June 15, 2017

How Heterodoxy got lost in the methodological woods

Comment on Lars Syll on ‘What kind of realist am I?’


Lars Syll advertises his realist methodology: “Perhaps the most important contribution a researcher can make is reveal what this reality that is the object of science actually looks like.”

Translated into economics this means in concrete terms that the most important contribution an economist can make is to reveal how the actual economy works. This contribution takes the form of the true theory with truth well-defined as material and formal consistency.

Sometimes it is necessary to reflect on methodology, but only as a stepping stone on the way to the true economic theory. The economist who thinks he is in the possession of a superior methodology is supposed ― NOT to run around and give good methodological advice but ― to directly apply it and show the results. As J. S. Mill put it: “Doubtless, the most effectual mode of showing how the sciences of Ethics and Politics [and Economics] may be constructed, would be to construct them.”

Lars Syll rightly criticizes the methodology of Orthodoxy, which comes under the umbrella heading of methodological individualism, always implying that his realist methodology is superior, yet he has never produced a solid piece of economic theory. He has not even realized that Keynesianism, his prototype of a superior approach, is logically defective.#1

The repetitive blunder of Heterodoxy consists in getting stuck with methodology: “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)

Heterodoxy in general and Lars Syll, in particular, talk much about how ‘the science of economics may be constructed’ but never get started.

The crucial step on the way to the true theory is to move from the naive description of reality to abstraction: “Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the social science, while we look at the facts in the concrete, clothed in all the complexity with which nature has surrounded them, and endeavour to elicit a general law by a process of induction from a comparison of details; there remains no other method than the à priori one, or that of ‘abstract speculation’.” (Mill)

Needless to emphasize that abstraction can go badly wrong. Starting with the realistic description ‘the earth stands still and the sun goes up’ Ptolemy constructed the Geo-centric theory. With this, Ptolemy committed the Fallacy of Insufficient Abstraction. The later paradigm shift from Geo-centrism to Helio-centrism delivered the best-known example for successful abstraction: “I shall never be able to express strongly enough my admiration for the greatness of mind of these men who conceived this [Helio-centric] hypothesis and held it to be true. In violent opposition to the evidence of their own senses and by sheer force of intellect, they preferred what reason told them to that which sense experience plainly showed them ... I repeat, there is no limit to my astonishment when I reflect how Aristarchus and Copernicus were able to let conquer sense, and in defiance of sense make reason the mistress of their belief.” (Galileo)

The realists never got the point: “Bacon, the philosopher of science, was, quite consistently, an enemy of the Copernican hypothesis. Don’t theorize, he said, but open your eyes and observe without prejudice, and you cannot doubt that the Sun moves and that the Earth is at rest.” This is how realists became the laughing stock of science and the whole filibuster about realism/unrealism became pointless.

There are TWO pitfalls in the process of abstraction, (i) that the unknown ‘essential’ aspects of reality are unintentionally abstracted away, i.e. that reality gets lost, and (ii), that the ‘inessential’ aspects of reality are not abstracted away, i.e. that the analysis remains on the commonsensical surface. Accordingly, we have (i) the Fallacy of Lethal Abstraction, and (ii), the Fallacy of Insufficient Abstraction. Orthodox economics suffers from (i), heterodox economics from (ii). And this is why economics is a failed science and why economists never came to grips with reality.

Lars Syll’s realist methodology is good for criticism but worthless for the axiomatic reconstruction of economics and therefore prevents the necessary paradigm shift, i.e. genuine scientific progress.

The common blunder of Orthodoxy and Heterodoxy consists of defining economics as a social science. While it is quite obvious that human behavior plays an important role in how the economy develops, this is NOT the subject matter of economics but of psychology, sociology, anthropology, history, political science, social philosophy, biology/Darwinism/evolution theory etcetera. Economics has to focus on the systemic aspect of the economy. That means economics is NOT a social science but a systems science. Put differently, the focus of the theory of flight is NOT on why crew and passengers are on a plane, what their ulterior motives are, how they behave, and whether they are happy or not. The focus is on what makes the plane fly, i.e. the laws of aerodynamics, thermodynamics, and so on. The theory of flight abstracts from the concrete human beings and leaves all Human Nature issues to social scientists, that is, to people who will NEVER get a plane off the ground.

Lars Syll argues: “The overarching flaw with methodological individualism and rational choice theory is basically that they reduce social explanations to purportedly individual characteristics. But many of the characteristics and actions of the individual originate in and are made possible only through society and its relations.”

This is a true example of the Fallacy of Insufficient Abstraction. The overarching blunder of BOTH orthodox and heterodox economists is that they dabble in psychology and sociology, which is NOT their proper business, and have until this day NOT figured out how the price- and profit mechanism works. Walrasianism, Keynesianism, Marxianism, Austrianism is proto-scientific rubbish and the realist Lars Syll stands clueless right in the middle of it.#2

Egmont Kakarot-Handtke

#1 How Keynes got macro wrong and Allais got it right
#2 Economics: 200+ years of scientific incompetence and fraud

For details of the big picture see cross-references Heterodoxy and cross-references Paradigm Shift.