April 13, 2017

The Law of Economists’ Increasing Stupidity

Comment on Matias Vernengo on ‘Economic Regularities and "Laws" and the Riksbank Prize too’


Because of its many connotations, the notion of scientific law has caused a lot of confusion among laypersons and a lot of blather among philosophers. It has in the meantime been replaced by the neutral notion of invariance. Nozick defines invariance thus: “An objective fact is one that is invariant under all admissible transformations.” The general notion of invariance goes back to Noether and it embraces special cases like causality or conservation of energy.

The representative economist still sticks to an obsolete notion of law. The centerpiece of economists’ scientific incompetence is the Law of Supply and Demand.

Science is well-defined: “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)

Science is cumulative. Only certain knowledge can be admitted to the corpus of science because nothing can be built upon uncertain knowledge or mere opinion. And here is the crux of the so-called social sciences: “By having a vague theory it is possible to get either result.  ... It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (Feynman)

This is why there is no growth of knowledge in the so-called social sciences: “Indeed, Alexander Rosenberg maintains that there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman)

Manifest failure, in turn, is the main reason why the so-called social sciences stubbornly try to soften scientific standards wherever they can, or, as Blaug put it, to play tennis with the net down. This is what the talk of economics as ‘inexact and separate science’ amounts to. The limiting case of continuous softening of scientific standards is anything-goes which is the motto in the pluralistic swamp where “nothing is clear and everything is possible”. (Keynes)

For 200+ years economists bridge the chasm between scientific appearance and proto-scientific reality with excuses: “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. ” (Solow)

Economists have to redefine their subject matter. To explain individual and social behavior is NOT their business but the task of psychology, sociology, political science, social philosophy, history, anthropology, biology, Darwinism/Evolution Theory, etcetera.

Explaining how the actual economy works is the proper task of economics. Economists have failed at this task. After more than 200 years they have not even figured out what profit is, that is, they do not understand the foundational phenomenon of their subject matter.

For deeper methodological reasons, the so-called social sciences cannot rise above the level of storytelling. And this is what Walrasianism, Keynesianism, Marxianism, and Austrianism are. Neither approach satisfies the non-negotiable criteria of science, i.e., material and formal consistency.

Economists face this option: to continue with storytelling and to be expelled from the sciences or to restart economics as a systems science. This means in concrete terms to move from false behavioral microfoundations and false Keynesian macrofoundations to objective/structural/behavior-free/consistent macrofoundations. This Paradigm Shift yields exact and testable Systemic Laws.#1

Economists to this day have not understood how science works: “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). This means that economics cannot be built upon NONENTITIES like constrained optimization, rational expectations, equilibrium, or the Keynesian Income = Value of Output.#2

To paraphrase Matias Vernengo: ‘So when you hear Walrasianism, Keynesianism, Marxianism, Austrianism, Pluralism, think proto-scientific BS’.

Egmont Kakarot-Handtke

#1 For example, the First Economic Law on Wikipedia AXEC06 or the Profit Law Wikimedia AXEC08.
#2 How Keynes got macro wrong and Allais got it right

REPLY to Tom Hickey, Magpie on Apr 13

Your shop talk about Marx lacks substance because Marx never understood what profit is. This lethal blunder is the common denominator of Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism. For details see Profit for Marxists.

REPLY to Tom Hickey, Magpie on Apr 13/2

The economists’ idea of law traditionally refers to sociology or psychology or something in-between called Human Nature:

"The fundamental problem, therefore, of the social science, is to find the laws according to which any state of society produces the state which succeeds it and takes its place." (Mill)

"Intrinsically, it is not a question of the higher or lower degree of development of the social antagonisms that result from the natural laws of capitalist production. It is a question of these laws themselves, of these tendencies working with iron necessity towards inevitable results." (Marx)

"That Political Economy informs us of the laws which regulate the production, distribution, and consumption of wealth. ... This definition is free from the fault which we pointed out in the former one. It distinctly takes notice that Political Economy is a science and not an art; that it is conversant with laws of nature, not with maxims of conduct, and teaches us how things take place of themselves, not in what manner it is advisable for us to shape them, in order to attain some particular end." (Mill)

"The foundation of political economy and, in general, of every social science, is evidently psychology. A day will come when we shall be able to deduce the laws of social science from the principles of psychology …" (Pareto)

"From the above considerations the following seems to come out as the correct and complete definition of Political Economy: – 'The science which treats of the production and distribution of wealth, so far as they depend upon the laws of human nature.' Or thus – 'The science relating to the moral or psychological laws of the production and distribution of wealth'.” (Mill)

That there is NO such thing as a behavioral/social/historical law has been known to scientists (in contradistinction to economists) 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)

There are NO laws of human behavior/nature/action, neither psychological nor social nor historical, but there are systemic laws of the monetary economy, e.g. the Profit Law.#1

It is a SYSTEMIC law that the monetary economy will eventually break down.#2

#1 The Synthesis of Economic Law, Evolution, and History
#2 Mathematical Proof of the Breakdown of Capitalism

REPLY to Tom Hickey, Magpie on Apr 14

The time evolution of the economic system is given with the Economics God Equation as shown on Wikimedia AXEC25
The Economics God Equation®

This equation embodies the open simulation of the elementary consumption economy from t=0 to infinity.

Could you please condense the essentials of Marx’s theory to one equation in order to enable the transition from clueless philosophical blather to science?

REPLY to Tom Hickey on Apr 14

You sum up: “Marx would say it is the dynamics of capitalism that creates the conditions for its own transformation into the succeeding phase.”

This, of course, is an entirely vacuous statement. Replace capitalism with kitten or universe and it fits just as perfectly. Tautologies are always true.

To recall, the challenge was: “The fundamental problem, therefore, of the social science, is TO FIND THE LAWS according to which any state of society produces the state which succeeds it and takes its place. (Mill)

What Marx did was sociology, history, storytelling, prophecy, and agenda-pushing. He had NO idea how the monetary economy works because he never figured out what profit is.#1 That is rather bad for an economist but what is worse is that After-Marxians did not spot and rectify Marx’s blunders in the past 200+ years.

Marx would say that the dynamics of Marxianism is zero and that it creates the conditions for its own deadlock in every succeeding phase. The same holds for Walrasianism, Keynesianism, and Austrianism. The dynamic next thing in economics is the “transformation into the succeeding phase” also known as Paradigm Shift.

#1 Profit for Marxists

REPLY to Tom Hickey, Magpie on Apr 14

Between the early Marx and the late Marx lies Darwin. It is well-known that Darwinism changed the whole notion of natural law: “The concept of natural selection gave Darwin the greatest difficulty. True to the principles of mechanistic determinism, which like others of his generation he thought to be the essence of science, Darwin rejected Lamarck’s view ... Darwin’s persistence on this point produced finally not simply reinforcement of the mechanistic philosophy, but a fundamentally altered concept of order in nature.” (Bannister)

What is the VERY LAST word in the whole issue? “And in 1883, at Marx’s funeral, Engels said, ‘Just as Darwin discovered the law of development of organic nature, so Marx discovered the law of development of human history.’”#1

So, Marxianism is history and sociology and storytelling but neither economics nor science: “That is why Descartes said that history was not a science ― because there were no general laws which could be applied to history.” (Berlin)

Science looks for invariance and is therefore ahistorical.

Each falling apple is a unique historical event. There are arbitrary many causes for an apple to fall: a hailstorm, playing children, an exploding meteorite, material fatigue, an earthquake, and so on. That is so OBVIOUS that no physicist ever lost many words about the historicity of falling apples.

Accordingly, when the apple fell on Newton’s head* he did NOT run to his neighbor in order to tell him the story but he wrote down the COMMON principle that underlies the motion of ALL falling bodies including the moon and the stars, i.e. the Law of Gravity. This law is ahistorical but can be used to explain (in conjunction with other factors) the history of the universe. This is how law and history consistently fit together.

Scientists are NOT AT ALL interested in predicting when the next apple will fall from the tree. Feynman: “The future is unpredictable”. What they indeed predict is position and velocity at any point in time once the apple has started to fall. The commonsenser’s view of reality is entirely DIFFERENT from the scientist’s view. The commonsenser’s view is practical, utilitarian, trivial, and false, the scientist’s view is abstract, general, and true.

Marx’s narrative is the old narrative about bad and good guys (capitalists, workers) and that the bad guys will eventually be punished and the good guys will be victorious. Everybody understands and likes this story but it is NOT science.

Economics is about how the market system works. Marx did not understand it, and neither did Adam Smith.#2 There is not much use discussing at great length what Marx, Smith, Keynes, Walras, and other incompetent scientists really meant and thus perpetuating the pluralism of false theories.

#1 ISR
#2 The Profit Theory is False Since Adam Smith

* It does not matter in the present context that the apple story is folklore and not an accurate historical account.

REPLY to Tom Hickey, Magpie on Apr 15

Let us sum up. The starting point was: “Economists need lose the term ‘law.’ There are no ‘laws of economics,’ or any other social science, that are comparable the laws of nature discovered in the natural science, owing to the differences in subject matter.” (Vernengo)

It is clear by now:
― There are NO historical laws that determine the development of society.
― Economics is NOT about society but about the economic system as a subsystem of society.
― There are systemic laws, e.g. the Profit Law.
― Matias Vernengo is utterly wrong about (i) the subject matter of economics, (ii) the concept of scientific law.

Neither Walrasians, Keynesians, Marxians, nor Austrians have any idea of the systemic laws because they wasted 200+ years second-guessing human motives and behavior, which is a pursuit that can be left to psychologists, sociologists, philosophers, and other fake scientists.

Time to get all proto-scientific folks out of economics.

REPLY to Tom Hickey on Apr 15

There is political and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, and the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

A closer look at the history of economic thought shows that theoretical economics had been hijacked from the very beginning by the agenda pushers of political economics. Smith, Ricardo, Malthus, Marx, Keynes, Hayek, Friedman, Krugman, Lucas and almost everybody in-between falls into the category of a political economist.

Political economics has produced NOTHING of scientific value in the last 200+ years. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept of profit wrong.

An economist who does not understand profit, i.e. the pivotal concept of his subject matter, is a scientific laughing stock. This holds for Walras, Keynes, Marx, and Hayek who failed as scientists but were accredited as useful idiots in the political Circus Maximus.

Because economists lack the true theory their economic policy guidance has had NO sound scientific foundation since Adam Smith/Karl Marx. Both, the defense and the critique of the market economy lack valid proof and therefore cannot be taken seriously. It’s merely confused political blather.

REPLY to Tom Hickey on Apr 16

I said: “Political economics has produced NOTHING of scientific value in the last 200+ years. ... This holds for Walras, Keynes, Marx, Hayek who failed as scientists but were accredited as useful idiots in the political Circus Maximus.”

You said: “Right. That is how political economy works.”

The crucial point is that this is NOT how SCIENCE works. Yet, since Adam Smith AND Karl Marx economists claim to do science. Marx condemned political economics in no uncertain terms as vulgar economy: “Vulgar economy really does nothing else but to interpret, in doctrinaire fashion, the ideas of persons entrapped in capitalist conditions of production and performing the function of agents in such production, to systematize and to defend these ideas. ... So long as the ordinary brain accepts these conceptions, vulgar economy is satisfied. But all science would be superfluous, if the appearance, the form, and the nature of things were wholly identical.” And “The real science of modern economy does not begin until theoretical analysis passes from the process of circulation to the process of production.”#1 This is the essence of Marx’s approach.

So we have first to distinguish between theoretical economics (= science) and political economics (= agenda-pushing) and then check whether a theory satisfies the well-defined criteria of science.

Marx committed himself to science: “I welcome every opinion based on scientific criticism.” This means that he accepted the scientific criteria of material and formal consistency as the ultimate arbiter.

Because Walrasianism, Keynesianism, Marxianism, and Austrianism are PROVABLY false these failed approaches have to be thrown out of science and their adherents, too. Let’s face the facts, that includes you.

#1 Capital, Vol. III, A Critique of Political Economy

REPLY to Bob, Magpie on Apr 16

You said: “You cannot predict the future, I gather. Fine. What can you actually do to show you really know what you are talking about? In practical, everyday terms, what’s your theory good for? Speak now or forever hold your peace.”

For details about the difference between the ordinary and the scientific sense of prediction see ‘Science does NOT predict the future’.#1

So what is the true theory good for? “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

False theory leads to false policy guidance. Scientifically incompetent economists bear the intellectual responsibility for the social devastation of mass unemployment#2 and the extremely biased distribution.#3

Incompetent scientists are a menace to their fellow citizens. Napoleon recognized this long ago: “Late in life, moreover, he claimed that he had always believed that if an empire were made of granite the ideas of economists if listened to, would suffice to reduce it to dust.” (Viner)

If you do not want to be reduced to dust, endorse the true theory.

#1 See here and the label Prediction
#2 Mass unemployment: The joint failure of orthodox and heterodox economics
#3 Austerity and the idiocy of political economists

REPLY to Magpie on Apr 16

You said: “I just want an small sample of the revelation, of the your true teachings. And I want it now. Here, for all of us to see. Immediately.”

You are suffering from grave misunderstandings. As the philosopher Peirce once remarked on a similar occasion: “My book will have no instruction to impart to anybody. Like a mathematical treatise, it will suggest certain ideas and certain reasons for holding them true; but then, if you accept them, it must be because you like my reasons, and the responsibility lies with you. Man is essentially a social animal: but to be social is one thing, to be gregarious is another: I decline to serve as bellwether. My book is meant for people who want to find out; and people who want philosophy ladled out to them can go elsewhere. There are philosophical soup shops at every corner, thank God!”

In one word: Skiddoo!

SUMMING UP on Apr 17

Keynesianism has been scientifically dead in the cradle 80+ years ago but Matias Vernengo has not realized it to this day.

Marxianism has been scientifically dead in the cradle 200+ years ago but Tom Hickey/Magpie/Bob have not realized it to this day.

There are indeed laws in economics as I stated in my initial post, first and foremost ‘The Law of Economists’ Increasing Stupidity’. This law holds also for Walrasians and Austrians and this explains why economics is a failed science.