August 25, 2015

An epic detour

Comment on Lars Syll on ‘Has macroeconomics — really — progressed?’


The more fundamental question is ‘Has economics progressed?’ and the answer is No: “... we know little more now about ‘how the economy works,’ or about the modus operandi of the invisible hand than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations.” (Clower, 1999, p. 401)

The deeper reason is that the profit theory is false since Adam Smith — with the representative economist in blissful ignorance since then (2014).

With regard to macroeconomics, Keynes has to be praised for realizing that nothing less than a paradigm shift is required. Yet, Keynes, too, could not solve the profit puzzle. Because of this, the macroeconomic revolution is stuck exactly where Keynes left it. “The classical theorists resemble Euclidean geometers in a non-Euclidean world ... in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (1973, p. 16)

This was the situation back in 1936. From this point onwards economists walked straight into the wood for an epic detour. The illusory progress of both New Classicals and New Keynesians consists of going further in the wrong direction.

As long as economics is built upon nonentities there will not be one iota of progress. All theories/models that take at least one of the following concepts into the premises are dead from the beginning: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/prices, and ergodicity.

It is a bit perplexing that some economists still think that there has been any progress. This is the fact of the matter: “The last thirty years seem to this observer to have been downhill almost all the way. So much of the literature ... I see as silly beyond all expectation and unscholarly beyond all endurance.” (Leijonhufvud, 1998, p. 234)

Replace ‘thirty years’ with ‘eighty years’ for the correct positioning of macroeconomics.

Egmont Kakarot-Handtke

Clower, R. W. (1999). Post-Keynes Monetary and Financial Theory. Journal of Post Keynesian Economics, 21(3): 399–414. URL
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Leijonhufvud, A. (1998). Discussion: Involuntary Unemployment One More Time. In R. E. Backhouse, D. M. Hausman, U. Mäki, and A. Salanti (Eds.), Economics and Methodology. Crossing Boundaries, 225–235. Houndmills, Basingstoke, London: Palgrave.