“Thousands upon thousands of scholars, as well as thousands of statesmen and men of affairs, have contributed their efforts to the attempt to understand the course of events of the economic world. And today this field of investigation is being cultivated more extensively, than ever before. How is it, then, that in all these years, and with all the undoubted talent that has been lavished upon it, the subject of economics has advanced so little?” (Schoeffler, 1955, p. 2)
On closer inspection economics has not advanced at all compared to the contemporaneous evolution of physics, for example. What obscures the de facto regression is that economists have always taken in edge-of-science tools that have been developed elsewhere. Thus, over more than two centuries now, economics gave the impression of scientific progress while it has not moved one millimeter above the proto-scientific level of Adam Smith: “... 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)
When economists are occasionally sober after feasting in best-of-all possible-worlds and queen-of-social-sciences storytelling they seek an explanation for their dismal performance and they rate themselves readily down to a science with a lowercase s.
“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)
Given a recalcitrant reality, clearly, the idea that there must be something wrong with economists seems rather farfetched. Just the contrary “Given these difficulties, it is extraordinary that economics has achieved as much as it has.” (Dow, 2006, p. 51)
So we could perhaps agree upon this: economics is not a failed science, only a lowercase-s science, and this is ultimately the fault of the subject matter.
The actual fact of the matter is, though, that economists have NEVER managed to come clear with the fundamental concepts of their subject matter. Economics is like medieval physics before the concept of energy was fully understood.
This is the state of affairs:
• Walrasianism/Neoclassics. Krugman gave the following definition: “So, what is neoclassical economics? … I think we mean in practice economics based on maximization-with-equilibrium.”*
And in this two-liner lies the whole explanation of why Neoclassics is a failed approach: because it is based on two NONENTITIES. For good methodological reasons, economics cannot take a behavioral assumption (constrained optimization or otherwise) and equilibrium into the premises. Economics is, to begin with, not a science of the behavior of humans but of the behavior of the economics system. As a matter of principle, no way leads from the understanding of human behavior to the understanding of how the economic system works.
• Keynesianism. Keynes famously defined the fundamental macroeconomic relations such: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (1973, p. 63)
This two-liner is provably false because Keynes never came to grips with profit. The equality/equalization of saving and investment is, in the Keynesian and in any other context, the absolutely reliable indicator of a fatal conceptual and logical defect.
• Heterodoxy has never come up with a serious alternative to both Walrasianism and Keynesianism and is rather content with knowing nothing and the pluralism of provably false theories. As Syll put it “Heterodoxy is different, you know, we do not lull us into the comforting thought that we know everything and that everything is measurable and we have everything under control. We just admit that we often simply do not know, and that we have to live with that uncertainty as well as it goes.”
The ultimate fault of Walrasianism and Keynesianism does not lie in any policy proposals but deep in the premises. As Keynes correctly realized with regard to Orthodoxy “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (1973, p. xxi)
The original logical defect of the representative economist consists of not having a consistent definition of the pivotal concepts of income and profit. The profit theory is false since Adam Smith and every economist can know this from the Palgrave Dictionary “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10)
Let this sink in. Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionalists, nor Monetary Economists, nor MMTers, 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. Hence, they all fail to capture the essence of the market economy.
That is the current abysmal state of economics. And, let it be clear: this is NOT the fault of the subject matter.
Clower, R. W. (1999). Post-Keynes Monetary and Financial Theory. Journal of Post Keynesian Economics, 21(3): 399–414. URL
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL
Dow, S. C. (2006). Economic Methodology: An Inquiry. Oxford: Oxford University Press.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Schoeffler, S. (1955). The Failures of Economics: A Diagnostic Study. Cambridge, MA: Harvard University Press.
Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The Academic Scribblers. Princeton, NJ: Princeton University Press, 3rd edition.
* Unreferenced quotes have already been used and referenced on this blog.
Immediately preceding Down and out.