Blog-Reference and Blog-Reference Nov 29
“As some one has said, it would seem that even the theorems of Euclid would be challenged and doubted if they should be appealed to by one political party as against another.” (Fisher, 1911, PF. 6)
Economics is a failed science. The main reason is that it had been hijacked from the very start by political economists and never could get rid of these folks.
It is of utmost importance to distinguish between political and theoretical economics. The main differences are (i) the goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works; (ii) in political economics anything goes, in theoretical economics, scientific standards are observed.
The sole criterion of science is true/false and scientists tackle only those problems that can be clearly decided. The twilight zone between true and false is not denied but simply not of scientific interest. This no-go zone, though, is the natural ecological niche for non-scientists, anti-scientists, politicians, commonsensers, gut feelers, storytellers, ideologues, believers, know-nothings, opinion-holders, confusers, ignoramuses, naives, cranks, etcetera.
Let us call this zone where political economics is at home and where “nothing is clear and everything is possible” (Keynes, 1973, p. 292) the opinion zone. The common denominator of the inhabitants of this intellectual swamp between true and false is that they have, for whatever reasons, no real interest in clear-cut answers and real knowledge.
The curse of economics has been exactly spotted by Schumpeter: “It is only our inability to divorce research from politics, or our suspicion, all too often justified, that the other fellow cannot analyze with single-minded devotion to truth, which makes problems and party issues out of decisions that do not excite anyone in more fortunate fields of research.” (1994, p. 566)
Theoretical economics is entirely different from political economics: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)
Formal consistency is established by the axiomatic-deductive method. Material consistency is established by empirical testing, i.e. by correctly applying well-defined statistical methods. Both elements are required. There is no such thing as an opposition between theory and practice, or rigor and relevance, or deduction and induction.
The answer to the question of why the scientific method apparently has not worked with overwhelming success in economics is pretty obvious: political economists are (i) scientifically incompetent, and (ii) content with the inconclusive status quo and not really interested in definitive true/false answers: “Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992, p. 248)
To deny the very possibility of a true — formally and materially consistent — economic theory is the ultimate intellectual corruption of political economics.
The interaction of the two indispensable elements of the scientific method will work their magic also in economics — but not before losers like Walrasians, Keynesians, Marxians, Austrians, MMTers, Pluralists, etc. have been expelled from the scientific community.
Fisher, I. (1911). The Purchasing Power of Money. Its Determination and Relation to Credit, Interest, and Crises. Library of Economics and Liberty. URL
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge 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.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
For details of the big picture see cross-references Political Economics/Stupidity/Corruption.