the General Theory formally as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.”
#5 The solution consists of new macrofoundations. For the correct axiomatic hardcore see From Orthodoxy to Heterodoxy to Sysdoxy.
Related 'Economists: Standing on the Shoulders of Gnomes' and 'How to overcome the manifest silliness of Econ 101 and save the economy' and 'Refuting MMT’s new Macroeconomics Textbook' and 'To this day, economists have produced NOT ONE textbook that satisfies scientific standards' and 'The miracle cure of economists’ micro-macro schizo' and 'MMT and the canonical macroeconomic model'. For details of the big picture see cross-references Scientific Incompetence and cross-references Failed/Fake Scientists.