Blog-Reference and Blog-Reference
Most people/economists have no proper understanding of what economics is all about. Therefore it is, first of all, of utmost importance to distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, scientific standards are observed.
Theoretical economics has to be judged according to the criteria true/false and NOTHING else. The history of political economics from Adam Smith to Hayek and beyond can be summarized as an utter scientific failure. A closer look at what is naively called economics as if it were a homogeneous entity shows that theoretical economics has been captured by the agenda pushers of political economics. Smith and Ricardo fought for Liberalism, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Varoufakis.
It is a widespread misunderstanding to think that people who talk about the economy understand how the economy works. Hayek’s Road to Serfdom is a political pamphlet and it is not backed by the true economic theory simply because Hayekian economics is scientifically worthless storytelling.
Hayek claimed that a system of competitive markets is efficient and stable and a superior means to aggregate knowledge while preserving decentralization. Like general equilibrium theory, he never delivered a valid proof of this claim. Hayek’s defense of the market system has NO sound scientific foundation. The provable fact of the matter is that the market system is inherently unstable.#1
Hayek, of course, had the right to write political pamphlets, to defend capitalism, to support Thatcher, to found the political club Mont Pelerin and to dabble in sociology and political philosophy. One thing, though, should be perfectly clear: the moment an economist starts with politics he leaves economics, understood as a science, for good.
Political economists of all stripes are characterized by four common traits: (i) They are mainly occupied with sociology, psychology, anthropology, political science, history, law/institutions, Darwinism/evolution theory, social philosophy, etcetera. That is, they miss the essentials of economics proper. (ii) They use theoretical economics as a means/support for their agenda. By this, they abuse science unknowingly or knowingly. (iii) As far as they have tried to underpin their agenda theoretically it can be proved in each case that their approaches lack formal and material consistency. (iv) They have NO idea about how the actual economy works because they lack the correct profit theory since Adam Smith/Karl Marx.
It is not decisive what the political agenda is: ALL of the political economics is cargo cult science (Feynman’s term). Political economics has produced nothing of scientific value for 200+ years. This includes the storyteller and agenda pusher Hayek.
#1 Could we, please, all focus on the key question of economics?
Related 'Economic policy advice has never had sound scientific foundations' and 'Economics ― a Zombie wrestling show' and 'Economics is not post-truth but pre-truth' and cross-references Incompetence