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 finally been 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 are 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

***

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)

***

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) 

***

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

***

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

Key Issues: Euclid and economic methodology

We are therefore justified in saying that with Euclid's Elements the causa materialis of geometry underwent a radical transformation; from a more or less amorphous aggregate of propositions it acquired an anatomic structure. Geometry itself emerged as a living organism with its own physiology and teleology, .... And this true mutation represents not only the most valuable contribution of the Greek civilization to human thought but also a momentous landmark in the evolution of mankind comparable only to the discovery of speech or writing. (Georgescu-Roegen, 1966, p. 9)

***

In political economy, Ricardo and James Mill compared the certainty of the propositions they were advancing to the certainty of the propositions of Euclid. (Halévy, 1960, p. 494)

In the definition which we have attempted to frame of the science of Political Economy, we have characterized it as essentially an abstract science, and its method as the method à priori. Such is undoubtedly its character as it has been understood and taught by all its most distinguished teachers. It reasons, and, as we contend, must necessarily reason, from assumptions, not from facts. It is built upon hypotheses, strictly analogous to those which, under the name of definitions, are the foundations of other abstract sciences. (Mill, 2004, p. 110)

To Senior belongs the signal honor of having been the first to make the attempt to state, consciously and explicitly, the postulates that are necessary and sufficient in order to build up … that little analytic apparatus commonly known as economic theory, or to put it differently, to provide for it an axiomatic basis. (Schumpeter, 1994, p. 575)

... the theory here given may be described as the mechanics of utility and self-interest. Oversights may have been committed in tracing out its details, but in its main features this theory must be the true one. Its method is as sure and demonstrative as that of kinematics or statics, nay, almost as self-evident as are the elements of Euclid, when the real meaning of the formulæ is fully seized. (Jevons, 1911, p. 21)

Holbach put it thus: 'Morality is the science of the relations which exist between the minds, wills and actions of men, in the same manner as geometry is the science of the relations that are found between bodies. What is the geometry of ethics? What is the geometry of politics? How are we to reduce these sciences to the same degree of certainty and clarity as physics and geometry?' (Berlin, 2002, pp. 12-13)

 ***

The impression that one could build price theory up from basics in the image of Euclid was much more important than commitment to any particular proposed formalization. (Mirowski, 2004, pp. 348-349)

These economists were implicitly treating microeconomics as a pure axiomatic system, whose terms may or may not be instantiated in the real world, but which is of great interest, like Euclidean geometry, whether or not its objects actually exist. (Rosenberg, 1994, p. 229)

The essence of neoclassical economic theory is its exclusive use of a deductivist Euclidean methodology. A methodology – which Arnsperger & Varoufakis calls the neoclassical meta-axioms of “methodological individualism, methodological instrumentalism and methodological equilibration” – that is more or less imposed as constituting economics, and, usually, without a smack of argument. (Pålsson Syll, 2010, p. 24)

The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight – as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics. (Keynes, 1973, p. 16)

The discipline of economics has so far successfully resisted all efforts to alter its character as an exercise in how to reason deductively from axiomatic principles. That is, it has insisted on remaining the Euclidean geometry of the social sciences. (Eichner, 1979, p. 172)

***

Like mathematics and physics, economics is proud of having an axiomatic foundation, and rightly so. (Helbing, 2013, p. 4)

The core problem is that conventional economics is based on behavioral axioms, and that cannot work. This, clearly, is not a fault of the axiomatic method. Orthodoxy misuses Euclid, and Heterodoxy refuses him for the wrong reasons. Ultimately, this is why conventional economics lacks the 'intellectual miracle of a logical system' (Einstein) with an identifiable counterpart in reality.

It is silly to be proud of behavioral axioms.

***

To Plato’s question, “Granted that there are means of reasoning from premises to conclusions, who has the privilege of choosing the premises?” the correct answer, I presume, is that anyone has this privilege who wishes to exercise it, but that everyone else has the privilege of deciding for himself what significance to attach to the conclusions, ... (Viner, 1963, p. 12)

The criteria are material and logical consistency. Ultimately, these criteria drive out all arbitrariness in the selection and acceptance of axioms. However, ...

... we cannot over-emphasize the fundamental role played in his research by a special intuition, which is not the popular sense-intuition, but rather a kind of direct divination (ahead of all reasoning) ... (Bourbaki, 2005, p. 1272)

Divination is quite different from the green cheese assumptionism of conventional economics. Subjective-behavioral axiomatization is a deterrent example of popular sense-intuition. Conventional economists, though, have been perfectly satisfied with this Euclidean look-alike.


References
Berlin, I. (2002). Freedom and Its Betrayal. London: Chatto Windus.
Bourbaki, N. (2005). The Architecture of Mathematics. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, volume II, pages 1265–1276. Oxford, New York: Oxford University Press.
Eichner, A. S. (1979). A Look Ahead. In A. S. Eichner (Ed.), A Guide to Post-Keynesian Economics, pages 165–184. London, Basingstoke: Macmillan.
Georgescu-Roegen, N. (1966). Analytical Economics, chapter General Conclusions for the Economist, pages 92–129. Cambridge: Harvard University Press.
Halévy, E. (1960). The Growth of Philosophic Radicalism. Boston: Beacon Press.
Helbing, D. (2013). Economics 2.0: The Natural Step towards A Self-Regulating, Participatory Market Society. EconoPhysics Forum, pages 1–29. URL
Jevons, W. S. (1911). The Theory of Political Economy. London, Bombay, etc.: Macmillan, 4th edition.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London: Macmillan.
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., pages 93–125. Electronic Classic Series PA 18202: Pennsylvania State University. URL (1844).
Mirowski, P. (2004). The Effortless Economy of Science?, chapter Smooth Operator: How Marshall’s Demand and Supply Curves Made Neoclassicism Safe for Public Consumption but Unfit for Science. Dunham, London: Duke University Press.
Pålsson Syll, L. (2010). What is (Wrong With) Economic Theory? real-world economics review, (55): 23–57. URL
Rosenberg, A. (1994). What is the Cognitive Status of Economic Theory? In R. E. Backhouse (Ed.), New Directions in Economic Methodology, 216–235.
London, New York: Routledge.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Viner, J. (1963). The Economist in History. American Economic Review, 53(2): 1–22. URL


See also Newton and Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist URL and Objective Principles of Economics URL



The icon above represents the special case of the golden ratio consumption economy with market-clearing and budget balancing. The market-clearing price is, in this case, equal to phi, and the wage rate is equal to phi times the productivity. The three coloured rays from the origin represent the first three structural axioms for the simplest case DN=0. The three angles represent wage rate, price, and productivity. With the real variables employment and productivity given, all other variables are then determined by the golden ratio condition, which can be read off from the segments on the x-axis. This geometrical condition, though, has no specific economic content. Economically, it is one feasible configuration among others. For the general case, see Geometrical Exposition of Structural Axiomatic Economics URL. The relevant aspect of Euclid with regard to economics is methodological and relates to axiomatization and not to geometry. The latter is here applied for the visualization of elementary economic relations.


© 2013_11, 2014_05_27 EKH, except original quotes

Key Issues: Newton and economic methodology

... Newton had insisted on the certainty of an approach founded on rigorous method. (Westfall, 2008, p. 346)

***

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)

But what is important is that the entire topic had become a scandal in the eighteenth century. If scientific method could institute some degree of order in chemistry, in physics, in astrophysics, in astronomy and so forth, why did we have to be plunged into this dreadful chaos of conflicting opinions, with not a thread to guide us? ... so that nobody is able to institute the kind of order which Newton established in the great realm of nature? Naturally enough, men’s wishes began to move towards the delineation of some simple single principle which would guarantee just such order and yield truths of just such an objective, general, lucid, irrefutable kind as had so successfully been obtained concerning the external world. (Berlin, 2002, p. 9)

So impressive were the accomplishments of Newtonian physics that eighteenth-century philosophers, including the founders of political economy, never questioned the suitability of transferring Newton's methods to moral philosophy. After all, as they saw it, philosophy, science, social science, and ethics were all the same kind of activity. (Redman, 1997, p. 109)

His [Adam Smith’s] method is always the method of Newton, which we have already seen applied to psychology and morals: to attain, by generalization, certain simple truths, from which it will be possible to reconstruct, synthetically, the world of experience. (Halévy, 1960, p. 100, 494), see also (Hollander, 1977)

For Edgeworth, to apply mathematical reasoning to the science of political economy is to look to mathematical physics to see how mathematics can aid in the construction of propositions within the science. ... In the land of Newton, and in the century of science, how could it be otherwise? (Weintraub, 2002, p. 30)

Walras’s early reading consolidated his boundless admiration for Newtonian astronomy and the solid edifice of classical mechanics, which he regarded as unequaled models of scientific knowledge throughout his life. (Ingrao and Israel, 1990, p. 88)

Now there is simply no doubt that whatever was the source of inspiration for Jevons, Menger and Walras, all three invoked whatever physics they knew to lend prestige to their theoretical innovations. Unfortunately, with the exception of Jevons, that was the physics of Newton, not the physics of Helmholtz, Joule and Maxwell; Adam Smith, Ricardo, James Mill and McCulloch had been just as eager in earlier days to invoke the name of Newton to legitimise their theoretical claims. (Blaug, 1989, p. 1226)

Today's economics, in fact, comes closer to using Newton's approach than Smith's did: his system neither strived for logical consistency nor boasted a fancy axiomatic foundation. (Redman, 1997, p. 357)

***

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)

This, then, is the Newtonian style:

The Principia begins with an idealized world, a simple mental construct, a “system” of a single mathematical particle and a centrally directed force in a mathematical space. Under these idealized conditions, Newton freely develops the mathematical consequences of the laws of motion that are the axioms of the Principia. At a later stage, after contrasting this ideal world with the world of physics, he will add further conditions to his intellectual construct – for example, by introducing a second body that will interact with the first one and then exploring further mathematical consequences. ... In this way he can approach by stages nearer and nearer to the condition of the world of experiment and observation, introducing bodies of different shapes and composition and finally bodies moving in variant types of resistant mediums rather than in free space. (Cohen, 1994, p. 77)

Economics, too, starts with an idealized world, but then it does not move nearer and nearer to the world of experiment and observation, but in the opposite direction to rationalize an unsuccessful initial idealization. Thus, idealization, which is indispensable, becomes counterproductive. There is only a thin line between fruitful abstraction and barren absurdity. To assume that the moon is a mass point is unrealistic but fruitful; to assume that it is made of green cheese is unrealistic but nothing else. Most assumptions of conventional microeconomics fall into the green cheese category.

In the most fruitful applications of mathematics to the physical world, some nonmathematical axioms also enter. The Newtonian system of mathematical mechanics depends as much on the Newtonian laws of motion and gravitation as it does on the axioms of mathematics. (Kline, 1981, p. 469)

It is often said that axioms must be self-evident. This is a slight misunderstanding. Axioms may turn common sense on its head:

We may, therefore, agree with Ernst Mach, who very wisely pointed out that the law of inertia could hardly be “obvious” or “self-evident” since throughout most of recorded history men believed in a quite different law and would have denied the Cartesian-Newtonian inertial principle. (Cohen, 1977, p. 328 fn. 57)

As clueless epigones, the social scientists, and economists in particular, borrowed a lot from Newton but did not grasp the Newtonian style. By consequence, it cannot be said that Newton's method has failed in the social sciences. It has never been applied properly but was soon made redundant by Hamilton’s reformulation of rational mechanics (Cohen, 1994, pp. 71-75). With this, if anything, the misunderstandings grew even worse (Mirowski, 1995).

***

The crucial point of the Newtonian style is the undissolvable combination of axiomatics and empiricism. Despite heavy borrowing, this point never got across:

Did anyone ever attempt to found a system of social science or economics on the level of identity with Newtonian rational mechanics or the Newtonian system of the world? In my research I have never found such an example. (…) In the Newtonian system, furthermore, there is no equilibrium, no balancing of contrary forces as in the case of a lever. (Cohen, 1994, p. 61)

An amusing point is that Newton was not Newtonian. He, on the contrary, believed in an evolving world. The world would go into ‘confusion’ and the ‘agent’ (God?) would have to repair it. (Prigogine, 2005, p. 63).

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)

Equilibrium theorists completely missed the point:

As we shall see, general economic equilibrium theory originated and developed in the context of a project put forward in varying forms by different scholars to repeat Newton’s titanic achievement – i.e., the fulfillment of Galileo’s program for a quantitative (mathematical) study of physical processes – in the field of the social sciences. (Ingrao and Israel, 1990, pp. 33-34)

Newton was quite explicit about the difference between theory (hypotheses non fingo) and storytelling (assumptions don't matter):

Those who take the foundations of their speculations from hypotheses, even if they then proceed most rigorously according to mechanical laws, are merely putting together a romance, elegant perhaps and charming, but nevertheless a romance. (Roger Cotes, Preface to the second edition of Newton’s Principia, Newton, 1999, p. 386)

***

From the perspective of Newton's methodology, utility maximization, equilibrium, or diminishing returns, for instance, are feigned hypotheses.

According to his [Helvétius's] principle, the only thing which men wish is pleasure, and the only things which men wish to avoid are pains. The pursuit of pleasure and the avoidance of pain are the only motives which in fact act upon men, as gravitation and other physical principles are said to act on inanimate bodies. (Berlin, 2002, pp. 12-13)

Generally speaking, “equilibrium” is simply the solution of a system of equations. (Ingrao and Israel, 1990, p. 263)

Virtually every concept in neoclassical microeconomics depends on diminishing marginal productivity for firms on the one hand, and diminishing marginal utility for the community on the other. If both these foundations are unsound, then almost nothing else remains standing. (Keen, 2011, p. 127)

As a consequence

... we know little more now about "how the economy works," or about the modus operandi of the invisible hand than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations. (Clower, 1999, p. 401)

Newton's method works, of course, but only with an applicable set of axioms. After a long detour, this becomes progressively clear:

To repeat, starting from individuals with standard preferences and adding them up allows one to show that there is an equilibrium but does not permit one to say that it is unique nor how it could be attained. With such severe drawbacks, one might wonder why we have persisted with our models based on the General Equilibrium approach. The idea that the economy is essentially in an equilibrium state or on an equilibrium path from which it is sometimes perturbed seems simply to be the wrong departure point. (Kirman, 2010, p. 511)

***

Newton's most important methodological message is: hypotheses non fingo. Economists have done the opposite with much alacrity but little success. To criticize economics as Newtonian is a gross unfairness towards Newton. Despite incessant copying, there is not one iota of Newton's scientific spirit in economics. His axioms have nothing in common with the green cheese assumptionism of conventional economists.

References
Berlin, I. (2002). Freedom and Its Betrayal. London: Chatto Windus.
Blaug, M. (1989). Review. Economic Journal, 99(398): 1225–1226. URL
Brush, S. G. (1976). Irreversibility and Indeterminism: Fourier to Heisenberg. Journal of the History of Ideas, 37(4): 603–630. URL
Clower, R. W. (1999). Post-Keynes Monetary and Financial Theory. Journal of Post Keynesian Economics, 21(3): 399–414. URL
Cohen, I. B. (1977). History and the Philosopher of Science. In F. Suppe (Ed.), The Structure of Scientific Theories, 308–349. Urbana, Chicago:
University of Illinois Press
Cohen, I. B. (1994). Natural Images in Economic Thought, chapter Newton and the Social Sciences, With Special Reference to Economics, or, the Case of the
Missing Paradigm, 55–90. Cambridge: Cambridge University Press.
Halévy, E. (1960). The Growth of Philosophic Radicalism. Boston: Beacon Press.
Hollander, S. (1977). Adam Smith and the Self-Interest Axiom. Journal of Law and Economics, 20(1): 133–152. URL
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Kirman, A. (2010). The Economic Crisis is a Crisis for Economic Theory. CESifoEconomic Studies, 56(4): 498–535. DOI
Kline, M. (1981). Mathematics and the Physical World. New York: Dover.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Newton, I. (1999). The Principia: Mathematical Principles of Natural Philosophy. Berkeley, Los Angeles, London: University of California Press.
Prigogine, I. (2005). The Rediscovery of Value and the Opening of Economics. In K. Dopfer (Ed.), The Evolutionary Foundations of Economics, 61–69, Cambridge: Cambridge University Press.
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, London: MIT Press.
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.

See also Euclid and NONENTITY.


© 2013_11 EKH, except original quotes

Key Issues: Heterodoxy: Promising or hopeless?

Edward Fullbrook has undertaken the task of distilling from numerous contributions to the real-world economics review a synopsis of the core tenets of present-day Heterodoxy (2013, p. 129). This is a good thing. However, he unfortunately characterizes a motley of opinions as NPE, New Paradigm Economics. There exists at the moment nothing that deserves the title of a heterodox paradigm in the sense of Kuhn. What is more, Kuhn has argued “that there are no, nor can there be any, paradigms in the social sciences.”

What we have before us resembles more a manifesto than anything else. The first item in the compilation, "pluralism (as in modern physics)," confirms this impression.

A paradigm/theory/model makes assertions about the world (is deterministic, consists of atoms, expands inflationary, etcetera) or parts of it (society consists of antagonistic classes, of utility maximizing individuals, is ruled by an invisible hand, etcetera) and implicitly or explicitly insists that this view is the correct one. A paradigm/theory/model without a truth claim is a contradiction in terms.

Hence, pluralism is a meta-claim that cannot be used by any specific paradigm. Heterodoxy is not the arbiter and by no means in the position to decide that, for example, classical, Marxian, neoclassical or Keynesian approaches are, in the name of pluralism, legitimate constituents of economics – understood as a science. Just like astrology, geo-centrism, or creationism cannot claim to be part of a pluralistic physics or biology. Note that Dawkins refuses to discuss with creationists about evolution, and physicists are not very much inclined to dispute about perpetual motion machines. Science constitutes itself by proper demarcation from nonscience (cf. Popper, 1980, p. 34).

Physics is pluralist at the cutting edge of research as long as the matter has not been settled according to accepted criteria (logical and material consistency, cf. Klant, 1994, p. 31). There is no pluralism, though, with regard to the Law of the Lever. To compare economics, which has not yet got hold of something analogous to the Law of the Lever, with cutting-edge physics is preposterous. Confusion cannot be legitimized as pluralism.

The defining characteristic of Heterodoxy is, trivially, the rejection of the neoclassical approach. The rejection is borne either by a well-founded conviction or at least the distinct feeling that there must be something better. Hence, Heterodoxy epitomizes the promise to eventually come up with a superior alternative. This is what makes Heterodoxy attractive. In Lakatos's terms, Heterodoxy is to be understood as the progressive research programme and Orthodoxy as the degenerate research programme.

Heterodoxy, therefore, consists of a destructive and a constructive part. However, both parts are not symmetric:

... 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, 1980, p. 1)

Heterodoxy was very successful with clearing the ground (cf. Fullbrook, 2004; Keen, 2011), but it cannot be said that it was equally successful with construction:

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

To explain this unacceptable Orthodox/Heterodox cliffhanger at least in part, it is useful to study New Paradigm Economics in more detail. The methodological comment starts with a noncontroversial assertion:

Whether you can observe a thing or not depends on the theory which you use. It is theory which decides what can be observed. (Einstein, quoted in Fullbrook, 2013, p. 130)

However, this consensus is immediately contradicted in Section 3 with the assertion that Heterodoxy “priorizes the empirical over apriorism.” Einstein, to be sure, was as clear as possible that this is the wrong priority:

... any attempt logically to derive the basic concepts and laws of mechanics from the ultimate data of experience is doomed to failure. (Einstein, 1934, p. 166)

This is exactly what J. S. Mill said with regard to economics:

Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the social science, while we look at the facts in the concrete, clothed in all the complexity with which nature has surrounded them, and endeavour to elicit a general law by a process of induction from a comparison of details; there remains no other method than the à priori one, or that of “abstract speculation.” (Mill, 2004, p. 113-114)

Being apriorists, Mill and Einstein, on the other hand, never denied the crucial role of the empirical:

Experience can of course guide us in our choice of serviceable mathematical concepts; it cannot possibly be the source from which they are derived; experience of course remains the sole criterion of the serviceability of a mathematical construction for physics, but the truly creative principle resides in mathematics. In a certain sense, therefore, I hold it to be true that pure thought is competent to comprehend the real, as the ancients dreamed. (Einstein, 1934, p. 167)

Is there any indication that physicists will abandon the deductive method in the future and instead turn to pluralism?

Some day, when physics is complete and we know all the laws, we may be able to start with some axioms, and no doubt somebody will figure out a particular way of doing it so that everything else can be deduced. (Feynman, 1992, p. 50)

Was Einstein blind to the pitfalls and limitations of the deductive method, which indeed have stymied the neoclassical approach?

If then it is the case that the axiomatic basis of theoretical physics cannot be an inference from experience, but must be free invention, have we any right to hope that we shall find the correct way? (Einstein, 1934, p. 167)

Conventional economists have not found the correct way. This misfortune is not attributable to the deductive method but to its inept application.

As always, when they are clueless, economists turn to physics (Mirowski, 1995), and, again and again, they miss the point. Heterodox economists are no exception; they start with a methodological assertion about the inevitable theory-ladenness of observation and end with this:

... progress entails a movement away from faith-based to empirical-based economics. (quote from Fullbrook, 2013, p. 130)

What is here negatively characterized as faith-based has been positively characterized by Einstein as a freely invented axiomatic basis. Real progress, therefore, would entail that the neoclassical axioms be fully replaced by heterodox axioms. This is a constructive task that amounts to a paradigm shift in the original sense.

... at no stage of scientific development do we begin without something in the nature of a theory, ... (Popper, 1960, p. 134)

And each theory starts with axioms — this also holds for Heterodoxy.

The impression from the NPE compilation is that Edward Fullbrook is currently too much occupied with a rather hopeless rearguard of Heterodoxy:

Many people have a passionate hatred of abstraction, chiefly, I think, because of its intellectual difficulty; but as they do not wish to give this reason, they invent all sorts of others that sound grand. They say that all reality is concrete, and that in making abstractions we are leaving out the essential. ... Those who argue in this way are, in fact, concerned with matters quite other than those that concern science. (Russel, 1961, p. 626)

An axiomatized approach is not necessarily true, but an unnaxiomatized approach is certainly false. A paradigm manifests itself in the set of axioms. There is no such thing as a new heterodox paradigm. Heterodoxy is one crucial step ahead of Orthodoxy, that is much but it does not suffice.


References
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Fullbrook, E. (Ed.) (2004). A Guide to What’s Wrong With Economics. London: Anthem.
Fullbrook, E. (2013). New Paradigm in Economics. real-world economics review, 65: 129–131. URL
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
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. Online-version URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
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See also the initial post on RWER-Blog


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