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All confusion about economics derives from the fact that there are TWO economixes: political economics (= POL) and theoretical economics (= SCI). 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 the scientific standards of material and formal consistency are observed.
In the beginning, there was Political Economy. J. S. Mill defined it clearly as a social science: “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.” Or, a bit more specific with regard to economics: “The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.”
Economics started as a hodgepodge of sociology, history, folk psychology, and folk philosophy, which came under the heading of utilitarianism.
Classical Political Economy was carried one step further with methodological individualism: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow)
Methodological individualism is clearly defined by this set of behavioral axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)
Axiomatization is not only laudable but methodologically indispensable: “We should also like to underline Debreu’s effective reference to Bacon when he says that ‘citius emergit veritas ex errore quam ex confusione.’ It would be a mistake to lower the level of analysis and clarification. The only way possible is a thorough reexamination of the theory’s basic hypotheses, i.e., a true paradigmatic revolution.” (Ingrao et al.)
Orthodox economics remains firmly rooted in the social sciences because it is defined by behavioral axioms. Yet, orthodox economics is widely considered as scientific failure. To replace Orthodoxy requires the replacement of HC1-HC5 by an entirely new set of axioms. This is what a true paradigmatic revolution is all about.
The unity about the unacceptable state of economics, though, covers the disunity about how to proceed: “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell)
Asad Zaman breaks this deadlock and advocates the adoption of Polanyi’s methodology.
- While traditional methodology operates at the elementary level with the binary true/false criterion “Polanyi operates at a meta-theoretical level.”
- The subject matter is essentially the same as classical economics: “Polanyi concentrates on the process of social change.”
- This leads to history: “We are learning this [English history] to understand the process of social change, and especially how this process generates theories about social change.”
- History, though, delivers only the raw material: “Given any collection of facts, there always exist multiple narratives which join together these facts into a coherent and causally ordered sequence.” As a result, we have the pluralism of narratives.
- It would be advantageous to determine which of the narratives is true but it is pretty obvious from the outset: “For most of the ideas that we study about the world we live in, we will never be able to ascertain for sure whether they are true or false. We must live with uncertainties, and we can only judge relative plausibility and levels of compatibility with observations of different theories.”
- Therefore: “We must give up the search for the Holy Grail; the one true narrative is only available to God.”
- However, we must come to a conclusion as a precondition for acting effectively: “This means that we look at competing narratives and evaluate them. Evaluation is not only with respect to the true/false binary. Rather we look at how different narratives support or conflict with interests of different social classes.”
As a result of the procedure, the 1-percenters prefer theory/narrative A because they think it is in their interest, and the 99-percenters prefer theory/narrative B because they think it is in their interest. According to the Polanyi/Zaman rule theory/narrative B is preferable because it benefits the 99-percenters. The Paradigm Shift in economics consists therefore in changing the rule for theory/narrative selection and abolishing the binary true/false criterion with truth defined as material/formal consistency.
Now, the snag is that without the true theory it cannot be determined what the ultimate effects of a measure are and who benefits and who loses. False theory leads to false economic policy advice.#1 The defect of Polanyi’s approach is that he does not understand economic history because he lacks the true theory, that is, he does not know how the economic SYSTEM works. The systemic laws, e.g. the Profit Law, do not follow from the observation of human behavior in concrete historical situations.#2 The economic historian is blind without economic theory.
There is no way around this: economists need the one true theory and not the pluralism of narratives: “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)
Asad Zaman argues in the tradition of political economics. Political economics, though, has achieved NOTHING of scientific value in the past 200+ years. At the bottom of his heart, Asad Zaman knows this.
Let us make a thought experiment: There are two air crafts called POL and SCI waiting in the maneuvering area. POL has been designed/constructed by folks who subscribe to Polanyi’s pluralist methodology as summarized above. SCI has been designed/constructed by folks who subscribe to the tried and tested methodology of material/formal consistency as explained in the foreword of every physics textbook. Which aircraft will Asad Zaman board?
Everybody knows: the so-called social sciences in general and political economics in particular NEVER got anything off the ground. Polanyi’s proto-scientific approach is no exception.
#1 Austerity and the idiocy of political economists
#2 For the axiomatically true theory see True macrofoundations: the reset of economics.
Related 'Failed critique of failed economics' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy' and 'Ditch scientific incompetence!' and 'How Heterodoxy became the venue for science’s scum' and 'The one stone that kills orthodox and heterodox employment theory' and cross-references Heterodoxy