Blog-Reference and Blog-Reference and Blog-Reference
This is the first rule of scientific research: “… before accepting the conclusions of any economist’s model as applicable to the real world, the careful student should always examine and be prepared to criticize the applicability of the fundamental postulates of the model; for, in the absence of any mistake in logic, the axioms of the model determine its conclusions.” (Davidson)
Hence: “To develop an economic theory applicable to a monetary economy, Keynes suggested rejecting three basic axioms of classical economics.” And: “The rejected axioms are the ergodic axiom, the gross-substitution axiom, and the neutral-money axiom.” (Davidson)
So far, Davidson is methodologically on firm ground. However, rejection is the easy part: “The problem is not just to say that something might be wrong, but to replace it by something ― and that is not so easy.” (Feynman) And here is the snag for Keynesians and Post Keynesian: “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell)
Fact of the matter is that Keynes#1 and the Post Keynesians#2 failed at construction. In technical terms, what has to be done is to fully replace the false Walrasian microfoundations by true macrofoundations. This is what a paradigm shift is all about.
Davidson proposes to take the following propositions as axioms:
- money matters,
- rational calculations regarding the future are impossible,
- money contracts are a human institution developed to efficiently organize time-consuming production and exchange processes,
- unemployment, rather than full employment, is a common laissez-faire situation,
- the future is uncertain (nonergodic) and cannot be reliably predicted.
Paul Davidson does not really understand what science and axiomatization is all about. The statement “the future is uncertain (nonergodic) and cannot be reliably predicted” is trivially true except for the fact that science, to begin with, does not predict the future.#3 When an apple fell on his head Newton did NOT predict when the next apple would fall but he formulated the general law of falling bodies.
In brief, Davidson's nonergodic axiom is not an axiom but an instance of moronic realism. The lethal blunder of Post Keynesians in general and Paul Davidson and Lars Syll in particular consists in the Fallacy of Insufficient Abstraction.
Keynes realized that the core of economics is the 'monetary theory of production'. Accordingly, the macroeconomic axioms have to describe the most elementary configuration of the monetary economy.#4
Imagine Archimedes sitting in the bathtub and trying to solve the problem of the gold content of Hiero’s crown and someone tells him the world is complex, uncertain, and unpredictable. Yes, Archimedes would have said, the only thing that is certain is that you are a moron. Eureka!
What scientists have come to understand is that historical uncertainty is compatible with eternal law/invariance. This holds for physics as well as economics. The problem of orthodox and heterodox economics is that neither approach has figured out how the monetary economy works and this has nothing to do with ergodicity but with stupidity.#5
#1 See ‘Finalizing the Keynesian Revolution’
#2 See ‘Why Post Keynesianism Is Not Yet a Science’
#3 See 'Science does NOT predict the future'
#4 See ‘The problem with macro in two words’
#5 For the bigger picture see cross-references Keynesianism
Related 'First Lecture in New Economic Thinking'