December 31, 2014

History and methodology: no trouble of any sort

Comment on Lars Syll on 'Proper use of math in economics'


You say: “If you explain the triumph of theoretical importance as a result of a superior thought system, then you are in deep trouble because almost every day there is a post on this blog that explains that the principles and axioms of neoclassical economics are false.”

You have obviously some trouble to keep things properly apart.
(i) It is one thing to say theory A is true/false.
(ii) It is another thing to say that theory A is supported in various ways in country X to the detriment of theory B, C, ...

Even if we agree perfectly on the historical fact (ii) this does not imply anything about the truth or falsity of theory A. This is an entirely separate question. Scientists focus on (i) and historians on (ii). This is not to deny that both questions get mixed up in the mind of a concrete scientist in a concrete historical setting. However, as a matter of principle, the political success of a theory does not prove anything for or against its scientific value.

What I say is:
(i) Neoclassical theory is a failure.
(ii) The behavioral axioms of the neoclassical approach are not the proper starting point of theoretical economics. This explains (i).
(iii) The set of structural axioms provides the correct formal foundations of theoretical economics. Structural axioms are methodologically superior to behavioral axioms (2014).
(iv) From the structural axiom set follow testable propositions (see the formula above, for example).
(v) If anybody thinks that the structural axiom set is false, he is invited to refute one proposition that follows deductively from it.
(vi) Methodological discussions are no substitute for a test. In fact, they are a distraction. Only the test counts.

Whether some government agency has promoted neoclassical theory during the cold war is irrelevant for the true/false question. Neither government, nor church, nor history has anything to say about true/false, it never had, and never will. This is not to deny that these institutions try to exert illegitimate/incompetent influence on theoretical economics. This is an organizational problem but not a scientific problem.

The best that theoretical economics can give history at the moment is the Economics God Equation as shown on Wikimedia AXEC25a:

The Economics God Equation

Take it, ignore it, or try to refute it.

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics:
Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL