March 21, 2017

New economic thinking = old political fake

Comment on Douglass Carmichael on ‘The Mechanical Turn in Economics and Its Consequences’


“With Adam Smith, and hints before in Ricardo and others, economics took the path of treating the economy as a natural object that should not be interfered with by the state. This fit the Newtonian ethos of the age: science was great, science was mathematics; science was true, right and good.” (See intro)

This is as brain dead a summary as can be. First of all, Newton’s philosophy was NOT mechanical at all, just the opposite: “According to one widely held viewpoint in the history of ideas, eighteenth-century thought was dominated by the concept of the ‘Newtonian world-machine.’ God had been assigned the role of master clockmaker who designed a universe so perfect that it could run indefinitely without any need for divine tinkering. Closer inspection of Newton’s own writings shows that he was actually quite firmly opposed to this concept which had been popularized by earlier writers such as Robert Boyle. Newton’s objections were both physical and moral: he pointed to the existence of irreversible processes tending to dissipate motion and gravitational perturbations that seemed to threaten the stability of the solar system, and he warned that restricting God to the creation and design of the world while denying His continual supervision was a step on the road to atheism.” (Brush, 1976, p. 605)

The problem of the philosophical/political/moral wafflers of Adam Smith’s time was that after Newton’s Principia they were no longer taken seriously but had to repackage their loose verbal reasoning as science: “Like most of his fellow moral philosophers, Hume thought it was worth a try to make all sciences as rigorous as Newtonian physics.” (Redman, 1997, p. 111)

Adam Smith, though, correctly recognized that the last thing the general public wants is science: “But he had no such ambitions; in fact he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along. (Schumpeter, 1994, p. 185)

Adam Smith was a storyteller and soap box economist and the founder of what Feynman called cargo cult science or what we today call fake science. The classical economists presented themselves as an advanced (= scientific) version of Alchemists and goldmakers: “That Political Economy is a science which teaches, or professes to teach, in what manner a nation may be made rich. This notion of what constitutes the science, is in some degree countenanced by the title and arrangement which Adam Smith gave to his invaluable work. A systematic treatise on Political Economy, he chose to call an Inquiry into the Nature and Causes of the Wealth of Nations; and the topics are introduced in an order suitable to that view of the purpose of his book.” (Mill, 1874, V.7)

The classical economists had many faults but it was NONE of their faults that they had a mechanical world view. Their worst fault was that they were NOT scientists but political agenda pushers. Instead of eternal bliss, as their pre-enlightment predecessors did, they promissed material wealth here and now.

The difference between the classics and the neoclassics is that the latter replaced the sociological concept of class by 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)

Economics was NEVER mechanical but always psychological/sociological/political: “The foundation of political economy and, in general, of every social science, is evidently psychology. A day will come when we shall be able to deduce the laws of social science from the principles of psychology …” (Pareto, 2014, p. 20)

Economists NEVER understood what science is all about. The most annoying trait of the run-of-the-mill economist is that he dabbles in sociology, psychology, political science, social philosophy, history, theology, ethics, pedagogy, anthropology, biology, Darwinism/evolution theory, etcetera but has NO idea what profit is. The visible result of manifest scientific incompetence over 200+ years is that the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL got the pivotal concept of the subject matter, i.e. profit, wrong.

Economists do NOT understand until this day how the price and profit mechanism works. They are like engineers who constantly assert that their aircraft is the best and all passengers realize maximal wellness but who have NO idea about the laws of aerodynamics and thermodynamics, i.e. the OBJECTIVE conditions of flight.

What economists as agenda pushers and incompetent scientists never realized is that economics is NOT a social science but a system science and that there is no such thing as a behavioral/social/historical law but that there are systemic laws and that it is their very task to figure these out.

Economists have not figured out how the price and profit mechanism works because they were too much occupied with blathering and agenda pushing. NO economic policy advice EVER had a sound scientific foundation.

Economics needs a paradigm shift. There can be no doubt about this. But to sell Douglass Carmichael’s repackaging of old political economics as new thinking is a bad joke.

Egmont Kakarot-Handtke

Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Brush, S. G. (1976). Irreversibility and Indeterminism: Fourier to Heisenberg. Journal of the History of Ideas, 37(4): 603–630. 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
Pareto, V. (2014). Manual of Policical Economy. Oxford: Oxford University Press. URL
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, MA, London: MIT Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.