Key Issues: Various Delusions

Were we seriously, by a single phrase, to attempt to characterize the modern age, — the age of Keynes, Samuelson, Hicks, Arrow, Debreu, and so on — we should call it the age of delusion, because it seems to involve nothing so much as a generalized delusion that sheer analytical technique might somehow permit us to resolve most of our problems. (Clower and Howitt, 1997, p. 31)

All too often, researchers, referees, and editors fail to ask these scientific questions. Instead, they ask the same questions that jugglers' audiences ask — Have virtuosity and skill been demonstrated? Was something difficult done? Often, these questions can be answered favorably even where no substantive contribution is being made. It is much easier to demonstrate technical virtuosity than to make a contribution to knowledge. (Summers, 1991, p. 146)

***

Methodology:

It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. (Arrow, 1994, p. 1)

Acceptance, though, is more an insistent autosuggestion.

But just as in the past, the economists' claim of ‘doing science’ hardly convinced their contemporaries outside of a very limited circle of followers. (Benetti und Cartelier, 1997, p. 204)

Equilibrium:

Whatever the source of the concept [equilibrium] the notion that a social system moved by independent actions in pursuit of different values is consistent with a final coherent state of balance, and one in which outcomes may be quite different from those intended by the agents, is surely the most important intellectual contribution that economic thought has made to the general understanding of social processes. (Arrow and Hahn, 1991, p. 1)

Economic equilibrium, though, is a NONENTITY like absolute space, epicycles, or the perpetual motion machine.

If economists find it difficult to free themselves from the commitment to equilibrium explanations, the reason is not really hard to understand. When it comes to explaining change, there are few more appealing stratagems than reducing change to stasis. The commitment to equilibrium explanation is metaphysically if not empirically as well grounded in economics as it is in physics or biology. The trouble is that the appeal to equilibrium is not well-founded in economic data the way it is in evolutionary or mechanical dynamics. (Rosenberg, 2001, p. 180)

But there is something scandalous in the spectacle of so many people refining the analysis of economic states which they give no reason to suppose will ever, or have ever, come about. (Hahn, 1984, p. 88)

Behavioral axioms:

In particular, it is supposed, in the main, that there is perfect competition and that the choices of economic agents can be deduced from certain axioms of rationality. (Arrow and Hahn, 1991, p. v)

I would identify the crucial moment at which we committed ourselves to this rather futile path as coinciding with the appearance of the Theory of Value. (Kirman, 2006, p. 247)

The [neo-Walrasian] program is organized around the following hard-core propositions:
HC1. There exist economic agents.
HC2. Agents have preferences over outcomes.
HC3. Agents independently optimize subject to constraints.
HC4. Choices are made in interrelated markets.
HC5. Agents have full relevant knowledge.
HC6. Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub, 1985, p. 109)

One remarkable feat in the foregoing, apart from the untenable behavioral assumptions, is to put equilibrium into the premises and to nourish the self-delusion that this petitio principii contributes to the general understanding of social processes. (Imagine a physicist demanding that all cosmic phenomena must be discussed with reference to an equilibrium state of the universe — no Big Bang, no slow-motion explosion of the universe, no Hubble constant.)

Another failed attempt to axiomatize:

Three fundamental economic axioms underlie any economy, regardless of environment and institutions, whether it be present-day America, Europe, Communist countries, or tribal organizations. These are truths that cannot be repealed by governments, and they cannot be ignored with impunity. ... These axioms of economics are:
a) Pursuit of Self-interest
b) Imputation of Values
c) Time-discount
(Piquet, 1978, p. 21)

In fact, the attempts to axiomatize human behavior can be traced back to Hutcheson, Hume's and Smith's celebrated teacher:

In the first equation, Hutcheson equates the “moral Importance of any Character, or the Quantity of publick Good produc'd by him” with the “compound Ratio of his Benevolence and Ability”. With the use of the variables
M=the moral impact of the agent's action on the public,
B=the benevolence of the agent, and
A=the ability of the agent,
Hutcheson obtains Axiom 1: M=BxA. (Redman, 1997, p. 116)

Behavioral axiomatization is deeply ingrained in economics; that is to say, with the Scottish School's focus on the "mysteries in the mind of man" economics started off on the wrong foot. Rather, it is the "mysteries of the economic system" that economists have to resolve.

Throughout its history, the idea of some "Fundamental Assumption", some basic "Economic Principle" about human conduct, from which much or most of economics can ultimately be deduced, has been deeply rooted in the procedure of economic theory. Some such notion is still, in many quarters, dominant at the present time. For example, it has recently been stated that the task of economics is "to display the structure and working of the economic cosmos as an outgrowth of the maximum principle.” (Hutchison, 1937, p. 636)

No way leads from some principle about human conduct to the understanding of the working of the economic cosmos. The proof is in the current state of conventional economics.

***

A mistake often made is to improvidently mingle axiom (logical/mathematical sphere) and law (physical sphere), or what Aristotle called, causa formalis and causa efficiens. The locus classicus of outright confusion is Jevons:

The science of Economics, however, is in some degree peculiar, owing to the fact ... that its ultimate laws are known to us immediately by intuition, or, at any rate, they are furnished to us ready made by other mental or physical sciences. That every person will choose the greater apparent good; that human wants are more or less quickly satiated; that prolonged labor becomes more and more painful; are a few of the simple inductions on which we can proceed to reason deductively with great confidence. From these axioms we can deduce the laws of supply and demand, the laws of that difficult conception, value, and all the intricate results of commerce, so far as data are available. (Jevons, 1911, p. 18)

For Evans economists, even mathematical economists like Jevons, Walras, and most certainly Marshall, were on the wrong track and had little useful to contribute if they believed in the analysis of value or utility. (Weintraub, 2002, p. 61)

***

The intellectual heirs are even farther on the wrong track.

Premises:

... a commodity is a good or a service completely specified physically, temporally, and spatially. ... It is also assumed that the quantity of any one of them can be any real number. (Debreu, 1959, p. 32)

The real-number assumption makes sense only with regard to the intended proof of existence, not with regard to the quantities actually bought and sold in any real-world market. The chosen mathematical tool requires distorting reality (see Nadal, 2004, p. 36). Hence, its application cannot be justified in theoretical economics. To shape reality in order to make a tool applicable is more than a delusion; it is a blatant methodological blunder (for details, see Toolism! A Critique of Econophysics URL and Objective Principles of Economics URL).

In any case, I cannot see any role for real numbers in quantitative economics and, hence, none whatsoever for real analysis and the proof techniques allied to it. (Velupillai, 2005, p. 867)

Mathematics:

The mathematical language used to formulate a theory is usually taken for granted. However, it should be recognized that most of mathematics used in physics was developed to meet the theoretical needs of physics. ... The moral is that the symbolic calculus employed by a scientific theory should be tailored to the theory, not the other way round. (Wittgenstein, quoted in Schmiechen, 2009, p. 368)

Economists habitually borrow prefabricated mathematics and tailor the theory. Debreu is a case in point. This wrong sequence makes mathematics ineffective.

Mathematics is not really of much fundamental use in a science unless that science is able to constitute its basic concepts with “exact axioms” and precise numerical results. (Weintraub, 2002, p. 26)

Root structure:

But this [establishing the analytic mother-structure] required one very crucial maneuver that was nowhere stated explicitly: namely, that the model of Walrasian general equilibrium was the root structure from which all further work in economics would eventuate. (Weintraub, 2002, p. 121)

This, unfortunately, was the wrong answer to Mill's key question:

What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy. (Mill, 2006, p. 746)

Neither Orthodoxy nor Heterodoxy has hitherto provided an acceptable set of hardcore propositions, a.k.a. root structure, a.k.a. Set of Axioms. This set cannot possibly be subjective-behavioral. While it is true that axiomatization is indispensable, it is equally true that a behavioral assumption cannot take the role of an economic axiom. Heterodoxy has not got the first point, Orthodoxy not the second. Economic axioms deal only with economic magnitudes. Neither utility, equilibrium, force, nor ergodicity, for example, are proper economic concepts and are therefore unfit to make an appearance in a set of economic axioms.

Formal axiomatic systems must be interpreted in some domain ... to become an empirical science. (Boylan and O'Gorman, 1995, p. 198)

It is of some importance to keep the domains apart at the axiomatic level, in particular, economics and psychology.

***

To think that the formal basis of standard economics is sound has been part and parcel of the widespread self-delusion among economists. Without correct conceptual foundations, though, the most powerful analytical technique cannot achieve much. The criteria of science are formal and material consistency. Legacy economics does not satisfy these criteria. Some economists even entertain the methodological delusion that there is something to choose:

Is it better to start deductively from axioms or inductively from facts? When the time comes to choose between internal consistency and consistency with observations, which side should we take? (Blinder, 1987, p. 135)

No side at all! Again, it is both formal and material consistency. This synthesis is still outstanding. Conventional economics is many things to many people, but not science to scientists.


References
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Arrow, K. J., and Hahn, F. H. (1991). General Competitive Analysis. Amsterdam, New York, etc.: North-Holland.
Benetti, C., and Cartelier, J. (1997). Economics as an Exact Science: the Persistence of a Badly Shared Conviction. In A. d’Autume, and J. Cartelier (Eds.), Is Economics Becoming a Hard Science?, 204–219. Cheltenham, Brookfield: Edward Elgar.

Boylan, T. A., and O’Gorman, P. F. (1995). Beyond Rhetoric and Realism in Economics. Towards a Reformulation of Economic Methodology. London: Routledge.
Blinder, A. S. (1987). Keynes, Lucas, and Scientific Progress. American Economic Review, 77(2): 130–136. URL
Clower, R. W., and Howitt, P. (1997). Foundations of Economics. In A. d’Autume, and J. Cartelier (Eds.), Is Economics Becoming a Hard Science?, 17–34. Cheltenham, Brookfield: Edward Elgar.
Debreu, G. (1959). Theory of Value. An Axiomatic Analysis of Economic Equilibrium. New Haven, London: Yale University Press.
Hahn, F. H. (1984). Equilibrium and Macroeconomics. Cambridge: MIT Press.
Jevons, W. S. (1911). The Theory of Political Economy. London, Bombay, etc.: Macmillan, 4th edition.
Kirman, A. (2006). Demand Theory and General Equilibrium: From Explanation to Introspection, a Journey down the Wrong Road. In P. Mirowski and D.W. Hands (Eds.), Agreement on Demand: Consumer Theory in the Twentieth Century, 246–280. Durham, London: Duke University Press.
Hutchison, T. W. (1937). Expectation and Rational Conduct. Zeitschrift für Nationalökonomie / Journal of Economics, 8(5): 636–653. URL
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Nadal, A. (2004). Behind the Building Blocks. Commodities and Individuals in General Equilibrium Theory. In F. Ackerman and A. Nadal (Eds.), The Flawed Foundations of General Equilibrium, 33–47. London, New York: Routledge.
Piquet, H. S. (1978). The Economic Axioms. Their Bearings on Inflation, Interest Rates, and Unemployment. New York: Vantage.
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, London: MIT Press.
Rosenberg, A. (2001). The Metaphysics of Microeconomics. In U. Mäki (Ed.), The Economic World View. Studies in the Ontology of Economics, 174–188. Cambridge: Cambridge University Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition.
Summers, L. H. (1991). The Scientific Illusion in Empirical Macroeconomics. Scandinavian Journal of Economics, 93(2): 129–148. URL
Velupillai, K. (2005). The Unreasonable Ineffectiveness of Mathematics in Economics. Cambridge Journal of Economics, 29: 849–872.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.

© 2013 EKH, except original quotes

Key Issues: Sloppiness, multi-senseism, storytelling ― thriving in the thickness of confusion

... economics is a big omnibus which contains many passengers of incommensurable interests and abilities. (Schumpeter, 1994, p. 827)

***

... he [Adam 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, 1994, p. 185)

But though the Wealth of Nations contained no really novel ideas and though it cannot rank with Newton's Principia or Darwin's Origin as an intellectual achievement, it is a great performance all the same .... (Schumpeter, 1994, p. 185)

With Adam Smith, economics had a clumsy start and, despite great performances of whatever sort, fell further back over the long haul in comparison to physics and biology.

***

A good principles of economics teacher is a good storyteller. (Colander, 1995, p. 169)

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)

What a tricky business this all is! In his Treatise on Money, Mr. Keynes told the world that savings and investment are only equal in conditions of equilibrium; that an excess of investment over saving means rising prices, and vice versa. In his General Theory, he told us that saving and investment are always equal, and that this is a mere identity or truism, without significance for the determination of prices. As far as I can make out, there are relevant and important senses in which all these statements are each of them right and each of them wrong. (Hicks, 1939, p. 184)

This is the articulate methodological commitment to inconclusiveness that, on a deeper level, unites economists of all camps: "... there are relevant and important senses in which all these statements are each of them right and each of them wrong. " Many senses make no sense at all. However, empirical and logical inconclusiveness quite effectively secured the ecological niche of Political Economy as a separate science. Demarcation does not work in the "thickness of confusion" (Suppes, 1968, p. 654).

Contradictory statements are reconciled routinely by relating them to one of the following distinctions: short run/long run, ex ante/ex post, identity/equality. Inconclusiveness helps passably against outright refutation. With regard to empirical testing, the commitment to inconclusiveness implies the — self-defeating — assertion that in economics no experimentum crucis is feasible. All questions that cannot possibly be decided by experiment are out of science in the first place.

... you cannot prove a vague theory wrong. (Feynman, 1992, p. 158)

With enough fog emitted, almost anything becomes possible. (Mirowski, 2013, p. 344)

... nothing is clear and everything is possible. (Keynes, 1973, p. 292)

You can define anything you want, but as a sage once said,  “A rose by any other name will smell as sweet!” (P. Davidson, RWER-Blog, July 2, 2013)

For, on principle, we may call things what we please. (Schumpeter, 1994, p. 598)

This is a tough question to adjudicate on scientific grounds since the issue is largely definitional and, as Lewis Carroll pointed out, everyone is entitled to his own definitions. (Blinder, 1987, p. 131)

Let us mean by current income the value of current output, ... (Keynes, 1933, p. 699)

... twentieth-century neoclassical theory resembles nothing so much as the child's game of Mr. Potatohead – the fun comes in mixing and matching components with little or no concern for the coherence of the final profile. (Mirowski, 1995, p. 294)

Trying to pin down the essential ideas is sometimes difficult because neoclassical economics always seems to be a moving target. (Boland, 1992, p. 213)

Since everybody is indeed free to define whatever appears to be appropriate, it seems that a definition could not pose any real problem. This, indeed, is not true because the full freedom of definition holds but for the first definition. The subsequent definitions must be consistent with their predecessors. This continuously restricts the freedom of definition. It is by no means the case that anything can be defined as desired. This is a methodological illusion that is rather widespread among economists. It explains, for the most part, the discipline's state of manifest confusion. A consistent and agreed-upon framework of concepts is indispensable. Keynes's aforementioned determination of income, for example, invalidates the General Theory and all its legitimate and illegitimate offshoots (IS–LM, AD–AS) in one sentence (see Keynes's Missing Axioms URL or Why Post Keynesianism is Not Yet a Science URL).

***

We know from the history of science that entrenched classificatory schemes and misleading descriptive vocabularies have impeded scientific advance as much or more than the complexities and observational inaccessibility of the subject matter. (Rosenberg, 1980, p. 114)

As was standard with Marshall, the narrative told one story, the mathematics another. (Mirowski, 1995, p. 299)

Is it not a fact, which stares at us from the histories of all sciences, that it is much more difficult for the human mind to forge the most elementary conceptual schemes than it is to elaborate the most complicated superstructure when those elements are well in hand? (Schumpeter, 1994, p. 602)

The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts. (Schmiechen, 2009, p. 344)

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)

Thus, economics is apparently the study of the economy, the study of the coordination process, the study of the effects of scarcity, the science of choice, and the study of human behavior. One possible conclusion to draw from this lack of agreement is that the definition of economics does not really matter. (Backhouse and Medema, 2009, p. 221)

The truth is, most persons, not excepting professional economists, are satisfied with very hazy notions. (Fisher, quoted in Mirowski, 1995, p. 86)

I think it is the lack of quite sharply defined concepts that the main difficulty lies, and not in any intrinsic difference between the fields of economics and other sciences. (von Neumann, quoted in Mirowski, 2002, p. 146 fn. 49)

Precision and rigor in the statement of premises and proofs can be expected to have a sobering effect on our beliefs about the reach of the propositions we have developed. (Hutchison, 1960, p. xxiii)

There has been no rigor and precision in the definition of income and profit for more than two centuries. The reach of conventional propositions is zero. That is more than sobering.

***

To be sure, economics may perform a valuable social role without adding any significant understanding to knowledge of the economy – a “good myth,” economically speaking, can work not only in primitive tribal cultures but also in modern societies. ... Indeed, ... the religious function may have been the most important role throughout the history of modern economics since the Enlightenment. (Nelson, 2006, pp. 300-301)

Myth, well told, is still the most convincing way to explain how the world and humankind came to be in their present form. To recall, Zeus was the god of the sky and thunder. He oversaw the universe, assigned the various gods their roles, and was known for his erotic escapades. Zeus was emotional, spontaneous, and had a lot of trouble with other gods, goddesses, and humans. At Prometheus, for example, he was angry for three things: being tricked into making sacrifices, stealing fire for man, and refusing to tell him which of his children would dethrone him. To handle his problems, Zeus regularly fell back on chicanery, force, and violence (for an overview, see Wikipedia URL). Since antiquity, everybody "understands" Zeus, and he easily provokes like/dislike. Purified from all religious connotations, Greek myth is the stuff of psychology, literature, soap operas, blogs, newspapers, and history to this day. Let us call this all-embracing panorama of human motives and actions the gossip model of the world. It affords immediate access to subjective understanding, which, however, is barely distinguishable from a projection. With the gossip model, everything and its opposite can be explained. That makes it both popular and preposterous. Utility maximization is the economist's reduced version of the gossip model. Science started the very day when Greek philosophers threw the gossip model out of the window.

... observed acts of behavior allow an indefinite number of interpretations regarding the plans from which they are assumed to have sprung. (Morgenstern, 1941, p. 381)

Now, at any rate, we have an explanation for why the assumptions of economic theory about individual action have not been improved, corrected, sharpened, specified, or conditioned in ways that would improve the predictive power of the theory. None of these things have been done by economists because they cannot be done. The intentional nature of the fundamental explanatory variables of economic theory prohibits such improvement. (Rosenberg, 1992, p. 149)

***

Economics as a discipline faces the following alternative. If it wants to be accepted as a science, it has to stick to the rules. The rules are quite simple: material and logical consistency. No excuses (complexity, Duhem-Quine, etc.). If economics cannot deliver on principle, it has to join the Geisteswissenschaften/Humanities and try its luck with Verstehen/understanding. Feynman defended the standards in quite certain terms: "You don't like it? Go somewhere else!" Since J. S. Mill spoke — excusatory — of Political Economy as an inexact and separate science, economists attempted to water down the rules and to tergiversate material or logical consistency or both. Lower standards of Verstehen can, by its very nature, not lead to much more than a gossip model of the world. Homo oeconomicus may be replaced by the far more realistic homo socialis; this improvement, though, still remains within the confines of the gossip model and is not sufficient for a better understanding of how the economy works. No behavioral approach, whatever, is adequate. It is not a question of realism; it is a question of methodology. There is no such thing as an inexact and separate science. There is no hiding behind complexity. There is only science and non-science. The Unity of Sciences does not mean unity of science and its look-alikes.

***

The solution consists of replacing behavioral assumptions, both the sloppy and the axiomatized ones, with structural axioms. Structural axiomatization has the accessory advantage of putting off muddleheads, commonsensers, wishwashers, smatterers, storytellers, and all those "whom any discovery that brought quietus to a vexed question would inevitably vex because it would end the fun of arguing around it and about it and over it" (Peirce, 1931, 5.520). Objective/structural/systemic axiomatization strictly excludes the explanation or prediction of human behavior. Hence, there is no empty talk about it.

Filibuster economics may indeed have performed a multitude of useful social roles, but this is of no consequence for its scientific status. Social utility is not a criterion for the assessment of a theory. Sloppiness, incoherent definition, green cheese assumptionism, and self-protecting inconclusiveness are detrimental to the growth of knowledge. Social utility cannot exculpate proto-scientific garbage.

A Supreme Being would have no need for axioms, but they are often found quite useful for mere men. (Strotz, 1953, p. 390)

More specifically: The rigor and objectivity of structural/systemic axiomatization are needed to abandon the endemic sloppiness of economic argument and finally to advance from proto-science to science.


References
Backhouse, R. E., and Medema, S. G. (2009). On the Definition of Economics. Journal of Economic Perspectives, 23(1): 221–233.
Blinder, A. S. (1987). Keynes, Lucas, and Scientific Progress. American Economic Review, 77(2): 130–136. URL
Coates, J. (2007). The Claims of Common Sense. Moore, Wittgenstein, Keynes and the Social Sciences. Cambridge, New York, etc.: Cambridge University Press.
Boland, L. A. (1992). The Principles of Economics. Some Lies My Teacher Told Me. London, New York: Routledge.
Colander, D. (1995). The Stories We Tell: A Reconstruction of AS/AD Analysis. Journal of Economic Perspectives, 9(3): 169–188. URL
Dennis, K. (1982). Economic Theory and the Problem of Translation (I). Journal of Economic Issues, 16(3): 691–712. URL
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hicks, J. R. (1939). Value and Capital. Oxford: Clarendon Press, 2nd edition.
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York: Kelley
Keynes, J. M. (1933). Mr. Robertson on "Saving and Hoarding". Economic Journal, 43(172): 699–712. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.
Mirowski, P. (2013). Never Let a Serious Crisis Go to Waste. London, New York: Verso.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania: Pennsylvania State University Press.
Peirce, C. S. (1931). Collected Papers of Charles Sanders Peirce, volume I. Cambridge: Harvard University Press. URL
Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.
Rosenberg, A. (1992). Economics - Mathematical Politics or Science of Diminishing Returns? Chicago: University of Chicago Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Strotz, R. H. (1953). Cardinal Utility. American Economic Review, 43(2): 384–397. URL
Suppes, P. (1968). The Desirability of Formalization in Science. Journal of Philosophy, 65(20): 651–664.

Related Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist URL


© 2013 EKH, except original quotes

Key Issues: Hilbert-Bourbaki-Mill and von Neumann's monster-structure

... for nothing is farther from the axiomatic method than a static conception of the science. We do not want to lead the reader to think that we claim to have traced out a definitive state of the science. (Bourbaki, 2005, p. 1274)

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 [Fachwerk von Begriffen ] .... 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. ... The procedure of the axiomatic method, as it is expressed here, amounts to a deepening of the foundations of the individual domains of knowledge — a deepening that is necessary for every edifice that one wishes to expand and to build higher while preserving its stability. (Hilbert, 2005, pp. 1107-1109), original emphases

What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy. (Mill, 2006, p. 746)

Could all the phaenomena of nature be deduced from only thre [sic] or four general suppositions there might be great reason to allow those suppositions to be true. (Newton, quoted in Westfall, 2008, p. 642)

I find it quite amazing that it is possible to predict what will happen by mathematics, which is simply following rules which really have nothing to do with what is going on in the original thing. (Feynman, 1992, p. 171)

From the axiomatic point of view, mathematics appears thus as a storehouse of abstract forms — the mathematical structures; and it so happens — without our knowing why — that certain aspects of empirical reality fit themselves into these forms, as if through a kind of preadaptation. (Bourbaki, 2005, p. 1276)

***

However, there also occur structures entirely without application, the so-called monster-structures (Bourbaki, 2005, p. 1275, fn. 9).

From the structural axiomatic point of view, the subjective-behavioral axioms yielded such a formalism without application. Its sole merit was "that of showing the exact bearing of each axiom, by observing what happened if one omitted or changed it."

Bourbaki cannot be made accountable for the conventional monster-structure. The same holds for Hilbert and, of course, Mill.

..., it was the von Neumann perspective that shaped general equilibrium theory ..., and thus reconstituted economic theory. (Weintraub, 2002, p. 78)

As a student of Hilbert and a proponent of axiomatization, von Neumann immediately realized that Walras's mathematics was insufficient:

The so-called "mathematical" economists in the narrower sense — Walras, Pareto, Fisher, Cassel, and hosts of other later ones — especially, have completely failed even to see the task that was before them. Professor Hicks has to be added to this list, which is regrettable because he wrote several years after decisive work had been done — in principle — by J. von Neumann and A. Wald. (Morgenstern, 1941, p. 369)

Von Neumann did not realize, though, that Walras' supply-demand-zero-profit-equilibrium was mistaken in the first place and never represented any feasible economy. It was only Walras's formalism that was eventually repaired. For von Neumann, general equilibrium was first and foremost a mathematical puzzle. To crack the nut, he advocated the fixpoint approach. With explicit disregard of economic content, the axiomatization of Walrasian economics was completed by Debreu and others. This, however, could not change the fact that equilibrium is a NONENTITY. What, in effect, had been solved was an angels-on-the-pinpoint problem. This subsequently became the core competence of standard economics. It is a curious fact that the physicists and mathematicians who came in great numbers with advanced tools to economics to help the indigenous folk (Mirowski, 1995) in effect moved the whole thing deeper into the Walrasian cul-de-sac.

It is difficult to contemplate the evolution of the economic science over the last hundred years without reaching the conclusion that its mathematization was a rather hurried job. (Georgescu-Roegen, 1979, p. 271)

Axiomatization in economics suffers from many misunderstandings (see also Crisis and Methodology: Some Heterodox Misunderstandings URL). This, clearly, is not an argument against the method but against economists.

The method of reasoning by chains of syllogisms is nothing but a transformation mechanism, applicable just as well to one set of premisses as to another; it could not serve therefore to characterize these premisses. (Bourbaki, 2005, pp. 1267-1268)

The deductive method does not prove that the premises are true. The truth of theorems and the truth of premises are entirely different questions. The deductive method guarantees that the conclusions are true if the premises are true.

***

Outside pure mathematics, the usefulness of axiomatization crucially depends on the real-world domain. Not everything is axiomatizable. There is, for example, no such thing as a behavioral axiom. By borrowing from physics and mathematics, the neoclassicals got the essentials wrong from the very beginning.

The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition ... is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions. (Brown, 2011, p. 211)

Jevons' rhetorical question points exactly to the source of neoclassical confusion:

Must not the same inexorable reign of law which is apparent in the motions of brute matter be extended to the subtle feelings of the human heart? (Jevons, quoted in Mirowski, 1995, p. 219 )

Jevons had, with the laws of motion, the archetype of science on his mind:

But it was a second and more important quality that struck readers of the Principia. At the head of Book I stand the famous Axioms, or the Laws of motion … For readers of that day, it was this deductive, mathematical aspect that was the great achievement. (Truesdell, quoted in Schmiechen, 2009, p. 213)

What Jevons did not understand was that the trinity of law, axiom, and behavior does not work because behavior is original, as the scientists of all ages knew well (for details, see Objective Principles of Economics URL). With far-fetched analogies and his shallow scientific understanding, Jevons placed neoclassical economics on poor foundations (for details, see The Logic of Value and the Value of Logic URL), and there it stood, with some formal improvements, until recently.

For an outside observer without prior knowledge of habitual human reactions, behavior appears at first random. This is the point to start with, not introspection. The laws of motion of the human heart are pure kitsch and remain so in the abstract form of the first derivative of a utility function. From the marginal principle follows nothing that could help to understand how the market economy works. To think of human behavior in terms of deterministic laws is an unforgivable analytical blunder. It is the structure that is deterministic (see the Period Core), not the behavior.

***

... if we wish to place economic science upon a solid basis, we must make it completely independent of psychological assumptions and philosophical hypotheses (Slutzky, quoted in Mirowski, 1995, p. 362, see also Hudík, 2011).

This is the defining property of the objective/structural/systemic axiom set.


References
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
Bourbaki, N. (2005). The Architecture of Mathematics. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, Vol. II, 1265–1276. Oxford, New York: Oxford University Press.
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Georgescu-Roegen, N. (1979a). Energy and Economic Myths, chapter Measure, Quality, and Optimum Scale, 271–296. New York, Toronto: Pergamon.
Hilbert, D. (2005). Axiomatic Thought. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, Vol. II, 1107–1115. Oxford, New York: Oxford University Press.
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Vol. 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, Vol. 1. Norderstedt: Books on Demand, 2nd edition.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.

Related Euclid, Newton . For details about the Period Core, which represents a structural law, see The Synthesis of Economic Law, Evolution, and History URL.


© 2013 EKH, except original quotes

***

Twitter/X Jan 13, 2026  Hilbert and Wiener

Twitter/X Jul 23, 2026  Solving Munchausen's Trilemma: Suspended from nothing

Key Issues: NONENTITY ― the emptiness of economic thinking

The discussions among physicists, for example, became enormously productive just by no longer applying concepts like perpetual motion machine or epicycle because these words signify NONENTITIES. It took some time to find this out. The specific difficulty with NONENTITIES is sometimes that they cannot be readily recognized or disproved. It is simple with the Easter Bunny and rather demanding with the concept of absolute space.

Likewise, students of economics can save a wealth of time by immediately stopping to read an article or a book as soon as the concept of equilibrium is introduced.

Equilibrium, or by implication, disequilibrium, is a NONENTITY. Of course, there are some other NONENTITIES in conventional economics, but equilibrium is the most wasteful.

Identifying NONENTITIES is one of the defining activities of science. It took the physicists about eighteen centuries to find out that epicycles are NONENTITIES. As John Stuart Mill put it: "Mankind in all ages have had a strong propensity to conclude that wherever there is a name, there must be a distinguishable separate entity corresponding to the name; ..."

General equilibrium is the economic counterpart of a perpetual motion machine; no real thing could possibly correspond to the name. The scientific content of all variants of equilibrium models is nil — it is superstition wrapped in mathematics. The fact that legacy economics clings to equilibrium does not testify to equilibrium but against legacy economics.

Whether economists get rid of their idiosyncratic NONENTITIES faster than physicists did cannot be said after only two centuries at the proto-scientific stage of development. At times, fundamental changes happen overnight.


© 2013_12 EKH, except original quotes

For more about NONENTITY, see AXECquery.

Key Issues: No go ― issues that have been decided

In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened. (Morgenstern, 1941, pp. 369-370)

 

I was delighted to find in a dictionary the word mumpsismus, which means stubborn persistence in an error after it has been exposed. (Joan Robinson, quoted in Arouh, 1987, p. 395)

It is a thoughtlessness of Heterodoxy to make fun of stubborn persistence because exactly this persistence indicates that the falsification mechanism does not work properly. In any science, this is cause for alarm.

Much of economic theory is based on three questionable assumptions: (1) the world is deterministic; (2) decision makers act as if they know the values of all relevant parameters; and (3) consumers and firms, respectively, act as if they were maximizing utility and profit. (Stigum, 1991, p. 29)

When Phil Anderson first heard about the theory of Rational Expectations in the famous 1987 Santa Fe meeting [of physicists and economists], his befuddled reaction was: You guys really believe that? (Bouchaud, 2009, pp. 7-8), original emphasis

Pure economics has a remarkable way of producing rabbits out of a hat — apparently a priori propositions which apparently refer to reality. (Hicks, 1939, p. 23)

Direct empirical evidence on individual behavior is difficult — some would say impossible — to come by. ... The von Neumann-Morgenstern axioms are routinely violated. It is remarkable how little impact this evidence has had on modern economics. (Blinder, 1987, p. 135)

... a science of political economy would need to have measurable quantities of its conceptual building blocks, and ways of measuring its “results.” (Weintraub, 2002, p. 26)
Political Economy ... presupposes all the physical sciences; it takes for granted all such of the truths of those sciences as are concerned in the production of the objects demanded by the wants of mankind; or at least it takes for granted that the physical part of the process takes place somehow. (Mill, 2004, p. 102)

Indeed, here [with the production function] we find the neoclassical economist dictating the laws of physics to the physicist! (Mirowski, 1995, p. 328)

It is not a question of realism/unrealism but of true/false. Physicists, for example, do not reject unrealistic abstractions and idealizations as long as these do not distort the object of inquiry beyond recognition and there is perfect unanimity that a construct like a perpetual motion machine is impossible in principle and not merely infeasible in practice. General equilibrium is the economic counterpart of a perpetual motion machine. A number of premises contradict known physical laws; hence, they are not unrealistic but inadmissible. General equilibrium is, in the first place, a physical nonentity. That is why physicists are regularly befuddled at their first encounter with conventional economics. They spontaneously recognize green cheese assumptionism and wonder how anyone can take it seriously.

... theories of each ontological level must be consistent with all other theories pertaining to that reality, including those at other levels. Although each theory and mode of theorizing is different, no theory can overturn an acceptable theory at another ontological level. For example, reigning socio-economic principles cannot overturn the known and received laws of biology or physics. ... This meta-theoretical principle ... is required to avoid contradictions within a theoretical structure. (Hodgson, 2001, p. 328)

Neo-classical economics has been falsified. (McCauley, 2006, p. 15)

 ***

Let us mean by current income the value of current output, .... If we define Savings as the excess of income during a period over expenditure on consumption during that period, it follows that Savings are exactly equal to the value of output added to accumulated wealth, i.e. to Investment. (Keynes, 1933, p. 699), original emphasis

Much confusion is dispelled if one notes that the putative equation of the concept of income and the concept of output is the font of most of the theoretical novelty of the General Theory . (Mirowski, 1995, p. 307)

The putative equation has been falsified. (Kakarot-Handtke, 2013)

***

Instead, what uniquely characterizes a scientific approach is a certain epistemology, or way of validating ideas. ... The set of rules for eschewing what is false is the epistemology of science, and it involves applying a series of tests to what anyone may assert to be true. (Eichner, 1983, p. 508)

However, falsification is not always deemed to be sufficient.

The main reason for the considerable acceptance of the [orthodox] approach is that fundamental rule of scientific combat: it takes a theory to beat a theory. No amount of skepticism about the fertility of a theory can deter its use unless the skeptic can point to another route by which the scientific problem ... can be studied successfully. (Stigler, 1983, p. 541)

But until a viable competitor is created, the neoclassical economists will be uninterested in a priori discussion of the realism of assumptions which cannot be independently tested as is the case with the maximization assumption. (Boland, 1992, p. 19)

There is no alternative that is so obviously superior that it would justify everyone abandoning the current orthodoxy. (Hausman, 1992, p. 255)

There is no evidence to suggest that economists abandon degenerating programs in the absence of a progressive alternative. (Weintraub, 1985, p. 148)

There is indeed abundant evidence of intellectual inertia. Moreover, the logic of Stigler's justification is thoroughly flawed: no one is entitled to further promote a falsified solution just because the correct solution has not yet been found by someone else. This can only happen because the falsification mechanism does not work properly, which is characteristic of a proto-science. When the acceptance of Orthodoxy is not justified by solid scientific merits but by pointing out that a better alternative is not available, which may even be the case, something went wrong. When a hypothesis has been falsified, the options are: develop an alternative, help somebody else to develop an alternative, or get out of the way.

Yet most economists neither seek alternative theories nor believe that they can be found. (Hausman, 1992, p. 248)

Measured in terms of innovative performance, most economists lack scientific acumen. To them, it may therefore come as a surprise that the subjective-behavioral approach has been finally beaten, according to Stigler's rule of scientific combat, because its conception of profit is untenable and a superior alternative is in place.

Profit theory has long been regarded as one of the more unsatisfactory branches of economics. ... One reason for this is that economists have not asked the right questions about profit. (Murad, 1953, p. 1)

The structural axiomatic Profit Law replaces orthodox and heterodox profit theories. To discuss Walrasian or Keynesian models as if they had not already been refuted violates scientific standards. At long last, the profit issue has been decided. Only one question remains: how fast can conventional economics get out of the proto-scientific embarrassment? Who gets out first: the students, the teachers, the referees? Much depends on the actual distribution of sagacity/dullness in the respective populations. In the past, it has not been favorable.

***

... suppose they [the economists] did reject all theories that were empirically falsified ... Nothing would be left standing; there would be no economics. (Hands, 2001, p. 404), original emphasis

Actually, there is no economics.

All there is are economists with various personal opinions gathering around various flagpoles. To be sure, there is no fundamental rule of combat and no mumpsismus in science. Yet there is conjecture and refutation and the acceptance of refutation and the development of something better. All the rest is a no-go.

Walrasian as well as Keynesian economics have been falsified. Both are out of science. This defines the zero-point of economic research.

It is not much, but knowing that you know nothing is the beginning of wisdom. (Buiter, 2009)

References
Arouh, A. (1987). The Mumpsismus of Economics and the Role of Time and Uncertainty in the Progress of Economic Knowledge. Journal of Post Keynesian Economics, 9(3): 395–423. URL
Blinder, A. S. (1987). Keynes, Lucas, and Scientific Progress. American Economic Review, 77(2): 130–136. URL
Boland, L. A. (1992). The Principles of Economics. Some Lies My Teacher Told Me. London, New York: Routledge.
Bouchaud, J. P. (2009). The (Unfortunate) Complexity of the Economy. EconoPhysics Forum, 0904.0805: 1–9. URL
Buiter, W. H. (2009). The Unfortunate Uselessness of Most ’State of the Art’ Academic Monetary Economics. Financial Times, March 3rd. URL
Eichner, A. S. (1983). Why Economics Is Not Yet a Science. Journal of Economic Issues, 17(2): 507–520. URL
Hands, D.W. (2001). Reflection without Rules. Economic Methodology and Contemporary Science Theory. Cambridge, New York, etc: Cambridge University Press.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Hicks, J. R. (1939). Value and Capital. Oxford: Clarendon Press, 2nd edition.
Hodgson, G. M. (2001). How Economics Forgot History. The Problem of Historical Specificity in Social Science. London, New York: Routledge.
Kakarot-Handtke, E. (2013). Why Post Keynesianism is Not Yet a Science. Economic Analysis and Policy, 43(1): 97–106. URL
Keynes, J. M. (1933). Mr. Robertson on "Saving and Hoarding". Economic Journal, 43(172): 699–712. URL
McCauley, J. L. (2006). Response to "Worrying Trends in Econophysics". EconoPhysics Forum, 0601001: 1–26. URL
Mill, J. S. (2004). Essays on Some Unsettled Questions of Political Economy, chapter On the Definition of Political Economy; and the Method of Investigation Proper to It., 93–125. Electronic Classic Series PA 18202: Pennsylvania State University. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Murad, A. (1953). Questions for Profit Theory. American Journal of Economics and Sociology, 13(1): 1–14. URL
Stigler, G. J. (1983). The Process and Progress of Economics. Journal of Political Economy, 91(4): 529–545. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.

Related 'Crisis and Methodology, Sec. 4 URL' and 'Why Post Keynesianism is Not Yet a Science URL' and 'The Logic of Value and the Value of Logic, Sec. 1, Entities and Nonentities URL'


© 2013 EKH, except original quotations

Key Issues: Political economics ― at wits' end

Political economics is defined as either not understanding, not accepting, or not living up to the standards of both material and formal consistency. It is the very opposite of theoretical economics.

***

A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. (Haack, 1997, p. 1)

Apologetics may be a laudable objective. Its practical importance is unquestioned. People need to be shown that the institutions of their own society are good, those of others bad. But there is no place for apologetics in science. Scientific economics inquires only into the How and Why, not into the Good or Bad, of what is. From the scientific point of view preoccupation with Good and Bad is worse than useless since it not only fails to illumine anything but keeps the lightbeam of inquiry from being turned in directions where answers to significant questions can be found. (Murad, 1953, p. 2)

However much economists may evoke their purity, they want to change the world. They want to contribute to the solution of urgent practical problems. (Klant, 1988, pp. 112-113)

... homini oeconomici are never trustworthy when they pretend to serve some interests which are not those of themselves. (Bonilla, 2002, p. 357)

Indeed, when pressed, most economic theorists admit that they do economics because it is fun. (Varian, 1997, p. 109)

Problems of means and ends are not solved by romancing about them, or moralizing, in whatever pretty or edifying phrases. Better let them alone, since bad policies are worse than none. (Knight, 1949, p. 1274)

Economists, like other human beings, live under the institutions of a historic society and under the standards of its civilization. They share in its beliefs and values, prejudices and interests, horizons and limitations. They depend for their living, advancement, and recognition on the institutions of the society in which they live, e.g. on universities, research institutes, publishers, press, government, and business establishments. Most of this institutions have other, more important, objectives than the “untrammeled pursuit of truth,” and even those which have this objective are dependent on the rest of society and must make their adjustments and compromises. (Lange, 1946, p. 23)

A science is an integrated body of knowledge, and it is pursued and developed by a group of interacting practitioners called scientists. The validation and extension of that body of knowledge is the intellectual goal of the scientists, although of course the pursuit of that goal in turn serves whatever personal goals – such as prestige, reputation, and income – the scientists seek. (Stigler, 1983, p. 529)

Ironically, economists have entangled themselves in an idiosyncratic version of the Epimenides paradox. From the behavioral axiom that all rational agents promote their self-interest follows that whatever proposal economists make must either be in the self-interest of economists or irrational.

The leading economists, considered as a group, generally gave (and give) the impression of reasonably happy people, well trained for their research, satisfied with their careers, enjoying academic discourse, and well able to cope with their personal problems. (Niehans, 1994, p. 317)

There remains only the vocational problem: where is the integrated body of knowledge that defines science?

***

A paradigmatic specimen:

... when it is a matter of finding the cause of general changes in the price of commodities, and especially the influence on those of credit and the institutions regulating credit, some maintain that cheap and easy credit, in other words, a low rate of interest, will tend to increase the amount of means of payment in circulation and the demand for goods and this will tend to increase the general level of prices; while others maintain the contrary, that cheap credit means the same things as cheaper costs of production and so tends to lower the level of prices, not to raise it; and naturally ... there is no lack of more moderate opinion between the two extremes, eclectics who say that the influence of credit on prices is sometimes in one direction, sometimes in another and is sometimes nil. (Wicksell, quoted in Deane, 1983, p. 8)

In contrast to scientists, the group of interacting practitioners called economists produces much opinion and little knowledge.

***

... a theory is to be preferred which is accepted by an academic community, i.e. which has proved to be most persuasive. (Dow, 1997, p. 79)

By supplanting material and logical consistency with a social criterion, economics deliberately opts out of science. A majority of academics, as such, never was and never will be a truth criterion. This also holds for other social or political criteria. Politicians in particular have no voice in scientific matters; their acceptance/ nonacceptance is a non-issue.

That government activism was doomed to failure was exactly what politicians, central bankers and business leaders of the Thatcher and Reagan periods wanted to hear. (Kaletsky, 2009, p. 154)

But in the introduction to Book IV we read that Political Economy ‘proposes to enrich both the people and the sovereign,’ and it is this definition which expresses both what Smith wanted above everything and what interested his readers more than anything else. (Schumpeter, 1994, p. 186)

It has been well said by M. Say that it is not the province of the Political Economist to advise – he is to tell you how you may become rich, but he is not to advise you to prefer riches to indolence, or indolence to riches. (Ricardo, quoted in Redman, 1997, p. 303)

A scientific observer or reasoner, merely as such, is not an adviser for practice. (Mill, 2006, p. 950)

Marx defined political economy’s task as being “to lay bare the economic laws of motion of modern society.” (Hudson, 2010, p. 12)

Thirty years after Laplace wrote this apotheosis of mechanics, something happened that tended to prove that mechanics has the power over existence as he described it. In 1846 a French astronomer, Urbain Leverrier, at the end of some calculations in which he confronted the astronomical observations of the known planets with the results of an appropriate mechanical system, was led to proclaim that there existed a still unknown planet, which, moreover, must be visible in a certain region of the sky. Direct observation of that region soon confirmed the existence of that planet, now called Neptune. Neptune, therefore, was discovered not by scanning the firmament with telescope, but "at the tip of a pencil." We can very well imagine the dream that this feat must have inspired in all social scientists, especially in economists. It is the dream of being able to predict the location of any share on the firmament of the Stock Exchange Market, whether tomorrow or one year from now, by solving certain equations that govern the motion of that market. Undoubtedly, the essence of that dream must still be nursed in the subconscious of many modern economists. The role of such a hope in the founding of the Cowles Commission is evidenced by several articles in the early volumes of Econometrica. (Georgescu-Roegen, 1979, pp. 319-320)

The performance of economic research programmes is partly dependent on the social hullabaloo. (Klant, 1994, p. 44)

***

In short, it is no longer the reasoning which determines what the conclusion shall be, but it is the conclusion which determines what the reasoning shall be. This is sham reasoning. (Peirce, 1931, 1.57)

A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent. (Haack, 1997, p. 1)

So we really ought to look into theories that don't work, and science that isn't science. (Feynman, 1974, p. 11)

***

One is led to conclude that economics as a scientific discipline is still somewhat hanging in the air. There is no harm in this admission. (Koopmans, 1957, p. 141)

The claim to the scientific nature of economics is prey to suspicion the moment that it fails to be self-evident. (Benetti and Cartelier, 1997, p. 211)

New Economic Thinking is hard to win. (Mirowski, 2013, p. 4)

I think that the discipline is in need of a major overhaul. (Hausman, 1992, p. 263)

Economics as a discipline therefore has a choice: It can retain the neoclassical core of its theory or, alternatively, it can one day become a science. It cannot have it both ways. (Eichner, 1983, p. 518)

Economics today is a discipline that must either die or undergo a paradigm shift ... (Kaletsky, 2009, p. 156)

Changing paradigms is not easy. Too many have invested too much in the wrong models. Like the Ptolemaic attempts to preserve earth-centric views of the universe, there will be heroic efforts to add complexities and refinements to the standard paradigm. The resulting models will be an improvement and policies based on them may do better, but they too are likely to fail. Nothing less than a paradigm shift will do. (Stiglitz, 2010)

Nothing is more difficult than to turn an entire discipline around, asking in effect to jettison its own history over the last 200 years. (Blaug, 1990, p. 205)
In fact, nothing is simpler, as soon as a superior alternative has been developed. Since Newton, physicists have done a lot of paradigm shift while economists spent their time complaining that it is not easy. Yes, it is nowhere easy. Yet, it is the new thinking that is the tough part and economists have not been particularly successful at it.

Few people, and least of all we economists ourselves, are prone to offer us congratulations on our intellectual achievements. Moreover, our performance is, and always was, not only modest but also disorganized. (Schumpeter, 1994, p. 6)

As Joan Robinson put it: Scrap the lot and start again. Both critique and advocacy of conventional economics are pointless exercises.

Paradigm Shift means in practical terms to establish a superior axiomatic basis. Superior relates to material and logical consistency. All social and political criteria are irrelevant.

***

A method of obtaining accurate premises is needed because science can only be true if its premises are true. (Redman, 1997, p. 328)

Political economics starts with subjective-behavioral premises and serves diverse purposes. Behavior logically implies intentionality. By consequence, inquiry turns to second-guessing the intentions of dimly known or assumed agents, e.g., the invisible hand. This kind of knowledge, though, is essentially different from scientific knowledge. Invisible hand explanations quite naturally merge with suggestive speculations about benevolent/malevolent hidden agents or forces. In the final analysis, any talk about market forces is a mixture of storytelling and animism. In marked contrast, theoretical economics starts with objective-structural premises. The sole task of theoretical economics is to explain how the actual economy works. The sole criteria of theory assessment are material and formal consistency.

Political economics is definitely on the wrong side of the line that demarcates science and non-science. To recall, political economists never came to grips with the fundamental economic concepts of income and profit. This is not a basis for making strong assertions about the functioning of the market system. Lacking a correct profit theory, the elaborate corpus of conventional market theory is expendable.

But it is all a matter of chance: in order to solve a difficult problem one needs not only understanding but also luck. (Popper, 1994, p. 99)

Political economists lack both; therefore, the method of obtaining accurate premises eludes them.


References
Benetti, C., and Cartelier, J. (1997). Economics as an Exact Science: the Persistence of a Badly Shared Conviction. In A. d’Autume and J. Cartelier (Eds.), Is Economics Becoming a Hard Science?, 204–219. Cheltenham, Brookfield: Edward Elgar.
Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield: Edward Elgar.
Bonilla, J. P. Z. (2002). Economists: Truth-Seekers or Rent-Seekers? In U. Mäki (Ed.), Facts and Fiction in Economics, 356–375. Cambridge: Cambridge
University Press.
Deane, P. (1983). The Scope and Method of Economic Science. Economic Journal, 93(369): 1–12. URL
Dow, S. C. (1997). Mainstream Economic Methodology. Cambridge Journal of Economics, 21: 73–93.
Eichner, A. S. (1983). Why Economics Is Not Yet a Science. Journal of Economic Issues, 17(2): 507–520. URL
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic Issues, 13(2): 317–328. URL
Feynman, R. P. (1974). Cargo Cult Science. Engineering and Science, 37(7): 10–13. URL or URL
Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Hudson, M. (2010). The Use and Abuse of Mathematical Economics. real-world economics review, (55): 2–22. URL
Kaletsky, A. (2009). Goodbye, Homo Economicus. real-world economics review, 50: 151–156. URL
Klant, J. J. (1988). The Natural Order. In N. de Marchi (Ed.), The Popperian Legacy in Economics, pages 87–117. Cambridge: Cambridge University Press.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Knight, F. H. (1949). Truth and Relevance at Bay. American Economic Review, 39(6): 1273–1276. URL
Koopmans, T. C. (1957). Three Essays on the State of Economic Science. New York, Toronto, London: McGraw-Hill.
Lange, O. (1946). Scope and Method of Economics. Review of Economic Studies, 13(1): 19–32. URL
Mankiw, N. G. (2006). The Macroeconomist as Scientist and Engineer. Journal of Economic Perspectives, 20(4): 29–46. URL
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, Vol. 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Mirowski, P. (2013). Never Let a Serious Crisis Go to Waste. London, New York: Verso.
Murad, A. (1953). Questions for Profit Theory. American Journal of Economics and Sociology, 13(1): 1–14. URL
Niehans, J. (1994). A History of Economic Theory. Baltimore, London: Johns Hopkins University Press.
Peirce, C. S. (1931). Collected Papers of Charles Sanders Peirce, Vol. I. Cambridge: Harvard University Press.
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality, Ch. Science: Problems, Aims, Responsibilities, 82–111. London, New York: Routledge.
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, London: MIT Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Stigler, G. J. (1983). The Process and Progress of Economics. Journal of Political Economy, 91(4): 529–545. URL
Stiglitz, J. (2010a). Needed: A New Economic Paradigm. FT.com. Financial Times. URL
Varian, H. R. (1997). What Use is Economic Theory? In A. d’Autume and J. Cartelier (Eds.), Is Economics Becoming a Hard Science?, 108–119. Cheltenham, Brookfield: Edward Elgar.


Refers to The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment URL, and Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist URL


© 2013_11 EKH, except original quotes

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Graphic AXEC108m

Key Issues: Economic textbooks ― learning without understanding

I often wonder whether other subjects suffer as much from textbook writers. (Hahn, 1980, p. 127)

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We all teach our students about optimization, equilibrium, and market efficiency. (Mankiw, 2006, p. 35)

That is, economists have persisted with a model that is theoretically flawed and systematically contradicted by the empirical evidence. (Kirman, 2010, p. 512)

It may be distasteful for recently trained economists to admit that there is a lot of silly philosophy underlying ordinary neoclassical economics, but I think such is the case. (Boland, 1992, p. 203)

This is the type of economist that 150 years ago Carlyle caricatured as parrots that only knew the words demand and supply. (Beker, 2012, p. 115)

The existing profit literature is riddled with problems and inconsistencies that have troubled every recent observer; one need only consult any standard text to find the self-contradictory smorgasbord that is served up to students of economics to understand the dimensions of the problem. (Obrinsky, 1981, pp. 491-492), for details see Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist URL

To be quite blunt, all existing ‘lessons’ taught in standard economics texts should be either abandoned or tested empirically, but should never be accepted as a basis for modeling. (McCauley, 2006, pp. 6-7)

If we honestly told students that these are the underlying stories behind the analysis, most of them would ask, "Why are you teaching us this? This is not the way the economy works." (Colander, 1995, p. 178), for the correct account see How to get rid of Supply-Demand-Equilibrium URL or The Structural Price Mechanism URL

A story about Adam Smith, the invisible hand, and the merits of markets pervades introductory textbooks, classroom teaching, and contemporary political discourse. The intellectual foundation of this story rests on general equilibrium, not on the latest mathematical excursions. (Ackerman, 2004, p. 21)

The fact that it has not been possible to build a process for the formation of equilibrium prices is disastrous when it is recalled that the fundamental task of theory is precisely to make coordination in the market intelligible. (Benetti and Cartelier, 1997, p. 213), for error correction see The Ideal Economy URL

At long last, it can be said that the history of general equilibrium theory from Walras to Arrow-Debreu has been a journey down a blind alley, and it is historians of economic thought who seem to have finally hammered down the nails in this coffin. (Blaug, 2001, p. 160)

The standard textbook introduces macroeconomic concepts via the national income identity. Thus total production, or gross domestic product (GDP), is defined as the sum of all expenditures on goods and services or, alternatively, as the sum of all incomes paid for the production of goods and services. (Godley and Lavoie, 2007, p. 4), for the correction see The Common Error of Common Sense URL

To this day, the IS-LM model remains the interpretation of Keynes offered in the most widely used intermediate-level macroeconomics textbooks. (Mankiw, 2006, p. 31), for error correction see Why Post-Keynesianism is not Yet a Science URL and Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It URL

This dynamic adjustment story may or may not be true; in its simple form, it is believed by only a few economists. We taught it nonetheless because, given the assumptions, it is a logically consistent story, and for most students, it meets the "Yeah, it makes sense" criterion. (Colander, 1995, pp. 169-170)

Even "dirty pedagogy" should be internally consistent. It can be exceedingly vague, but it should not be logically wrong as the standard AS/AD model is. Teaching the standard inconsistent model discourages students from questioning the workings of the model. That may not bother those students who are interested in getting their grade and getting out of the course. But it decidedly turns off the good students, the ones we all want to encourage. (Colander, 1995, p. 179)

What is sadly lacking from all these articles ... is theory. Indeed, most of the analyses would presumably flunk any macroeconomics principles class. In any case, they would flunk mine. Given that most of the articles were written by notable economists, one wonders what on earth is being taught by the less notable in macro courses. (Wray, 1991, p. 952)

So the textbooks are wrong. (Keen, 2011, p. 19)

What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse. (McCauley, 2006, p. 17)

..., 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, 2002, p. 41)

Standard economics textbooks are explicitly or implicitly based on indefensible behavioral axioms. From Samuelson's 1948 textbook onwards, there has not been one with a correct profit theory.

Rather surprisingly, therefore, the nature of profits remains something of a mystery in contemporary economics; indeed, in the realm of "advanced" theory — namely, the perfectly competitive general equilibrium models — profits have disappeared altogether. This is clearly an unsatisfactory situation. (Obrinsky 1981, p. 491) 

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Standard textbooks, including the neo- and new-variants, reflect and reinforce the stagnation of contemporary economics at the proto-scientific level. Supply-demand-equilibrium is the counterpart of an epicycle. Whether it meets for most students the "Yeah, it makes sense" criterion is a matter of indifference. Whether there has been a thorough peer review, proofreading, and quality control is of secondary importance. The criteria that are ultimately decisive in theoretical economics are material and formal consistency. Economic textbooks miss these primary criteria. The student is, therefore, at some point in his education confronted in earnest with the true/false question. This, not the exam, is the crucial test. Students of economics, teachers, and textbook writers fail in unison to see the task that is before them.

The canonical textbook is still to be written (see Coming soon: the canonical economics textbook). New as of June 2020, Sovereign Economics.


References
Ackerman, F. (2004). Still Dead After All These Years: Interpreting the Failure of General Equilibrium Theory. In F. Ackerman and A. Nadal (Eds.), The Flawed Foundations of General Equilibrium, pages 14–32. London, New York: Routledge.
Beker, V. A. (2012). Rethinking Macroeconomics in the Light of the U.S. Financial Crisis. real-world economics review, 60: 120–138. URL
Benetti, C., and Cartelier, J. (1997). Economics as an Exact Science: the Persistence of a Badly Shared Conviction. In A. d’Autume and J. Cartelier (Eds.), Is Economics Becoming a Hard Science?, 204–219. Cheltenham, Brookfield, VT: Edward Elgar.
Blaug, M. (2001). No History of Ideas, Please, We’re Economists. Journal of Economic Perspectives, 15(1): 145–164.
Boland, L. A. (1992). The Principles of Economics. Some Lies My Teacher Told Me. London, New York: Routledge.
Colander, D. (1995). The Stories We Tell: A Reconstruction of AS/AD Analysis. Journal of Economic Perspectives, 9(3): 169–188. URL
Davidson, P. (2002). Financial Markets, Money, and the Real World. Cheltenham, Northampton: Edward Elgar.
Godley, W., and Lavoie, M. (2007). Monetary Economics. An Integrated Approach to Credit, Money, Income, and Wealth. Houndmills, Basingstoke, New York: Palgrave Macmillan.
Hahn, F. H. (1980). General Equilibrium Theory. Public Interest. Special Issue: The Crisis in Economic Theory, 123–138.
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Kirman, A. (2010). The Economic Crisis is a Crisis for Economic Theory. CESifo Economic Studies, 56(4): 498–535. DOI
Mankiw, N. G. (2006). The Macroeconomist as Scientist and Engineer. Journal of Economic Perspectives, 20(4): 29–46. URL
McCauley, J. L. (2006). Response to "Worrying Trends in Econophysics". EconoPhysics Forum, 0601001: 1–26. URL
Obrinsky, M. (1981). The Profit Prophets. Journal of Post Keynesian Economics, 3(4): 491–502. URL
Wray, L. R. (1991). Saving, Profits, and Speculation in Capitalist Economies. Journal of Economic Issues, 25(4): 951–975. URL

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Related Political Economics and Objective Principles of Economics URL. What, first of all, has to be rewritten is the pivotal chapter of any economic textbook — the chapter that deals with the elementary price mechanism; see The Law of Supply and Demand: Here It Is Finally URL.


© 2013_11 EKH, except original quotes