September 6, 2016

False and true economic laws

Comment on Sandwichman on ‘The Outlaws of Political Economy’


The founding fathers were straightforward people and called themselves political economists, that is, they left no doubt that their main business was agenda pushing. They were, though, well aware that it helps much to back up one’s soapbox arguments with some authority.

Moses established the prototype of political communication by claiming that God personally had spoken to him. Knowing his goat herders, the lawgiver did not forget to hint at severe punishment in case of violation. Thus the meme of behavioral/social law was firmly implanted. Things changed fundamentally when the Greeks invented science and draw the demarcation line between belief/opinion/doxa and knowledge/episteme which referred to the laws of Nature/Logic. After Newton and his wildly successful Law of Gravitation, it became clear to economists that the standards of argumentation had risen: storytelling had to be replaced by proof.

“Now there is simply no doubt that whatever was the source of inspiration for Jevons, Menger and Walras, all three invoked whatever physics they knew to lend prestige to their theoretical innovations. ... Adam Smith, Ricardo, James Mill and McCulloch had been just as eager in earlier days to invoke the name of Newton to legitimise their theoretical claims.” (Blaug, 1989, p. 1226)

Lacking a genuine understanding of science, though, economists borrowed only the outer form and thus established what Feynman famously called a cargo cult science. This is how the use of the concept of law became purely rhetorical in economics.

The foundational blunder of economics consists in applying the idea of scientific law to human behavior. There is NO such thing as behavioral law and this has been known to genuine scientists in all ages: “The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition ... is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown, 2011, p. 211)

Economists are incompetent scientists and therefore never had much compunction to postulate/accept constrained optimization as their foundational behavioral law. The other methodological lunacy has been to take equilibrium into the set of foundational propositions a.k.a. axioms (Weintraub, 1985, p. 147).

Economics is NOT a science of behavior (Hudík, 2011). Economics is NOT a so-called social science like psychology/sociology and NOT a natural science like physics. Economics is a systems science. A system is subject to systemic laws which have the same status as physical laws. The First Economic Law (2014b, eq. (12)) is shown on Wikimedia AXEC06:

There are systemic laws of different degrees of complexity, for instance, the Profit Law or the structural Law of Supply and Demand (2014a), but NO behavioral laws.

The representative economist never got the crucial methodological point and this is why economics is a failed science. The provable fact of the matter is that the monetary economy is governed by systemic laws which are comprehensible to the scientific mind, which in turn EXCLUDES Walrasians, Keynesians, Marxians, Austrians in general, and Sandwichman in particular.

Egmont Kakarot-Handtke

Blaug, M. (1989). Review. Economic Journal, 99(398): 1225–1226. URL
Brown, K. (2011). Reflections on Relativity. Raleigh:
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Kakarot-Handtke, E. (2014a). The Law of Supply and Demand: Here it is Finally. SSRN Working Paper Series, 2481840: 1–17. URL
Kakarot-Handtke, E. (2014b). The Synthesis of Economic Law, Evolution, and History. SSRN Working Paper Series, 2500696: 1–22. URL
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal.American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

REPLY to Roger on Sep 7

I did not say that Aristotle found all laws of physics, I said that the Greeks invented science which means, roughly speaking, they showed the difference between brainless political/religious blather and scientific truth and how to arrive at the latter: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing. (Aristotle)

Here are the premises of orthodox economics: “HC1. There exist economic agents. HC2. Agents have preferences over outcomes. HC3. Agents independently optimize subject to constraints. HC4. Choices are made in interrelated markets. HC5. Agents have full relevant knowledge. HC6. Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub, 1985)

These premises are provably false and cannot by any stretch of the imagination produce scientific knowledge of how the actual economy works. The representative economist, though, swallows this rather obvious junk hook, line, and sinker for about 150 years. What he then produces are lengthy but pointless sitcoms like lump-of-labor, the capital controversy, saving-equals-investment, Say’s law, voluntary/involuntary unemployment, and so on.

The only thing the informed layperson has to know when she/he tries to make sense of the representative economist’s argument is: It isn’t science, it isn’t true, it is just another astounding rubbish from Econ 101.#1

#1 A paraphrase of K. Humphreys' standing bottom line.