March 1, 2015

Yes, Orthodoxy is incoherent but, unfortunately, Heterodoxy also

Comment on Editor on ‘A perverse intellectual hierarchy’


“Thomas Kuhn said that paradigm shift only occurs when a new and better paradigm emerges — At present there is a wide variety of proposed alternatives to conventional economics, but no consensus on any particular approach. Without creating some focal points of consensus, we cannot create the desired transformation.” (see intro)

This, of course, is absolutely correct and the curious thing is that it is long known among economists. “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)

What the history of economic thought tells us is that Heterodoxy never had a clue how to perform the required Paradigm Shift. The heterodox approaches are themselves incoherent. Because of this, Heterodoxy pleads for pluralism. This means it has given up the idea that there is something like a true economic theory. As soon as all are content with the pluralism of false theories there is no longer any need for a Paradigm Shift. Decorative innovation consists of a bit more commonsensical realism here and the application of a fancy new tool there.

It is a fact that economists cannot explain how the economy works. In technical terms, the fatal methodological defect of Orthodoxy is that it is based on behavioral axioms. Yet, no specific behavioral assumption can serve as a starting point for economic analysis. From this follows for Constructive Heterodoxy that the subjective axiomatic foundations have to be replaced. This is what a Paradigm Shift is all about. Based on a set of objective axioms, all economic conceptions have to be reconstructed from scratch.

The reconstruction of the foundations of economic theory is already on course
Essentials of Constructive Heterodoxy: the market
Essentials of Constructive Heterodoxy: Say's Law
Essentials of Constructive Heterodoxy: aggregate demand
Essentials of Constructive Heterodoxy: money, credit, interest

Egmont Kakarot-Handtke

Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.

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