The unfinished Keynes (a)

Comment on Paul Davidson on 'The Keynes Solution'                                                  

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It is trivial but worth repeating: political economics and theoretical economics are different things and have to be strictly kept apart. The core problem of economics as a science is, of course, that by its very nature, it is closely entangled with politics. The biggest threat to theoretical economics is that it gets hijacked by those with a political agenda. It does not matter whether this agenda is good or bad in preset moral terms. Science is committed to its own criteria, or it ceases to be science.

But are we not all inescapably involved in the struggle between good and bad/evil? Politics, religion, and philosophy say so. But even if this were true, it cannot serve as a justification to hijack science or to let it be hijacked. What has to be recognized is that science is about true/false and not good/bad. This distinction is part of the demarcation problem, which is the fundamental problem of methodology (Popper, 1980, p. 34).

Keynes had a political agenda, and this was his first priority. Let us agree for the moment that his attempt to alleviate unemployment was good and right without any qualification. Hence, we all can accept Keynes's agenda — except for one point: Keynes weaponized theoretical economics for political purposes. This is unacceptable: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (J. S. Mill, 2006, p. 950)

Having taken politics out of the way, the next question is about the scientific content of the General Theory. Here we can — in very general terms — side with Allais: “... mais son [Keynes's] insuffisance logique ne lui a pas permis de résoudre les problèmes que son intuition lui avait fait entrevoir.” (1993, p. 70) In other words, Keynes saw the problems but could not solve them due to a lack of logical consistency

• “For, if anything, Keynes was the most intuitive of men.” (Moggridge, 1976, p. 33)
• “It is well known that John Maynard was born anew every morning; for this reason, his colleagues at Bretton Woods commented that he was too intelligent to be consistent.” (Valentino, 1988, p. 239)
• “But Keynes, too, sometimes gave the impression of not having fully grasped the logic of his own system.” (Laidler, 1999, p. 281)
• "If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.” (Churchill)

With his comment on Hayek, “... a remorseless logician can end up in Bedlam" (Moggridge, 1976, p. 36), he won the everlasting sympathies of all who have their own troubles with logic.

In more specific terms, we can definitively declare that the formal foundations of Keynesianism are logically defective since the General Theory. Keynes's fundamental equations of macroeconomics, i.e., Income = value of output = consumption + investment. Saving = income – consumption. Therefore saving = investment, is indefensible. That is why the whole of Keynesianism is a failure (2011; 2014a).

The deeper reason is that Keynes — just like his predecessors and fellows — did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson and Bezemer, 2010, pp. 12-13, 16), see also (2014b)

It is no contradiction to acknowledge that Keynes was one of the good guys of political economics and not to accept the General Theory as a valid contribution to theoretical economics. Yet good intentions are not a scientific criterion; alone, material and formal consistency count. So what is left?

Keynes's economic policy ideas were not exactly innovative: “Public works to relieve the unemployed is an idea as old as the Bible; ...” (Blaug, 1998, p. 662)

Keynes's lasting scientific contribution relates to methodology. He spoke it out loud so that every fellow economist could hear it: Throw over the classical axioms and put theoretical economics on new foundations. What else could the Keynesian Revolution mean than a Paradigm Shift? Keynes pointed the way but could not follow it himself.

Egmont Kakarot-Handtke


References
Allais, M. (1993). Les Fondements Comptables de la Macro-Économie. Paris: Presses Universitaires de France, 2nd edition.
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–15. URL
Kakarot-Handtke, E. (2014a). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Laidler, D. (1999). Fabricating the Keynesian Revolution. Cambridge: Cambridge University Press.
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.

Moggridge, D. E. (1976). Keynes. London, Basingstoke: Macmillan.

Popper, K. R. (1980). The Logic of Scientific Discovery. London, Melbourne, Sydney: Hutchison, 10th edition.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL
Valentino, R. (1988). Discussion. In H. Hanusch (Ed.), Evolutionary Economics. Applications of Schumpeter’s Ideas, 238–249. Cambridge, New York, etc.: Cambridge University Press.

For details, see cross-references Keynesianism.

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Graphic AXEC172

Graphic AXEC121k

Entertainment vs Science

Comment on Lars Syll on 'Mainstream macroeconomics distorts our understanding of economic reality'

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In the introduction, Lars Syll writes: “Studying mathematics and logics is interesting and fun. It sharpens the mind. In pure mathematics and logics we do not have to worry about external validity. But economics is not pure mathematics or logics. It’s about society. The real world. Forgetting that, economics is really in dire straits.”

Economists have their philosophical roots in Bentham's utilitarianism. And it seems that they never dare to get out of this shallow intellectual puddle and swim in deeper waters. Have they never heard what genuine scientists have said about mathematics? Have Galilei or Newton or Einstein said that mathematics is fun? That a little intellectual gymnastics is good against mental enfeeblement? That it should be part of a comprehensive wellness program for any responsible citizen? Above all: did one of these three better-known scientists ignore the problem of external validity?

Exactly the contrary! For all of them, mathematics was the key to reality — to the very reality that is producing what the myopic utilitarian experiences when he looks in all his naivety out of the window.

“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)

Lawson's ontology suffers from several misunderstandings (2013): “The central message of Lawson’s critique of modern economics is that an economy is an “open system” but economists insist on dealing with it as if it were “closed.” (See intro)

This is true for equilibrium economics. And it is true that Orthodoxy is a failure. But now comes the logical blunder: “Modern economics has become increasingly irrelevant to the understanding of the real world. In his seminal book, Economics and Reality (1997) Tony Lawson traced this irrelevance to the failure of economists to match their deductive-axiomatic methods with their subject.” (See intro)

While Orthodoxy indeed applies the axiomatic-deductive method there is no necessary connection between the method and closed systems. Physicists apply mathematics and the axiomatic-deductive method for the description of a universe that certainly displays no equilibrium and no closure in the sense of orthodox economics. What has to be rejected is the notion of equilibrium/closure and not the deductive-axiomatic method.

Because they are fixated on equilibrium economics Tony Lawson and Lars Syll misunderstand the role of mathematics and the axiomatic-deductive method for scientific research. What indeed has to be criticized loud, clearly, and unswervingly is the abuse of mathematics and the axiomatic-deductive method by Orthodoxy.

For more on this all-important issue see the following threads:  math   axiom

Lars Syll's second error is “It’s about society” (see intro). Society is the subject matter of sociology. Economics is about how the economic system works. And the actual fact is that neither Orthodoxy nor Heterodoxy can give a scientifically acceptable account of how the economy we happen to live in works. The deeper reason is that both cannot apply the axiomatic-deductive method properly.

It is not such a good idea to dismiss mathematics and logic as funny intellectual wellness exercises. Heterodoxy cannot do without it. Traditional Heterodoxy is methodologically deep in the woods. This explains why Heterodoxy in general and Lars Syll, in particular, have produced not much, if anything, of scientific value to this day.

Egmont Kakarot-Handtke


References
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Kakarot-Handtke, E. (2013). Crisis and Methodology: Some Heterodox Misunderstandings. SSRN Working Paper Series, 2083519: 1–25. URL

Related 'Economics as storytelling and entertainment for the masses' and 'The new macroeconomic Paradigm' and 'If it isn’t macro-axiomatized, it isn’t economics' and 'From false micro to true macro: the new economic Paradigm'.

For more about disinfotainment see AXECquery.

Common sense is worse than misleading

Comment on Lars Syll on 'The riddle of induction'

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“... it is precisely the task of science to supersede crude common-sense notions by critical analysis, and further that it is the unsatisfactory state of the foundations beneath the common-sense surface which is the most serious and crippling deficiency of contemporary economic science, ...” (Hutchison, 1960, p. 18)

“The truth is, that common-sense, or thought as it first emerges above the level of the narrowly practical, is deeply imbued with that bad logical quality to which the epithet metaphysical is commonly applied; and nothing can clear it up but a severe course of logic.” (Peirce, 1992, p. 113)

More about the relationship between common sense and nonsense on this web page.

Egmont Kakarot-Handtke


References
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York: Kelley.
Peirce, C. S. (1992). The Fixation of Belief. In N. Houser, and C. Kloesel (Eds.), The Essential Peirce. Selected Philosophical Writings., Vol. 1, 109–123. Bloomington: Indiana University Press. (1877).

Why J.S. Mill had no friendly word for the bigots and votaries of common sense

Comment on Lars Syll on 'The riddle of induction'

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When the discussion is about induction/deduction, then the appeal to common sense is utterly misleading.

To be quite clear: nobody denies that common sense is good for getting out of bed, crossing the street, and many other practical purposes. However, the task is to keep it out of science. Why? Because common sense is so convincing.

There is no need to go back a few hundred years. If, in a discussion, participant A says that it is nonsense and a conspiracy of these arrogant scientists to claim that the earth moves with a tremendous speed, because he and nobody else in this room feels the slightest movement, then he has a good chance to get the assent of roughly 80 percent of an average audience (cf. Mirowski, 1995, p. 104). Participant B, who tries to explain the optical illusion with the theory of relative motion, has a hard time.

It is a curious fact that science is necessarily counter-intuitive: “... that the new physics of the seventeenth century, which replaced the older concepts of motion, rest, and change, involved a radical reorientation of the view of the cosmos and the possibilities of an infinite void space, thus yielding an almost entirely new philosophy of nature and a wholly different physics that contradicted ordinary intuition and common sense.” (Cohen, 1977, pp. 318-319)

The problem with economics is that it has a strong and proud tradition of common sense: “... [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)

This tradition has a stronghold in Cambridge: “In the early thirties, he [Keynes] confessed to Roy Harrod that he was 'returning to an age-long tradition of common sense'” (Coates, 2007, p. 11)

And this explains why Keynesianism is not a science to this day (2011). Again and again, it turns out that common sense is a millstone around the neck of economics. This was already clear to Mill (!), and this is why he had no friendly word for it (2006, pp. 783, 790).

As Einstein famously put it: “... common sense is the collection of prejudices acquired by age eighteen.”

Egmont Kakarot-Handtke


References
Coates, J. (2007). The Claims of Common Sense. Moore, Wittgenstein, Keynes and the Social Sciences. Cambridge, New York, etc.: Cambridge University Press.
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.
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–15. 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. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.

Related 'The bigots of common sense' and 'Economics, too, has been almost ruined by the bigots of common sense' and 'A brief history of soapbox economics' and 'Appearances and evidence' and 'Misled by ordinary intuition and common sense' and 'Marshall and the Cambridge School of plain economic gibberish' and 'First Lecture in New Economic Thinking'.

Why Feynman had no friendly word for common sense

Comment on Lars Syll on 'The riddle of induction'

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Why Feynman, too, had no friendly word for commonsensers and why this is not philosophic nonsense but decisive for science in general and economics, in particular, see on

Youtube 1:14 min

Why Newton had no friedly word for common sense

Blog-Reference not recoverable

“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 does not sound like a plea for induction or common sense (see the Newton page for more).


References
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.

Onblog Economics Muddle Busting {64}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  The representative economist does not understand the two most important phenomena in the economic universe: profit and income. Because of this economists have nothing to offer in the way of a scientifically founded advice. Therefore, the contributions to economic blogs cannot claim to offer more than personal opinion. Of opinions, though, economics always had plenty. What is needed is knowledge – scientific knowledge, that is. With the outline of the correct economic paradigm at hand it is straightforward to refute obsolete approaches. For this purpose the economics blogs are ideal. A selection of recent comments is reproduced in the present paper.