August 4, 2016

Heterodoxy’s scientific self-burial

Comment on Paul Spicker on ‘On economics as a science’


Since Adam Smith and Karl Marx, economics claims to be a science. And this claim is officially enshrined in the title: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

Now Paul Spicker tells us that economics is not a science as everybody thought until now but practical wisdom, an exercise in what Aristotle called phronesis: “It is all about judgment ― reading the situation, identifying patterns, applying conflicting principles, anticipating problems, spying opportunities. There are no certainties; there are tendencies, warnings, prescriptions and the recognition of trends or patterns, all subject to many reservations.”#1 This sounds sensible but, obviously, phronesis is very different from what Aristotle called episteme=knowledge=science.

The fact of the matter is that economics is a failed science and after more than 200 years there is proof enough that both orthodox AND heterodox economists are incompetent scientists (2013). Science is well-defined by formal and material consistency: “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). Clearly, economics does NOT satisfy the criteria of formal and material consistency. Walrasianism, Keynesianism, Marxianism, Austrianism are mutually contradictory and each one is provably false. Strictly speaking, there is no economics only a heap of scientific garbage. The question is how to proceed from this incontrovertible fact? Phronesis has always been an attractive option and an easy way out of the calamity for the representative economist, but let us look at the bigger picture.

(i) First of all, the word sciences has to be eliminated from the title “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. The general public has to be promptly informed of the actual state of economics. Actually, economics is a failed science.

(ii) All attempts to redefine science and to soften the criteria so that a proto-science like economics fits in have to stop immediately. Science is well-defined and one is either in or out. There is nothing to negotiate, neither for economics in particular nor for the so-called social sciences in general.

(iii) There is no point in explaining again and again why economics is not and cannot be a science. Here is, once and for all, the exhaustive tick-box list of excuses: “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). Note well, that NONE of these arguments holds water, except for “Economics is not a Science with a capital S” which translates into the correct short variant “Economics is not a Science” which in turn contradicts all claims from Adam Smith onward.

(iv) With regard to the future, economists have to make up their minds whether they intend to comply with the immutable standards of science. If so they have to put forward an idea of how to perform the necessary Paradigm Shift. Otherwise, voluntary/involuntary retirement from academia/science is inevitable. What has been produced so far is scientifically forever unacceptable.

(v) All those who know at their hearts that they will never rise above the level of agenda-pushing and storytelling have only the option to follow the lead of Paul Spicker and to busy themselves with space/time specific practical problems without any understanding of the big picture. Their proper business is phronesis or what nowadays is called consultancy. Peirce nicely defined the difference between the scientist and the consultant: “True science is distinctively the study of useless things. For the useful things will get studied without the aid of scientific men.” (1931, 1.76)

The spirit of science is very different from the utilitarianism of the commonsensical and practical man. In a nutshell, the following anecdote highlights the clash of cultures: “At one point in that 100 years, Lord Ernest Rutherford was visited by a minister of the Queen. He proudly and busily demonstrated what he had learned about radio. The minister said, that’s all very good, but what is it good for. Lord Rutherford replied that he did not know, but he guaranteed that at some point the government would tax it.”#2

Accordingly, the task of the economist as a scientist is to figure out how the monetary economy works. Not more, not less. It is not his task to figure out how people behave (Hudík, 2011). This, indeed, is the subject matter of psychology, sociology, political science, and other so-called social sciences. Economics is NOT a social science but a systems science. A system is subject to objective systemic laws while human nature/behavior/action is contingent. Strictly speaking, for deeper methodological reasons there is no such thing as ― what Hume called ― a Science of Man.

Economics started as Political Economy and what economists never understood is that NO way leads from the understanding of human nature/behavior/action to the understanding of how the economic system works. The feeble thinkers and strong blatherers that call themselves economists have to this day not figured out how the monetary economy works, more specifically, how the price and profit mechanism works. This is not to say, of course, that economists know nothing. In fact, they know some easy to grasp practical, institutional, or historical details. This, though, is phronesis, as Aristotle made clear, but NOT episteme/science.

Political Economy is agenda pushing and economists from Smith, Ricardo, Marx, Keynes, Hayek, Friedman to the present were agenda pushers first and scientists second. As a matter of fact, they were lousy scientists because they never figured out how the monetary economy works. How do we know this? We know this for sure because the Profit Theory is provably false and without the correct profit theory, the economist cannot rise above the level of storytelling.

Economics is a failed science. The very task of Heterodoxy is to make economics a science. To this day, Heterodoxy did not succeed. What is needed is a Paradigm Shift, that is, a full replacement of the ridiculous behavioral axioms of standard economics. Phronesis, as proposed by Paul Spicker, is not a Paradigm Shift but scientific suicide and self-burial.

Egmont Kakarot-Handtke

Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Peirce, C. S. (1931). Collected Papers of Charles Sanders Peirce, volume I. Cambridge: Harvard University Press. URL
Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The Academic Scribblers. Princeton: Princeton University Press, 3rd edition.

#1 See his RWER paper.
#2 Source PSW.