June 29, 2018

Hooray! The formalization issue is finally settled

Comment on Lars Syll on ‘Paul Krugman — a math-is-the-message-modeler’ and ‘Krugman’s formalization schizophrenia’

Blog-Reference and Blog-Reference and Blog-Reference on Jun 30 adapted to context and Blog-Reference

Many people think that economics is part of science. This is a superficial impression. Fact is that economics is part of the entertainment industry. One of the performances that feature regularly in the Circus Maximus is ‘The mysterious death of economics: formalism murdered realism ― or was it just the other way round?’

Of course, the question is not answered. The purpose of Circus Maximus is NOT to settle controversies, the purpose is to keep the show running. This is the main task of the impresario: “Paul Krugman, … is the impresario of this new age, a strident but pathologically clear headed critic of the way in which the macroeconomics of the business cycle actually retrogressed after the 1980s.”#1

Circus Maximus, of course, needs more than one impresario. Krugman introduces himself as orthodox loudspeaker: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...”. One of the loudspeakers of Heterodoxy is Lars Syll.

The formalization debate is a joint production of Orthodoxy and Heterodoxy that runs since the time of Jevons/Walras/Menger.#2, #3, #4, #5

Lars Syll delivers an almost lethal blow with the realism argument: “So when Krugman and other ‘modern’ mainstream economists use their models — standardly assuming rational expectations, Walrasian market clearing, unique equilibria, time invariance, linear separability and homogeneity of both inputs/outputs and technology, infinitely lived intertemporally optimizing representative agents with homothetic and identical preferences, etc. — and standardly ignoring complexity, diversity, uncertainty, coordination problems, non-market clearing prices, real aggregation problems, emergence, expectations formation, etc. — we are supposed to believe that this somehow helps them ‘to avoid motivated reasoning that validates what you want to hear’ and provide ‘legitimacy’.”

Indeed, nobody can take the foundational assumptions of Orthodoxy seriously.

Lars Syll, though, as an adherent of the Marshall/Keynes tradition of loose verbal reasoning never had much more to offer than common sense blather and storytelling.#6

Paul Krugman does not fail to put the finger on Heterodoxy’s irreparable defect: “I’ve seen quite a lot of what economics without math and models looks like — and it’s not good.”

And that’s it. Heterodoxy easily knocks down Orthodoxy and Orthodoxy easily knocks down Heterodoxy.

It is pretty obvious that this bunch of cargo cult scientists never understood what methodology is all about. Aristotle put it thusly: “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.”

The fact of the matter is that both Walrasian microfoundations and Keynesian macrofoundations are NOT “certain, true, and primary”. Methodology tells us that if the premises are false the whole analytical superstructure is false.

Formalization is just another word for what Aristotle described as the scientific method or what is called the axiomatic-deductive method: “I mean by this that formalization eliminates provincial and inessential features of the way in which a scientific theory has been thought about. … Formalization is a way of setting off from the forest of implicit assumptions and the surrounding thickness of confusion, the ground that is required for the theory being considered. … In areas of science where great controversy exists about even the most elementary concepts, the value of such formalization can be substantial.” (Suppes)

Fact is that both Orthodoxy and Heterodoxy got the most elementary concepts of economics, i.e. income and profit, badly wrong.#7, #8 This is like medieval physics before the concept of energy was clearly defined and fully understood. Faulty conceptualization, not formalization, is the ultimate cause of failure.#9

Premises have to be clearly stated and conclusions have to be derived in a logically unbroken chain. This minimum requirement applies to all branches of science. But economics is NOT a science but a clown show of confused orthodox and heterodox agenda pushers.

Both Orthodoxy and Heterodoxy got formalization wrong. Both Paul Krugman and Lars Syll are incompetent scientists. Time for the final curtain, time for the impresarios to get out of economics, time to make economics a science.

Egmont Kakarot-Handtke

#1 Gruen A lucky boy from a golden age of economics
#2 Coming to terms with formalization
#3 Mathiness and the Ur-Blunder
#4 Putting the production function back on its feet
#5 For details of the big picture see cross-references Math/Mathiness
#6 Marshall and the Cambridge school of plain economic gibberish
#7 Profit: after 200+ years, economists are still in the woods
#8 Do first your macroeconomic homework!
#9 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It

Related 'Beware of the moralizing economist' and 'Why is economics such a scientific embarrassment?' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy' and 'Economics: 200+ years of scientific incompetence and fraud' and 'Enough! Economists, retire now!' and 'Truth by definition? The Profit Theory is axiomatically false for 200+ years'. For details of the big picture see cross-references Failed/Fake Scientists.'

Wikimedia AXEC121f


REPLY to Dave Marsay on Jul 2

You say: “My assumption is that, as in GTE, Keynes intended his economic work to be interpreted by reference to his Treatise.”

Just the opposite. Keynes clearly distanced himself from the ToM.

“The relation between this book and my Treatise on Money … is probably clearer to myself than it will be to others; and what in my own mind is a natural evolution in a line of thought which I have been pursuing for several years, may sometimes strike the reader as a confusing change of view.”

“But my lack of emancipation from preconceived ideas showed itself in what now seems to me to be the outstanding fault of the theoretical parts of that work (namely, Books III and IV [of ToM]), that I failed to deal thoroughly with the effects of changes in the level of output.”

“The above definitions of income and of net income are intended to conform as closely as possible to common usage. It is necessary, therefore, that I should at once remind the reader that in my Treatise on Money I defined income in a special sense. … For this reason, and also because I no longer require my former terms to express my ideas accurately, I have decided to discard them—with much regret for the confusion which they have caused.”

There is no use to interpret Keynes for x-th time. Keynesianism is dead for 80+ years but After-Keynesians have not realized it. For details see cross-references Keynesianism.

REPLY to davetaylor1, Dave Marsay on Jul 3

In the preface of the GT, Keynes stated clearly how he wanted the book to be interpreted with reference to the Treatise on Money but he says no word that refers to the Treatise on Probability.

So, Dave Marsay’s statement is false independently of whether he refers to ToP or ToM

As the quotes from the GT above show, Keynes wrestled with the definition of income/saving and this has nothing to do with probability.

This is the key statement from the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes never came to grips with profit.

“His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010)

Because Keynes got the foundational concepts profit/income/saving wrong the whole analytical superstructure of Keynesianism is scientifically worthless, and no reinterpretation in the light of ToP or anything else can save it.

Keynesianism is dead for 80+ years. Walrasianism is dead for 150+ years. Asad Zaman is right: “a radical paradigm shift is required.”

LINK for userfriendlyyy on Jul 3

Kalecki’s profit equation is long dead. See Profit: after 200+ years, economists are still in the woods.

REPLY to Dave Marsay on Jul 3

There is science, and it is binary true/false with NOTHING in between. Truth is well-defined since 2000+ years by formal and material consistency. And there is the large swamp of cargo cult science where, as Keynes said, “nothing is clear and everything is possible.”

In the swamp, vagueness, indeterminacy, inconclusiveness, confusion dressed up as complexity, unresolved contradictions, storytelling, filibuster, gossip, finicky scholasticism (Popper), known/unknown unknowns, nonentities, and the Humpty Dumpty Fallacy are the prevailing components of communication.

Keynes was a swampie and a defender of the Cambridge tradition of loose verbal reasoning.#1 On rare occasions, Keynes wrote down an unambiguous syllogism, e.g. “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

Too bad that this rather elementary two-liner is provably false. This is sufficient to refute Keynesianism. Inconsistency is lethal in science. Fortunately for Keynes and After-Keynesian swampies, economics is only a titular science.#2 Because of this, people can have conversations about ‘What Keynes really meant’ until they are blue in the face. Zero outcomes guaranteed.#3

REPLY to Craig on Jul 4

You say: “Macro-economics will never solve the problems it has correctly identified because they aren’t looking in the right places to solve them …”

There is no point any longer in bashing or reinterpreting macro or micro.#1, #2 Orthodoxy, Heterodoxy, and Pluralism are provably false. More specifically, they are axiomatically false, that is, beyond repair.

In this situation, the representative economist has only these options left: (i) to work on the Paradigm Shift, or (ii), to throw himself under the bus.

Science is binary true/false with NOTHING in between.

REPLY to Craig on Jul 7

You violate the first rule of science: Do NOT apply religious/spiritual concepts in an economic argument.#1

Scientific truth is well-defined by material/formal consistency. The rest of human communication is just brain-dead blather.


REPLY to davetaylor1 on Jul 9

You say: “Forget Adam Smith’s invisible hand at your peril, but do realise it is a metaphor for a control system. A much less mystical metaphor… has long been available in the theory and practice of navigation, i.e. Cybernetics. As an economist, Keynes did not think of that, but like a baby taking its tentative first steps, he did go some way to re-inventing it for steering economies.”

Take notice that Keynes got the whole thing wrong and Post-Keynesians blindly followed him. Methodologically, economics is a systems science but economists second-guess for 200+ years Human Nature/motives/behavior/action.

To this day, economists have been unable to give a consistent description of how the monetary economy works. Economists do not even know what profit is. This is like medieval physics before the concept of energy was consistently defined and fully understood.

For this compelling methodological reason, a paradigm shift is necessary which means practically that Walrasianism, Keynesianism, Marxianism, Austrianism, is buried at the Flat-Earth Cemetery

Here are the correct systemic foundations of economics.#1, #2 The elementary production-consumption economy is, for a start, defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C). From this follows Qm=−Sm, that is, macroeconomic profit comes in the most elementary case from the growth of household sector debt.#3

Capitalists don’t know this. Workers don’t know this. Orthodox economists don’t know this. Heterodox economists don’t know this. And davetaylor1, too, does NOT know the most elementary fact about the economic system.

#2 Wikimedia AXEC137 New Foundations of Economics
#3 Wikimedia AXEC143  Macroeconomic Profit Law and Balances Equation


REPLY to Dave Marsay on Jul 10

You say: “Egmont, I think of science as having two types, the theory and application, rather like economics. The theory has to be definite and may appear dogmatic, as you suggest. But surely a dogmatic application of a theory to a real domain is just pseudo-science?”

NO, there are NOT two types of science but science is defined by material AND formal consistency. BOTH!

This is why Gauss, long before Hilbert, tested Euclidean geometry: “One of the most famous stories about Gauss depicts him measuring the angles of the great triangle formed by the mountain peaks of Hohenhagen, Inselberg, and Brocken for evidence that the geometry of space is non-Euclidean.” (Brown)

Genuine scientists, which excludes both orthodox and heterodox swampies, have very thoroughly thought about what distinguishes science/truth from blather, i.e. the demarcation problem: “So the idea of truth (of an ‘absolute’ truth) ... is our main regulative idea.” and “Although nowadays we have given up the idea of absolutely certain knowledge, we have not by any means given up the idea of the search for truth.” (Popper)

Scientists do not claim that a theory represents the absolute truth about a subject matter but that it is the best mental representation of reality that is humanly possible. This leaves the door open for anybody to come forward with an even better theory.

Neither orthodox nor heterodox economists ever understood this and that is why economics is a failed science or what Feynman called a cargo cult science.#1, #2, #3

Luckily for economists, scientific failure does not prevent a career as a useful political idiot.


REPLY to Dave Marsay on Jul 10

You say: “I suspect (as I do with Lars) that our underlying thoughts and intentions are compatible, but our expressions are infected by our backgrounds and experience. I hope so!”

No, our underlying thoughts are definitely NOT compatible.

For example, you put Keynes, Russell, Whitehead in one row. So you give Keynes the status of a scientist who was seriously committed to material/formal consistency. Keynes’ inconsistency, though, was a running gag among contemporaries: “If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.” (Churchill)

So, what you are in effect trying is to erect a False-Hero-Memorial. Keynes was not a scientist but a political agenda pusher and an adherent of the Cambridge School of Lose Verbal Reasoning: “Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. . . . Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from ‘the richness of context’.” (Coates)

Between the Treatise on Probability, which applies with an entirely un-Keynesian consequence the axiomatic-deductive method (pp. 133-135) and the General Theory there is a plain methodological contradiction: “In the early thirties he [Keynes] confessed to Roy Harrod that he was ‘returning to an age-long tradition of common sense’.” (Coates)#1

Thus, Keynes became the idol of the anti-math crowd: “From his discussions with Wittgenstein, Keynes was well aware of the significance of vague concepts and the possible trade-off between precision and accuracy: This led him to conclude that formalization runs the risk of leaving behind the subject matter we are interested in. Formalization thus also runs the risk of increasing rather than decreasing muddle.” (Coates)

Keynes’ own muddle can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

Unfortunately, Keynes got macroeconomic profit wrong: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

The economist Keynes never understood the foundational concept of his subject matter. Because profit is ill-defined the whole analytical superstructure of Keynesianism is false.#2 Fact is that Keynes’ little syllogism is inconsistent and that, by consequence, all I=S/IS-LM models are false from Hicks to Krugman and beyond.#3

The problem with economics is NOT, as you argue, that a true theory is misapplied in a crisis but that there is no true theory, to begin with.#4 Economics is a cargo cult science. Macro is proto-scientific garbage for 80+ years and neither the mathematician Dave Marsay nor the heterodox economist Lars Syll has realized it to this day.

Who cannot be taken seriously in matters of logic cannot be taken seriously in matters of methodology.


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REPLY to davetaylor1

You say: “Davetaylor1, then, does know something about the economy, having lived in for over eighty years and thought about it for sixtyfive.”

This is very interesting for any sitcom but annoying in a scientific discussion. See  Show first your economic axioms or get out of the discussion.


REPLY to Craig on Jul 12

Of course, you are right, in my post above I did not mention the cosmos. So here is the enlarged set of foundational propositions.

(A0i) The set of all things and all events is the logical cosmos.

(A0ii) The subset of the logical cosmos that is mentally/physically accessible to earthlings is the empirical cosmos.

(A0iii) The economy is a subset of the empirical cosmos.

(A0iv) The objectively given and most elementary systemic configuration of the world economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.

(A0v) For a start,#1 the elementary production-consumption economy is given with three macroeconomic axioms.

(A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L.
(A2) O=RL output O is equal to productivity R times working hours L.
(A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

(A0vi) From the macroeconomic axioms follow models by specification.

(A0vii) The Ur-Model is given by two conditions (X=O, C=Yw) and two definitions (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C).

The economic Ur-Model tells us two important things: (i) under the condition of market-clearing X=O and budget-balancing C=Yw, macroeconomic profit is zero and independent of employment, productivity, wage rate, etcetera, and (ii), because of Qm=−Sm macroeconomic profit comes in the most elementary case from dissaving, i.e. the growth of household sector debt.#2

From this, in turn, follows immediately that all microfounded (Walrasian) and macrofounded (Keynesian) profit theories are false.

(A1) to (A3) are the correct macroeconomic axioms to start with. The Prime Cosmic Directive says: If it isn’t macro-axiomatized it isn’t economics.

#1 Wikimedia AXEC137 New Foundations of Economics
#2 Wikimedia AXEC143 Macroeconomic Profit Law and Balances Equation

REPLY on Jul 13


The Second Law of Thermodynamics is implicit in (A0iii) and has been dealt with elsewhere.#1, #2

Dave Marsay

(i) Your questions have already been answered in the post that has vanished (see link). The punchline is: “Who cannot be taken seriously in matters of logic cannot be taken seriously in matters of methodology.” This refers to Keynes and you.

(ii) You ask: “So, not just as a mathematician, I would like to see how you might tackle Keynes’ microfoundational issues, as in his Treatise on Probability, to justify your macro-economics.” Keynes has been refuted in all dimensions.#3 So, forget Keynes.

In the current situation, the only question of interest is the paradigm shift from false Walrasian microfoundations and false Keynesian macrofoundations to the true macrofoundations.#4 If you have a superior set of axioms then it would be an excellent idea to present them.

(iii) You introduce yourself incessantly as a mathematician. This is irrelevant for the current discussion which deals with the foundations of economic theory and NOT with the CVs of participants. I wonder how it comes that you have not detected the logical blunder in Keynes’ foundational syllogism (GT, p. 63) which is by now 80 years old. Time enough for a mathematician to put things straight, one would think.#5

#3 For details see cross-references Keynesianism
#5 For details about how this is done see Jonathan Barzilai, Scientific Metrics


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REPLY to Craig on Jul 14

You say: “I have said here many times economists ARE NOT LOOKING AT double-entry bookkeeping and so are missing extremely relevant economic insights to be derived from doing so.”

False. Macroeconomic accounting has already been rectified.#1

You say: “You can’t get any more empirical and grounded in the temporal universe than accounting, and it’s not just ‘bean counting’.”

True. For example the macroeconomic Profit Law Qm=−Sm.#2*

#2 For details of the big picture see cross-references Accounting

*  Wikimedia AXEC143d