December 12, 2021
How Adam Smith messed up economics
Comment on Ken Zimmerman on 'Adam Smith’s idea is still the basis of the discipline of economics'
The history of economic thought is the history of scientific failure. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, and materially/formally inconsistent. Because of this, the whole analytical superstructure of economics is scientifically worthless. Because of this, economic policy guidance NEVER has had sound scientific foundations.
Now, the problem is this: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)
Because economists do not have the true theory, economics boils down to brain-dead agenda-pushing. Economists are not scientists but clowns, useful idiots, and agenda pushers in the political Circus Maximus. Economics is proto-scientific garbage and because of their scientific incompetence, economists are a hazard to their fellow citizens.#1
The mental misery can be traced back to Adam Smith: “Smith … 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)
Or, as Ken Zimmerman spins it: “The real start of modern Western economics as a discipline is usually traced to Adam Smith (1723–1790). Beginning as a moral philosopher concerned with human motives, Smith later wrote The Wealth of Nations in 1776 as a series of lectures on public policy. The task he set for himself was that of a natural scientist, to discover the workings of a vast machine ― the economy. From this philosophical foundation, Smith builds a powerful argument that the individual’s self-interest generates the society’s best interests. Beginning with a rational individual motivated by positive natural impulses, he undertakes a series of dramatic political attacks on monopolists, corrupt governments, tariffs promoted by strong business lobbyists, guilds, colonialists, and ‘the capricious ambitions of kings and ministers’ (1937, 460). Though based on self-interest, a well-working economy, he said, should not cater to the selfish interests of a small class or group. Instead, it furthers the wealth of the nation as a whole ― and it is not a great step from here to the idea of democracy, of rule ‘of, by, and for’ the people of the nation.”
“Beginning with a rational individual”, Adam Smith inaugurated methodological individualism and led the profession straight into the Fallacy of Composition. The fact of the matter is, that NO way leads from the second-guessing of Human Nature/motives/behavior/action to the understanding of how the economic system works.
What Adam Smith did was a mixture of psychology and sociology ― PsySoc for short#2 ― including moralizing and agenda-pushing but NOT economics proper. Economics is about the behavior of the economic system and NOT the behavior of people. Adam Smith never understood the behavior of the system as a whole, i.e. “the workings of a vast machine”, and he never understood macroeconomic profit.#3 The supply-demand-equilibrium narrative that culminated in General Equilibrium Theory is a bad joke to this day. An economist who does not understand profit, i.e. the foundational concept of economics, is a laughing stock.
However, the economy is an abstract entity that defies intuitive understanding, and human behavior is something every moron claims to understand from his own personal experience. As a consequence, Adam Smith's blather about the baker and the butcher and their rational self-interest won the popular vote. The beauty of PsySoc is that one can speculate and talk and moralize about human nature/behavior without ever arriving at scientific knowledge about how the economic system works. People do not like science, people like storytelling and talk shows.
In his scientific incompetence, Adam Smith took the wrong path. He led economics away from science and helped it finally become a subcontractor of the disinfotainment industry.#4
To this day, economics has no scientific truth-value#5 but only political use-value. Politically, Smith's invisible-hand economics forwarded the illusion of Democracy and the reality of Oligarchy. And this is why “Adam Smith's idea is still the basis of the discipline of economics”.
#4 Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion
REPLY to mameerop, Dec 13 [not published because of comments closed]
Economics has a long tradition of the pointless exercise called exegesis: “Exegesis is a critical explanation or interpretation of a text. Traditionally, the term was used primarily for work with religious texts, especially the Bible. In modern usage, exegesis can involve critical interpretations of virtually any text, …”#1, #2
At some point in any economic discussion, the issue is no longer how the economy works but about what XYZ has said about how the economy works. In other words, folks get lost in metacommunication.
This is NOT an accident but a built-in feature of political economics.
“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)
In other words, the reader is encouraged to substitute almost any meaning he likes. The result is well-known. Keynes' loose verbal reasoning triggered an enthusiastic exegesis movement that circled for some decades around the question ‘What Keynes really meant?’ Predictably, the question has never been answered. The richness of meaning only generated a wealth of blah blah.
The same holds, of course, for Adam Smith's Invisible Hand.
Take notice that every text that contains this metaphor has NO scientific content but is pure disinformation and that every author who applies this metaphor is NOT a scientist but a mentally retarded political agenda-pusher.
Adam Smith has to be buried at the Flat-Earth-Cemetery together with all folks who ever tried to ‘explain’ what Smith ‘really’ meant.
Economics is a failed/fake science and needs a Paradigm Shift. This means that Adam Smith's idea is NO LONGER the “basis of the discipline of economics”.
#2 For more about exegesis see AXECquery