June 20, 2017

The long genealogical tree of economic storytelling

Comment on Dániel Oláh on ‘The Amazing Arab Scholar Who Beat Adam Smith by Half a Millennium’


Dániel Oláh reports: “The biggest merit of Khaldun lies in his revolutionary methodological thinking. … Based on this it’s easy to understand that Ibn Khaldun presented very similar ideas as Adam Smith, but hundreds of years before the Western philosopher. But Khaldun said even more about the economy. He analyzed markets which arise based on the division of labor and examined market forces in a simple didactic way which is very similar to the attitude of Alfred Marshall. The invention of supply and demand analysis wasn’t invented in the 19th century …”

The fault of this argument lies in the fact that economics is, to begin with, NOT a social science.#1 Worse, to define economics as social science has been the foundational blunder 200+ years ago. Worst, not to realize this to this day is the very proof of utter scientific incompetence of the representative economist.

Adam Smith was NOT a scientist but a storyteller: “… he had no such ambitions; in fact, he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

Schumpeter had to argue against the plain fact that the supply and demand story is not much better than the commonsensical story of how the sun travels from east to west over the firmament: “The primitive apparatus of the theory of supply and demand is scientific. But the scientific achievement is so modest, and common sense and scientific knowledge are logically such close neighbors in this case, that any assertion about the precise point at which the one turned into the other must of necessity remain arbitrary.”

Neither Smith nor Marshall ever rose above the level of proto-scientific storytelling.#2 The same holds true for Ibn Khaldun. To put this in perspective is not to deny that Ibn Khaldun marked progress in comparison to his precursors who limited themselves “to transmit knowledge without modifying, editing or adding any remarks to the tradition.”

Ibn Khaldun deserves credit as a forerunner of Adam Smith. But Smith was more a political blatherer than a scientist. So Ibn Khaldun is not the forerunner of economics as a science. The current state of economics is this: the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. With the pluralism of provably false theories economics sits squarely at the proto-scientific level.#3

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 push an agenda, the goal of theoretical economics is to 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.

Theoretical economics has to be judged according to the criteria true/false and nothing else. The history of political economics since Adam Smith can be summarized as a perpetual violation of scientific standards. Theoretical economics had been hijacked from the very beginning 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 Keen.

Political economics has produced NOTHING of scientific value since Adam Smith. This is not the fault of Ibn Khaldun, of course, but of scientifically incompetent economists who have not realized to this day that economics is NOT a social science but a systems science.#4 What is required since Ibn Khaldun is to double down on revolutionary methodological thinking.

Egmont Kakarot-Handtke

#1 Economics is NOT a social science
#2 Marshall and the Cambridge school of plain economic gibberish
#3 Economics: 200+ years of scientific incompetence and fraud
#4 First Lecture in New Economic Thinking