December 31, 2014

From opinion recycling to real scientific progress

A general comment on this blog's [The Slack Wire] content


It is widely known that the representative economist does not understand how the economy works. Many explanations have been advanced. Putting aside all individual specifics and exceptions for the moment, the main reason is this.

Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionalists, nor Monetary Economists, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor Econophysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit (cf. Desai, 2008). Hence, 'they fail to capture the essence of a capitalist market economy' (Obrinsky, 1981, p. 495).

Neither orthodox nor heterodox economists understand the two most important phenomena in the economic universe: profit and income (2014b; 2014a). Because of this economists have nothing to offer in the way of scientifically founded advice.

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)

It is important to distinguish between political and theoretical economics. In political economics 'anything goes'; in theoretical economics, scientific standards are observed. The fundamental rule that guarantees the self-government of the scientific community demands to accept refutation. Refutation refers to material and formal consistency.

“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, p. 369)

Political economics is ignorant of this rule and preoccupied with recycling 'dead ideas' (Quiggin, 2010). This explains the secular stagnation of economics.

Because they lack the correct profit theory the contributions to this blog cannot claim to offer more than personal opinion. Of opinions, though, economics always had plenty. What is needed is knowledge ― scientific knowledge, that is.

Egmont Kakarot-Handtke

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. (2014a). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Obrinsky, M. (1981). The Profit Prophets. Journal of Post Keynesian Economics, 3(4): 491–502. URL
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.