Comment on Mark Thoma on ‘Stability of a Market Economy’
Blog-Reference
You correctly say that it is a belief that the market system is inherently stable/self-adjusting. As a matter of fact, this belief is either ultimately derived from Walrasian general equilibrium theory, which has been thoroughly refuted (Ackerman and Nadal, 2004), or from wishful thinking. The opposite belief is not any better founded. The lethal defect of Keynes, Hicks, Kaldor, Kalecki, etcetera, is that the subjacent profit theory is false (2011). Hence, neither belief has a sound theoretical foundation. A multitude of models is no substitute for a comprehensive theory but gives only rise to utterly confused discussions.
To show that the market economy is stable/unstable, first of all, a consistent formal description of the structure has to be given. In the second step, it has to be shown that this structure supports positive feedback. You argue instead that human behavior has a tendency for self-reinforcement. This is a psycho-sociological hypothesis and not a structural hypothesis.
In sum, your analysis lacks a sound theoretical foundation.
The correct structural approach (2015) leads to the result that the market economy is inherently unstable. This result is, of course, formally consistent and directly testable. This makes the usual inconclusive wish wash redundant.
Egmont Kakarot-Handtke
References
Ackerman, F., and Nadal, A. (Eds.) (2004). Still Dead After All These Years: Interpreting the Failure of General Equilibrium Theory. London, New York: Routledge.
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
July 4, 2015
All economists together now: Solow’s Swan Song
Comment on Bruce Edmond on ‘Economic Value is NOT Price’
Blog-Reference
The wonderful thing about economists of all shades is that the only fact they can convincingly explain is why they know nothing.
“Economics is a strange sort of discipline. The booby traps I mentioned often make it sound as it is all just a matter of opinion. That is not so. Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. . . . There are always differences of opinion at the cutting edge of a science, . . . . But they last longer in economics . . . and there are reasons for that. As already mentioned, rival theories cannot be put to an experimental test. All there is to observe is history, and history does not conduct experiments: too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, . . . You can’t even count on a long and undisturbed run of history, because the “laws” of behavior change and evolve. Excuses, excuses. But the point is not to provide excuses.” (Solow, 1998, pp. x-xi)
Those who hallucinate being at the cutting edge of science, please take notice: “... 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)
By the way, the exchange value in the pure production/consumption economy is fully determined by the objective factors market clearing, budget balancing, and zero profit (2011). Utility drops completely out of the equation. All subjective approaches since Jevons have predictably ended in folk-psychological blather.
Pace Solow: there is no such thing as ‘laws of behavior.’ Orthodoxy started on the wrong foot. “But the point is not to provide excuses.” Yes, and today is the perfect day to start with it.
Egmont Kakarot-Handtke
References
Hands, D.W. (2001). Reflection without Rules. Economic Methodology and Contemporary
Science Theory. Cambridge, New York, NY, etc: Cambridge University Press.
Kakarot-Handtke, E. (2011). The Pure Logic of Value, Profit, Interest. SSRN Working Paper Series, 1838203: 1–27. URL
Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The Academic Scribblers. Princeton, NJ: Princeton University Press, 3rd edition.
Blog-Reference
The wonderful thing about economists of all shades is that the only fact they can convincingly explain is why they know nothing.
“Economics is a strange sort of discipline. The booby traps I mentioned often make it sound as it is all just a matter of opinion. That is not so. Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. . . . There are always differences of opinion at the cutting edge of a science, . . . . But they last longer in economics . . . and there are reasons for that. As already mentioned, rival theories cannot be put to an experimental test. All there is to observe is history, and history does not conduct experiments: too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, . . . You can’t even count on a long and undisturbed run of history, because the “laws” of behavior change and evolve. Excuses, excuses. But the point is not to provide excuses.” (Solow, 1998, pp. x-xi)
Those who hallucinate being at the cutting edge of science, please take notice: “... 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)
By the way, the exchange value in the pure production/consumption economy is fully determined by the objective factors market clearing, budget balancing, and zero profit (2011). Utility drops completely out of the equation. All subjective approaches since Jevons have predictably ended in folk-psychological blather.
Pace Solow: there is no such thing as ‘laws of behavior.’ Orthodoxy started on the wrong foot. “But the point is not to provide excuses.” Yes, and today is the perfect day to start with it.
Egmont Kakarot-Handtke
References
Hands, D.W. (2001). Reflection without Rules. Economic Methodology and Contemporary
Science Theory. Cambridge, New York, NY, etc: Cambridge University Press.
Kakarot-Handtke, E. (2011). The Pure Logic of Value, Profit, Interest. SSRN Working Paper Series, 1838203: 1–27. URL
Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The Academic Scribblers. Princeton, NJ: Princeton University Press, 3rd edition.
July 3, 2015
It's about institution-building, stupid
Comment on Michael Hudson on ‘Finance as Warfare’
Blog-Reference
Finance has not necessarily much to do with warfare — but it can if things are messed up.
Mortgage financing, for example, is an ancient and rather simple business. In Germany, it was institutionalized in 1900 with the Mortgage Banking Act. This law was so well-crafted that it worked with minor modifications until 2005 when it was abolished in an act of institutional suicide. The new law was sold under the slogan ‘Strengthening Germany as a Financial Centre.’ This was when deregulation was the hype of the day, which lasted until Wall Street's meltdown. This financial mega-crash, first of all, showed one thing: what happens when you do mortgage banking the American way.
Note, that a mortgage debtor saw and heard nothing for 10, 20, or 30 years of his creditor if he paid his fixed annuity monthly. If a loan became non-performing, mostly due to private misfortune like unemployment or divorce, the mortgage bank tried to help the debtor back on his feet because the last thing a mortgage bank wanted was the real estate that had been pledged as collateral. All it ever wanted was the money back plus interest as agreed upon in the mortgage contract. Then it could, in turn, fulfill its obligations vis-à-vis the Pfandbrief owners, mostly pension funds, and other long-term buy-and-hold investors.
This changed when it became possible to sell non-performing loans to firms that were specialized in making money from talking to the debtors in the bonebreaker jargon that people had hitherto only encountered in Hollywood movies.
Note further, that the margins of mortgage banks were usually seen as razor-thin and not something an investment banker would get out of bed for in the morning.
Most importantly, note that Germany has never had a real estate boom-bust cycle. That is quite remarkable when you consider that Japan, the US, Britain, Spain, and many other economies have been badly damaged by a real estate bust.
Likewise, the margins of commercial banks like Deutsche Bank were unspectacular. Yes, until Mr. Ackermann came and announced that he aimed at something about 20 or so percent — like the American investment banks. This made the stock market happy.
Now, whoever has been long enough in the banking business knows that margins way above the average can only be made by magic or fraud. People preferred to believe in magic while the latter happened as a trivial reality throughout the banking industry.
After everything had duly crashed against the wall in 2008/09 the actual resume is this. There is no use to lament too long over banksters. It has been convincingly demonstrated that, for example, mortgage lending can be institutionalized in such a way that it works smoothly to the benefit of lenders, borrowers, and the economy at large. It can be done for other financing businesses, too.
The point is whether a country is good at institution-building or not. There is a lot at stake. If you mess up your political institutions you end up in a banana republic, if you mess up your banking institutions, first and foremost the central bank, you end up in large-scale bankruptcy and QE.
I think it would be acceptable to get out of this war rhetoric, not because there is nothing to it, but because it keeps us from building proper functioning political and economic institutions.
There is a way to get rid of financial war, banksters, and — not to forget — the small-scale corruption of people who do not belong to the one-percenters. Economics is, in the first place, not about good guys vs. bad guys, it is about effective vs. ineffective institutions (including laws, judges, and prisons for financial warmongers).
Egmont Kakarot-Handtke
Blog-Reference
Finance has not necessarily much to do with warfare — but it can if things are messed up.
Mortgage financing, for example, is an ancient and rather simple business. In Germany, it was institutionalized in 1900 with the Mortgage Banking Act. This law was so well-crafted that it worked with minor modifications until 2005 when it was abolished in an act of institutional suicide. The new law was sold under the slogan ‘Strengthening Germany as a Financial Centre.’ This was when deregulation was the hype of the day, which lasted until Wall Street's meltdown. This financial mega-crash, first of all, showed one thing: what happens when you do mortgage banking the American way.
Note, that a mortgage debtor saw and heard nothing for 10, 20, or 30 years of his creditor if he paid his fixed annuity monthly. If a loan became non-performing, mostly due to private misfortune like unemployment or divorce, the mortgage bank tried to help the debtor back on his feet because the last thing a mortgage bank wanted was the real estate that had been pledged as collateral. All it ever wanted was the money back plus interest as agreed upon in the mortgage contract. Then it could, in turn, fulfill its obligations vis-à-vis the Pfandbrief owners, mostly pension funds, and other long-term buy-and-hold investors.
This changed when it became possible to sell non-performing loans to firms that were specialized in making money from talking to the debtors in the bonebreaker jargon that people had hitherto only encountered in Hollywood movies.
Note further, that the margins of mortgage banks were usually seen as razor-thin and not something an investment banker would get out of bed for in the morning.
Most importantly, note that Germany has never had a real estate boom-bust cycle. That is quite remarkable when you consider that Japan, the US, Britain, Spain, and many other economies have been badly damaged by a real estate bust.
Likewise, the margins of commercial banks like Deutsche Bank were unspectacular. Yes, until Mr. Ackermann came and announced that he aimed at something about 20 or so percent — like the American investment banks. This made the stock market happy.
Now, whoever has been long enough in the banking business knows that margins way above the average can only be made by magic or fraud. People preferred to believe in magic while the latter happened as a trivial reality throughout the banking industry.
After everything had duly crashed against the wall in 2008/09 the actual resume is this. There is no use to lament too long over banksters. It has been convincingly demonstrated that, for example, mortgage lending can be institutionalized in such a way that it works smoothly to the benefit of lenders, borrowers, and the economy at large. It can be done for other financing businesses, too.
The point is whether a country is good at institution-building or not. There is a lot at stake. If you mess up your political institutions you end up in a banana republic, if you mess up your banking institutions, first and foremost the central bank, you end up in large-scale bankruptcy and QE.
I think it would be acceptable to get out of this war rhetoric, not because there is nothing to it, but because it keeps us from building proper functioning political and economic institutions.
There is a way to get rid of financial war, banksters, and — not to forget — the small-scale corruption of people who do not belong to the one-percenters. Economics is, in the first place, not about good guys vs. bad guys, it is about effective vs. ineffective institutions (including laws, judges, and prisons for financial warmongers).
Egmont Kakarot-Handtke
From economics to politics to idiocy
Comment on merijnknibbe on ‘Breaking: ECB states that Euro is reversible and not irrevocable’
Blog-Reference
Remember how it all started? The majority of Europeans wanted one Europe to do away with these ridiculous borders, and they wanted — and still want — it to be democratic and prosperous. At the latter point, economics comes in. What is the economist's task? Roughly this: “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)
The economist's task is to figure out how a prosperous Europe can be realized (as a step between The Wealth of Nations and The Wealth of the World). The decision about the political future of Europe has been taken by legitimate political bodies. For the economist qua economist, this is a fixpoint. What is required is his professional competence for a successful realization.
Here, the problem starts. Economists have no clear idea about how the actual economy works. What they have produced so far under the label of Walrasianism, Keynesianism, Austrianism, etcetera, is scientifically worthless. The representative economist cannot tell the difference between profit and income. This is like physics before they had figured out such elementary things as the difference between velocity and acceleration.
The great scandal of economics is that without deeper knowledge, but much opinion economists turn to politics. The scandal consists of speaking with a scientific authority, of which not much exists. One of the many low points had been reached, for example, when Hayek volunteered as an academic fig leaf for Thatcher's rather straightforward power politics. To be sure, Hayekian economics never satisfied the scientific criteria of material and formal consistency and never will. His economics was not good enough for science but good enough for politics. This example can easily be multiplied.
The Greek crisis has to be seen in the context of the initial plan. The economist's task at this juncture is to find a solution that helps to realize the initial political decision. Of course, every economist qua citizen is free to abolish the eurocrats, but then he has to put his political hat on and his scientific hat off.
Where has heterodox economics landed in the grand scheme of things? After leaving economics proper and taking part in the idiotic good guy/bad guy discussion, they landed in a quarrel about whether Bulgarians are ugly.
That's economics at its best.
Egmont Kakarot-Handtke
Blog-Reference
Remember how it all started? The majority of Europeans wanted one Europe to do away with these ridiculous borders, and they wanted — and still want — it to be democratic and prosperous. At the latter point, economics comes in. What is the economist's task? Roughly this: “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)
The economist's task is to figure out how a prosperous Europe can be realized (as a step between The Wealth of Nations and The Wealth of the World). The decision about the political future of Europe has been taken by legitimate political bodies. For the economist qua economist, this is a fixpoint. What is required is his professional competence for a successful realization.
Here, the problem starts. Economists have no clear idea about how the actual economy works. What they have produced so far under the label of Walrasianism, Keynesianism, Austrianism, etcetera, is scientifically worthless. The representative economist cannot tell the difference between profit and income. This is like physics before they had figured out such elementary things as the difference between velocity and acceleration.
The great scandal of economics is that without deeper knowledge, but much opinion economists turn to politics. The scandal consists of speaking with a scientific authority, of which not much exists. One of the many low points had been reached, for example, when Hayek volunteered as an academic fig leaf for Thatcher's rather straightforward power politics. To be sure, Hayekian economics never satisfied the scientific criteria of material and formal consistency and never will. His economics was not good enough for science but good enough for politics. This example can easily be multiplied.
The Greek crisis has to be seen in the context of the initial plan. The economist's task at this juncture is to find a solution that helps to realize the initial political decision. Of course, every economist qua citizen is free to abolish the eurocrats, but then he has to put his political hat on and his scientific hat off.
Where has heterodox economics landed in the grand scheme of things? After leaving economics proper and taking part in the idiotic good guy/bad guy discussion, they landed in a quarrel about whether Bulgarians are ugly.
That's economics at its best.
Egmont Kakarot-Handtke
July 2, 2015
Keynesianism as ultimate profit machine
Comment on Asad Zaman on ‘Speculative Financial Attacks’
Blog-Reference
Imagine that the American one-percenters sit around a table and play poker, throwing in chips that are backed one-to-one by their financial and valued real wealth. In the course of the game, spectacular gains/profits are made. TV, press, YouTube, and blogs are full of stories about how A outwitted B, how C had an improbable streak of luck, how D got away with cheating, how E committed suicide after losing all, and so on.
From the economist's objective perspective, in this story full of sound and fury, actually, nothing happens but a voluntary redistribution of wealth. Nothing is created, nothing is lost. The effect on the rest of the economy is zero. Only the names attached to different pieces of wealth change.
Of course, there are other games that may spill over to the rest of the economy and may have adverse effects on non-participants. What is important in the example above is that the gains/profits of the players are different from the profits that are made in the sphere of production. The latter were the profits that Adam Smith and Karl Marx had before their eyes when they praised/condemned the capitalistic economy.
The first point for theoretical economics is that there are two different types of markets: the product market and the asset market. Both markets run on entirely different principles, hence the standard supply-demand-equilibrium explanation does not apply. Treating all markets alike is the first analytical blunder of standard economics (2011b).
The commonplace Quantity Theory asserts a causality between the quantity of money and the prices in the product markets. The ignorance of asset markets, however, is only one of the numerous defects of the QT (2011c).
The third point is that there are two fundamentally different types of profit, monetary and nonmonetary profit. The latter stems from the change in the value of assets. The former emerges in the sphere of production (2011a). In this context, it is important to realize that conventional profit theories are provably false (Desai, 2008). What has to be kept in mind is that speculative financial attacks, as a rule, aim at realized profits from changes in the valuation of various assets. Their main effect is a redistribution of existing financial wealth among the players (2011b).
Keynes himself, just like Walras and the rest, had no correct profit theory, and because of this, Post Keynesianism never realized that Keynesian policies themselves are an important source of monetary profits.
The interrelationships are as follows (for details, see 2015). The Employment Law is given with Graphic AXEC62
The employment multiplier contains the expenditure ratio ρE. If ρE increases, employment L increases. An expenditure ratio ρE>1 means deficit spending. Thus, the equation contains the Keynesian assertion that deficit spending increases employment.
The Profit Law for the elementary case of the production-consumption economy is given with Graphic AXEC08
Overall monetary profit Qm of the business sector, too, depends on the expenditure ratio ρE. Thus, this variable constitutes the link between changes in debt and profit, and in turn changes in financial wealth. All this is quite different from a zero-sum game.
With the correct structural-axiomatic profit theory, we now arrive at the remarkable result that no other than Keynes, the most outspoken critic of the Laissez-Faire order, has in effect stabilized this order, such that the profits of the business sector increased exactly in step with the deficits of the private/public households. This, and not the redistribution games on the financial markets, led to the spectacular increase in the volume of financial wealth that Keynesians wonder about today. Overall monetary profit has nothing to do with performance or productivity but is the mirror image of the increase in debt.
In this global game, it is the American and Greek people who got the short end of the stick. But only the Greeks are actually aware of it.
Egmont Kakarot-Handtke
References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2011a). The Emergence of Profit and Interest in the Monetary Circuit. SSRN Working Paper Series, 1973952: 1–22. URL
Kakarot-Handtke, E. (2011b). Primary and Secondary Markets. SSRN Working Paper Series, 1917012: 1–26. URL
Kakarot-Handtke, E. (2011c). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Employment. SSRN Working Paper Series, 2576867: 1–11. URL
Related 'Who or what exactly did Keynes save?' and 'Full employment through the price mechanism' and 'Austerity and the idiocy of political economists'. For details of the big picture, see cross-references Profit and cross-references Keynesianism.
Blog-Reference
Imagine that the American one-percenters sit around a table and play poker, throwing in chips that are backed one-to-one by their financial and valued real wealth. In the course of the game, spectacular gains/profits are made. TV, press, YouTube, and blogs are full of stories about how A outwitted B, how C had an improbable streak of luck, how D got away with cheating, how E committed suicide after losing all, and so on.
From the economist's objective perspective, in this story full of sound and fury, actually, nothing happens but a voluntary redistribution of wealth. Nothing is created, nothing is lost. The effect on the rest of the economy is zero. Only the names attached to different pieces of wealth change.
Of course, there are other games that may spill over to the rest of the economy and may have adverse effects on non-participants. What is important in the example above is that the gains/profits of the players are different from the profits that are made in the sphere of production. The latter were the profits that Adam Smith and Karl Marx had before their eyes when they praised/condemned the capitalistic economy.
The first point for theoretical economics is that there are two different types of markets: the product market and the asset market. Both markets run on entirely different principles, hence the standard supply-demand-equilibrium explanation does not apply. Treating all markets alike is the first analytical blunder of standard economics (2011b).
The commonplace Quantity Theory asserts a causality between the quantity of money and the prices in the product markets. The ignorance of asset markets, however, is only one of the numerous defects of the QT (2011c).
The third point is that there are two fundamentally different types of profit, monetary and nonmonetary profit. The latter stems from the change in the value of assets. The former emerges in the sphere of production (2011a). In this context, it is important to realize that conventional profit theories are provably false (Desai, 2008). What has to be kept in mind is that speculative financial attacks, as a rule, aim at realized profits from changes in the valuation of various assets. Their main effect is a redistribution of existing financial wealth among the players (2011b).
Keynes himself, just like Walras and the rest, had no correct profit theory, and because of this, Post Keynesianism never realized that Keynesian policies themselves are an important source of monetary profits.
The interrelationships are as follows (for details, see 2015). The Employment Law is given with Graphic AXEC62
The employment multiplier contains the expenditure ratio ρE. If ρE increases, employment L increases. An expenditure ratio ρE>1 means deficit spending. Thus, the equation contains the Keynesian assertion that deficit spending increases employment.
The Profit Law for the elementary case of the production-consumption economy is given with Graphic AXEC08
Overall monetary profit Qm of the business sector, too, depends on the expenditure ratio ρE. Thus, this variable constitutes the link between changes in debt and profit, and in turn changes in financial wealth. All this is quite different from a zero-sum game.
With the correct structural-axiomatic profit theory, we now arrive at the remarkable result that no other than Keynes, the most outspoken critic of the Laissez-Faire order, has in effect stabilized this order, such that the profits of the business sector increased exactly in step with the deficits of the private/public households. This, and not the redistribution games on the financial markets, led to the spectacular increase in the volume of financial wealth that Keynesians wonder about today. Overall monetary profit has nothing to do with performance or productivity but is the mirror image of the increase in debt.
In this global game, it is the American and Greek people who got the short end of the stick. But only the Greeks are actually aware of it.
Egmont Kakarot-Handtke
References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2011a). The Emergence of Profit and Interest in the Monetary Circuit. SSRN Working Paper Series, 1973952: 1–22. URL
Kakarot-Handtke, E. (2011b). Primary and Secondary Markets. SSRN Working Paper Series, 1917012: 1–26. URL
Kakarot-Handtke, E. (2011c). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Employment. SSRN Working Paper Series, 2576867: 1–11. URL
Related 'Who or what exactly did Keynes save?' and 'Full employment through the price mechanism' and 'Austerity and the idiocy of political economists'. For details of the big picture, see cross-references Profit and cross-references Keynesianism.
It's all over — but for whom?
Comment on Dave Marsay on ‘It’s all over — Gödel’s incompleteness theorems’
Blog-Reference
Vagueness and inconclusiveness is a second-best strategy to avoid outright falsification. This helps to stay in business with a silly theory.
“Another thing I must point out is that you cannot prove a vague theory wrong.” (Feynman, 1992, p. 158)
For the same reason is Gödel, who shows another limit of proof, so often cited by the muddle heads of the so-called social sciences. Similarly with Duhem-Quine.
Already von Neumann identified fogginess as the root cause of substandard scientific performance. “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)
Economists cannot afford to get out of the home zone of inconclusiveness between true and false. “... 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)
Egmont Kakarot-Handtke
References
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hands, D.W. (2001). Reflection without Rules. Economic Methodology and Contemporary Science Theory. Cambridge, New York, NY, etc: Cambridge University Press.
Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.
For details about the significance of Gödel, axiomatization, and mathiness see here and here and here
Blog-Reference
Vagueness and inconclusiveness is a second-best strategy to avoid outright falsification. This helps to stay in business with a silly theory.
“Another thing I must point out is that you cannot prove a vague theory wrong.” (Feynman, 1992, p. 158)
For the same reason is Gödel, who shows another limit of proof, so often cited by the muddle heads of the so-called social sciences. Similarly with Duhem-Quine.
Already von Neumann identified fogginess as the root cause of substandard scientific performance. “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)
Economists cannot afford to get out of the home zone of inconclusiveness between true and false. “... 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)
Egmont Kakarot-Handtke
References
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hands, D.W. (2001). Reflection without Rules. Economic Methodology and Contemporary Science Theory. Cambridge, New York, NY, etc: Cambridge University Press.
Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.
For details about the significance of Gödel, axiomatization, and mathiness see here and here and here
July 1, 2015
Ditto and the hazards of diprosopus
Comment on David Ruccio on ‘War of finance’
Blog-Reference
“Diprosopus (Greek two-faced) is an extremely rare disorder whereby parts or all of the face are duplicated on the head. Few two-faced animals have survived... One of the most famous was Ditto, a pig. Ditto was raised to adulthood, but died of pneumonia caused by food inhalation when breathing through one muzzle while eating with the other.” (Wikipedia)
Like Ditto, economics has two faces: a political and a scientific face; and the two are at war. Political economics pushes an agenda, theoretical economics tries to figure out how the actual economy works. Political economics has hijacked theoretical economics.
As a result, theoretical economics is in a rather poor condition. Neither Walrasianism, Keynesianism, nor the rest is acceptable when the scientific criteria of material and formal consistency are applied. Hence, economics has nothing to offer in the way of real scientific value.
In the beginning, economists defined themselves as political economists. However, note how J. S. Mill drew a clear line between politics and science: “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.” (Mill, 2006, p. 950)
It is fair to say that not only Orthodoxy is in the grip of politics but Heterodoxy, too. Hence, economics is entirely outside of science.
David Ruccio's post is a case in point. It is not about economics proper, but about the use of economic institutions in a 'war of finance.' My point is not whether this description is true/false, but that with this war report we are in the realm of politics and have left economics far behind.
My question is what Heterodoxy stands for at the moment and what it should be in the future. My idea is clear and simple: (i) Heterodoxy should replace Orthodoxy as the superior scientific approach, and (ii), economics as a scientific discipline should refuse to be the useful idiot in any politician’s war whatsoever.
These were Ditto's last words: One face is more than enough.
Egmont Kakarot-Handtke
References
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.
Blog-Reference
“Diprosopus (Greek two-faced) is an extremely rare disorder whereby parts or all of the face are duplicated on the head. Few two-faced animals have survived... One of the most famous was Ditto, a pig. Ditto was raised to adulthood, but died of pneumonia caused by food inhalation when breathing through one muzzle while eating with the other.” (Wikipedia)
Like Ditto, economics has two faces: a political and a scientific face; and the two are at war. Political economics pushes an agenda, theoretical economics tries to figure out how the actual economy works. Political economics has hijacked theoretical economics.
As a result, theoretical economics is in a rather poor condition. Neither Walrasianism, Keynesianism, nor the rest is acceptable when the scientific criteria of material and formal consistency are applied. Hence, economics has nothing to offer in the way of real scientific value.
In the beginning, economists defined themselves as political economists. However, note how J. S. Mill drew a clear line between politics and science: “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.” (Mill, 2006, p. 950)
It is fair to say that not only Orthodoxy is in the grip of politics but Heterodoxy, too. Hence, economics is entirely outside of science.
David Ruccio's post is a case in point. It is not about economics proper, but about the use of economic institutions in a 'war of finance.' My point is not whether this description is true/false, but that with this war report we are in the realm of politics and have left economics far behind.
My question is what Heterodoxy stands for at the moment and what it should be in the future. My idea is clear and simple: (i) Heterodoxy should replace Orthodoxy as the superior scientific approach, and (ii), economics as a scientific discipline should refuse to be the useful idiot in any politician’s war whatsoever.
These were Ditto's last words: One face is more than enough.
Egmont Kakarot-Handtke
References
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.
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