Comment on Lars Syll on ‘Macroeconomic foundations made of sand’
Blog-Reference
Newton told the storytellers of his day: “Those who take the foundations of their speculations from hypotheses, even if they then proceed most rigorously according to mechanical laws, are merely putting together a romance, elegant perhaps and charming, but nevertheless a romance.” (Roger Cotes, Preface to the 2nd edition of Principia, 1999, p. 386) With ‘hypotheses’ green cheese assumptions were meant.
Keynes told his fellow economists: “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (1973, p. xxi)
Hutchison aptly remarked some time ago: “... it is precisely the task of science to supersede crude common-sense notions by critical analysis, and further that it is the unsatisfactory state of the foundations beneath the common-sense surface which is the most serious and crippling deficiency of contemporary economic science, ...” (1960, p. 18)
Keen told us: “Even some of the most committed economists have conceded that, if economics is to become less of a religion and more of a science, then the foundations of economics should be torn down and replaced. However, if left to its own devices, there is little doubt that the profession of academic economics would continue to build an apparently grand edifice upon rotten foundations.” (2011, p. 35)
Actually, Frances Coppola tells us that the macroeconomic foundations are made of sand (see intro).
Well, now everybody got it! Let us see, then, what exactly are the foundations? Weintraub gave the following account.
“As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: 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.
By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program. "Taken to be true" means that the hard-core functions like axioms for a geometry maintained for the duration of study of that geometry.” (1985, p. 147), see also (Arnsperger and Varoufakis, 2006) and (2013)
It cannot be said, as Keynes did, that there is a lack of clearness in the premises: “Like mathematics and physics, economics is proud of having an axiomatic foundation, and rightly so.” (Helbing, 2013, p. 4)
Formally, all is in perfect order. The orthodox paradigm is well articulated. Nevertheless, it has to be abandoned. The subjective behavioral foundations of Orthodoxy are unacceptable. NO way leads from the neo-Walrasian hardcore to the understanding of how the actual economy works: “Economics today is a discipline that must either die or undergo a paradigm shift ...” (Kaletsky, 2009, p. 156)
This is a critical juncture and one has to be very careful. From the fact that the behavioral axioms of Orthodoxy are forever beyond acceptability does not follow that axiomatization is inapplicable. It follows that subjective behavioral axioms have to be replaced by objective structural axioms (2014). That is what the ongoing Paradigm Shift is all about: sand is replaced with granite.
Egmont Kakarot-Handtke
References
Arnsperger, C., and Varoufakis, Y. (2006). What Is Neoclassical Economics? The Three Axioms Responsible for its Theoretical Oeuvre, Practical Irrelevance and, thus, Discursive Power. Paneconomicus, 1: 5–18.
Helbing, D. (2013). Economics 2.0: The Natural Step towards A Self-Regulating, Participatory Market Society. EconoPhysics Forum, 1–29. URL
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York: Kelley.
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Kaletsky, A. (2009). Goodbye, Homo Economicus. real-world economics review, 50: 151–156. URL
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan. (1936).
Newton, I. (1999). The Principia; Mathematical Principles of Natural Philosophy. Berkley, Los Angeles, CA, London: University of California Press. (1687).
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
February 28, 2015
Questions and answers about economics
Comment on Peter Radford on ‘I am a know-nothing’
Blog-Reference
First of all, one has to distinguish between theoretical and political economics. The goal of political economics is to push an agenda; the goal of theoretical economics is to explain how the actual economy works. From the viewpoint of science, political economics as a whole is a no-go. The first problem of economics is that many economists are not scientists but agenda pushers of one sort or another. This means that economics is exploited for other purposes.
Political economics is essentially moralizing, and the explanation consists usually of a good-guy-bad-guy story. In political economics, anything goes; in theoretical economics, scientific standards are observed.
“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, 1994, p. 31)
Theoretical economics starts with ignorance and the attempt to clarify what the subject matter is and how to approach it. As a first approximation, we can agree here on the general characteristic that the economy is a complex system.
However, with the term system, one usually associates a structure with components that are non-human. In order to stress the fact that humans are an essential component of the economy, we could perhaps better say that the economy is a complex hybrid human/system entity.
The scientific method is straightforwardly applicable to the sys-half but not to the hum-half. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons, the analysis has to start with the objective sys-half.
In Gestalt psychological terms, the economic system is the foreground, individual behavior the background. Common sense wrongly insists that the hum-half must always be in the foreground. This fallacy is comparable to geo-centrism. The economic system has its own logic, which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the invisible hand.
Whether the outcome of the human/system interaction is good or bad is a political question that lies outside of theoretical economics. Theoretical economics explains how the actual economy works — no less, no more.
Since Veblen, Heterodoxy has been mainly occupied with debunking the assumptions and claims of equilibrium theory. However, the fatal errors/mistakes of Orthodoxy do not lie so much in particular green cheese assumptions but in the complete failure to understand what the scientific method is all about.
NONENTITIES like equilibrium, rational expectation, constrained optimization, or utility maximization for that matter, are perfectly in line with the accepted methodology: “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, 1994, p. 1); see also (Arnsperger and Varoufakis, 2006)
The fundamental methodological blunder resides in the idea that economics is about human behavior. Let us call this the social science delusion. The irony is that Heterodoxy is even more convinced that economics is essentially a social science. It differs from Orthodoxy only insofar as it claims that their behavioral assumptions are more realistic.
The fact of the matter is that economics is about the behavior of the economic system and not about the behavior of individuals. This, indeed, is the realm of psychology, sociology, anthropology, history, etcetera. To speculate about rational or irrational human behavior is not economic analysis at all (Hudík, 2011).
This means that the subject matter of economics has to be redefined. NO way leads from the understanding of human behavior to the understanding of how the actual economy works. This fully explains why economics is a failed science.
You sum up: “And I remain confused about the purpose of an economist — although I will check with Aristotle to clear that up.”
No need to check it. All answers are in Wikipedia, and this is what Aristotle said about how to do science: “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.” (Resume of Aristotle's Posterior Analytics)
And from this follows for the economist's job description: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (Mill, 2006, p. 950)
Certainly, this is not what the political economist thinks his true mission is. The problem with political economists, though, is not that agenda pushing is illegitimate. The problem is that the scientific claims are illegitimate. This, unfortunately, is what unites Orthodoxy and Heterodoxy. Both are talking scientific nonsense.
Egmont Kakarot-Handtke
References
Arnsperger, C., and Varoufakis, Y. (2006). What Is Neoclassical Economics? The Three Axioms Responsible for its Theoretical Oeuvre, Practical Irrelevance and, thus, Discursive Power. Paneconomicus, 1: 5–18.
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, Vol. 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Blog-Reference
First of all, one has to distinguish between theoretical and political economics. The goal of political economics is to push an agenda; the goal of theoretical economics is to explain how the actual economy works. From the viewpoint of science, political economics as a whole is a no-go. The first problem of economics is that many economists are not scientists but agenda pushers of one sort or another. This means that economics is exploited for other purposes.
Political economics is essentially moralizing, and the explanation consists usually of a good-guy-bad-guy story. In political economics, anything goes; in theoretical economics, scientific standards are observed.
“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, 1994, p. 31)
Theoretical economics starts with ignorance and the attempt to clarify what the subject matter is and how to approach it. As a first approximation, we can agree here on the general characteristic that the economy is a complex system.
However, with the term system, one usually associates a structure with components that are non-human. In order to stress the fact that humans are an essential component of the economy, we could perhaps better say that the economy is a complex hybrid human/system entity.
The scientific method is straightforwardly applicable to the sys-half but not to the hum-half. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons, the analysis has to start with the objective sys-half.
In Gestalt psychological terms, the economic system is the foreground, individual behavior the background. Common sense wrongly insists that the hum-half must always be in the foreground. This fallacy is comparable to geo-centrism. The economic system has its own logic, which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the invisible hand.
Whether the outcome of the human/system interaction is good or bad is a political question that lies outside of theoretical economics. Theoretical economics explains how the actual economy works — no less, no more.
Since Veblen, Heterodoxy has been mainly occupied with debunking the assumptions and claims of equilibrium theory. However, the fatal errors/mistakes of Orthodoxy do not lie so much in particular green cheese assumptions but in the complete failure to understand what the scientific method is all about.
NONENTITIES like equilibrium, rational expectation, constrained optimization, or utility maximization for that matter, are perfectly in line with the accepted methodology: “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, 1994, p. 1); see also (Arnsperger and Varoufakis, 2006)
The fundamental methodological blunder resides in the idea that economics is about human behavior. Let us call this the social science delusion. The irony is that Heterodoxy is even more convinced that economics is essentially a social science. It differs from Orthodoxy only insofar as it claims that their behavioral assumptions are more realistic.
The fact of the matter is that economics is about the behavior of the economic system and not about the behavior of individuals. This, indeed, is the realm of psychology, sociology, anthropology, history, etcetera. To speculate about rational or irrational human behavior is not economic analysis at all (Hudík, 2011).
This means that the subject matter of economics has to be redefined. NO way leads from the understanding of human behavior to the understanding of how the actual economy works. This fully explains why economics is a failed science.
You sum up: “And I remain confused about the purpose of an economist — although I will check with Aristotle to clear that up.”
No need to check it. All answers are in Wikipedia, and this is what Aristotle said about how to do science: “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.” (Resume of Aristotle's Posterior Analytics)
And from this follows for the economist's job description: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (Mill, 2006, p. 950)
Certainly, this is not what the political economist thinks his true mission is. The problem with political economists, though, is not that agenda pushing is illegitimate. The problem is that the scientific claims are illegitimate. This, unfortunately, is what unites Orthodoxy and Heterodoxy. Both are talking scientific nonsense.
Egmont Kakarot-Handtke
References
Arnsperger, C., and Varoufakis, Y. (2006). What Is Neoclassical Economics? The Three Axioms Responsible for its Theoretical Oeuvre, Practical Irrelevance and, thus, Discursive Power. Paneconomicus, 1: 5–18.
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, Vol. 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Real wages: toward an explanation
Comment on David Ruccio on ‘Falling real wages in the USA 2007—2014’
Blog-Reference
For the explanation of real wage development, a theoretical underpinning is needed. Graphic AXEC44 is the correct formula to start with
The average real wage in the consumption good industry depends on productivity R, the expenditure ratio (ρE>1 means overall credit expansion), the relative size of the investment good industry Li/Lc, and the ratio of distributed profit Yd to wage income.
For the analytical details, see (2014).
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Blog-Reference
For the explanation of real wage development, a theoretical underpinning is needed. Graphic AXEC44 is the correct formula to start with
The average real wage in the consumption good industry depends on productivity R, the expenditure ratio (ρE>1 means overall credit expansion), the relative size of the investment good industry Li/Lc, and the ratio of distributed profit Yd to wage income.
For the analytical details, see (2014).
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
February 27, 2015
Essentials of Constructive Heterodoxy: money, credit, interest {68}
Working paper at SSRN
Working paper at ARCHIVE
Abstract The goal of theoretical economics is to explain how the monetary economy works. The fatal methodological defect of Orthodoxy is that it is based on behavioral axioms. Yet, no specific behavioral assumption whatever can serve as a starting point for economic analysis. From this follows for Constructive Heterodoxy that the subjective axiomatic foundations have to be replaced. This amounts to a paradigm shift. Nobody can rest content with a pluralism of false theories. Based on a set of objective axioms all economic conceptions have to be reconstructed from scratch. In the following, this is done for the theory of money.
For cross-references, see here
Abstract The goal of theoretical economics is to explain how the monetary economy works. The fatal methodological defect of Orthodoxy is that it is based on behavioral axioms. Yet, no specific behavioral assumption whatever can serve as a starting point for economic analysis. From this follows for Constructive Heterodoxy that the subjective axiomatic foundations have to be replaced. This amounts to a paradigm shift. Nobody can rest content with a pluralism of false theories. Based on a set of objective axioms all economic conceptions have to be reconstructed from scratch. In the following, this is done for the theory of money.
For cross-references, see here
February 26, 2015
United in the social science delusion
Comment on Lars Syll on ‘Microfoundations — contestable incoherence’
Blog-Reference
“Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter, 1994, p. 154)
Rational expectations and the rest of the neoclassical assumptions were never taken seriously by real scientists. The question is: Why has the representative economist not realized this in more than 100 years?
Lars Syll comes close to the right answer: “The fact that Lucas introduced rational expectations as a consistency axiom is not really an argument to why we should accept it as an acceptable assumption in a theory or model purporting to explain real macroeconomic processes.” (see intro)
Of course, rational expectation is an unacceptable behavioral assumption. However, the error/mistake of Orthodoxy does not lie in this particular green cheese assumption but in a complete failure to understand what the scientific method is all about.
Rational expectation, and constrained optimization, or utility maximization for that matter, are perfectly in line with the accepted methodology: “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, 1994, p. 1); see also (Arnsperger and Varoufakis, 2006)
The fundamental methodological blunder resides in the idea that economics is about human behavior. Let us call this the social science delusion. The irony is that Heterodoxy is even more convinced that economics is essentially a social science. It differs from Orthodoxy only insofar as it claims that its behavioral assumptions are more ‘realistic’.
The fact of the matter is that economics is about the behavior of the economic system and not about the behavior of individuals. This, indeed, is the realm of psychology, sociology, anthropology, etcetera. To speculate about rational or irrational human behavior is not economic analysis at all (Hudík, 2011).
This means that the subject matter of economics has to be redefined. The fault of Orthodoxy is not so much that it introduces rational expectation as a behavioral axiom; the methodological blunder is that there is no such thing as a specific behavioral axiom.
No way leads from the understanding of human behavior to the understanding of how the actual economy works. This fully explains why economics is a failed science.
Because there is no such thing as a behavioral axiom, Lars Syll is right: “And that ought to be rather embarrassing for those ilks of macroeconomists to whom axiomatics and deductivity is the hallmark of science tout court.”
Lars Syll is completely wrong, though, in concluding that axiomatics and deductivity have to be abandoned as ‘horseshit’. See here.
From the fact that the behavioral axioms of Orthodoxy are forever beyond acceptability does not follow that axiomatization is wrong. It follows that subjective behavioral axioms have to be replaced by objective structural axioms.
To find the correct axioms is the prime task of economics since J. S. Mill: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.” (Mill, 2006, p. 746)
Neither Orthodoxy nor Heterodoxy has achieved the opus magnum.
Egmont Kakarot-Handtke
References
Arnsperger, C., and Varoufakis, Y. (2006). What Is Neoclassical Economics? The Three Axioms Responsible for its Theoretical Oeuvre, Practical Irrelevance and, thus, Discursive Power. Paneconomicus, 1: 5–18.
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund. URL
Porter, T. M. (1994). Rigor and Practicality: Rival Ideals of Quantification in Nineteenth-Century Economics. In P. Mirowski (Ed.), Natural Images in Economic Thought, 128–170. Cambridge: Cambridge University Press.
Related 'Austrian blather' and 'Joan Robinson and the early death of Behavioral Economics' and 'Still in the woods' and 'Economics is NOT a science of behavior (IV) and 'Heterodoxy ― an axiomatic failure just like Orthodoxy'. For details of the big picture, see cross-references Not a Science of Behavior and cross-references Methodology, and cross-references Axiomatization.
Blog-Reference
“Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter, 1994, p. 154)
Rational expectations and the rest of the neoclassical assumptions were never taken seriously by real scientists. The question is: Why has the representative economist not realized this in more than 100 years?
Lars Syll comes close to the right answer: “The fact that Lucas introduced rational expectations as a consistency axiom is not really an argument to why we should accept it as an acceptable assumption in a theory or model purporting to explain real macroeconomic processes.” (see intro)
Of course, rational expectation is an unacceptable behavioral assumption. However, the error/mistake of Orthodoxy does not lie in this particular green cheese assumption but in a complete failure to understand what the scientific method is all about.
Rational expectation, and constrained optimization, or utility maximization for that matter, are perfectly in line with the accepted methodology: “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, 1994, p. 1); see also (Arnsperger and Varoufakis, 2006)
The fundamental methodological blunder resides in the idea that economics is about human behavior. Let us call this the social science delusion. The irony is that Heterodoxy is even more convinced that economics is essentially a social science. It differs from Orthodoxy only insofar as it claims that its behavioral assumptions are more ‘realistic’.
The fact of the matter is that economics is about the behavior of the economic system and not about the behavior of individuals. This, indeed, is the realm of psychology, sociology, anthropology, etcetera. To speculate about rational or irrational human behavior is not economic analysis at all (Hudík, 2011).
This means that the subject matter of economics has to be redefined. The fault of Orthodoxy is not so much that it introduces rational expectation as a behavioral axiom; the methodological blunder is that there is no such thing as a specific behavioral axiom.
No way leads from the understanding of human behavior to the understanding of how the actual economy works. This fully explains why economics is a failed science.
Because there is no such thing as a behavioral axiom, Lars Syll is right: “And that ought to be rather embarrassing for those ilks of macroeconomists to whom axiomatics and deductivity is the hallmark of science tout court.”
Lars Syll is completely wrong, though, in concluding that axiomatics and deductivity have to be abandoned as ‘horseshit’. See here.
From the fact that the behavioral axioms of Orthodoxy are forever beyond acceptability does not follow that axiomatization is wrong. It follows that subjective behavioral axioms have to be replaced by objective structural axioms.
To find the correct axioms is the prime task of economics since J. S. Mill: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.” (Mill, 2006, p. 746)
Neither Orthodoxy nor Heterodoxy has achieved the opus magnum.
Egmont Kakarot-Handtke
References
Arnsperger, C., and Varoufakis, Y. (2006). What Is Neoclassical Economics? The Three Axioms Responsible for its Theoretical Oeuvre, Practical Irrelevance and, thus, Discursive Power. Paneconomicus, 1: 5–18.
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund. URL
Porter, T. M. (1994). Rigor and Practicality: Rival Ideals of Quantification in Nineteenth-Century Economics. In P. Mirowski (Ed.), Natural Images in Economic Thought, 128–170. Cambridge: Cambridge University Press.
Related 'Austrian blather' and 'Joan Robinson and the early death of Behavioral Economics' and 'Still in the woods' and 'Economics is NOT a science of behavior (IV) and 'Heterodoxy ― an axiomatic failure just like Orthodoxy'. For details of the big picture, see cross-references Not a Science of Behavior and cross-references Methodology, and cross-references Axiomatization.
February 22, 2015
Heterodoxy, too, is still in the wood
Comment on José A. Tapia on 'Money and Say’s law: on the macroeconomic models of Kalecki, Keen, and Marx'
Blog-Reference
José Tapia sets out to clarify the interrelations between aggregate income, aggregate demand, money, credit, profit, and Say's Law in Kalecki's, Keen's, and Marx's respective approaches. This is an absolute theoretical necessity because Heterodoxy cannot claim that Orthodoxy is false and then present a motley of heterodox approaches that do not fit together or are even contradictory. Heterodoxy has to prove its superiority.
It is remarkable that, for example, the profit theories of the Top 20 heterodox economists (link below) are quite different. Clearly, they cannot all be correct at the same time. As a matter of fact, they are all false. This has been demonstrated in a formally rigorous way for Marx (2014a), Keynes (2011b), Kalecki (2011a), and Keen (2013).
This is why not only the orthodox but also the heterodox stories about the functioning of the market system are false (2014b). For the correct heterodox version of Say's Law, see (2015b).
The general relationship between monetary profit Qm, distributed profit Yd, investment I, and saving Sm is given by the formula on Graphic AXEC09c.
It is easy to see that Minsky, too, is contained in this equation as a limiting case for Yd=0 and S=0. To recall “For Minsky, the notion that profits equal investment was ‘a profound insight into how a capitalist economy works’.” (Tapia, 2015, p. 110)
For the formally correct interrelation between aggregate demand and money, see (2015a).
The general relationship between employment, aggregate demand, and changes in money/credit is given with the formula on Graphic AXEC07.
This equation contains Keen's relationship between changes in employment and changes in debt.
José Tapia has shown how major heterodox economists have treated the relationships between aggregate income, aggregate demand, money, credit, profit, and Say's Law in their idiosyncratic approaches. What is lacking is a consistent synthesis, so he leaves Heterodoxy in the woods.
In marked contrast, the structural axiomatic approach puts the essential building blocks in a formally rigorous way. This is the prerequisite for a successful Paradigm Shift.
Given the failure of Orthodoxy, there cannot be the slightest doubt that a Paradigm Shift is overdue.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2011a). What is Wrong With Heterodox Economics? Kalecki’s Profit Theory as an Example. SSRN Working Paper Series, 1845803: 1–9. URL
Kakarot-Handtke, E. (2011b). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–15. URL
Kakarot-Handtke, E. (2013). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. URL
Kakarot-Handtke, E. (2014a). Profit for Marxists. SSRN Working Paper Series, 2414301: 1–25. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Kakarot-Handtke, E. (2015a). Essentials of Constructive Heterodoxy: Aggregate Demand. SSRN Working Paper Series, 2564590: 1–23. URL
Kakarot-Handtke, E. (2015b). Essentials of Constructive Heterodoxy: Say’s Law. SSRN Working Paper Series, 2556434: 1–10. URL
Tapia, J. A. (2015). Money and Say’s Law: On the Macroeconomic Models of Kalecki, Keen, and Marx. real-world economics review, (70): 110–120. URL
Link to Top 20 Heterodox Economics Books here.
Blog-Reference
José Tapia sets out to clarify the interrelations between aggregate income, aggregate demand, money, credit, profit, and Say's Law in Kalecki's, Keen's, and Marx's respective approaches. This is an absolute theoretical necessity because Heterodoxy cannot claim that Orthodoxy is false and then present a motley of heterodox approaches that do not fit together or are even contradictory. Heterodoxy has to prove its superiority.
It is remarkable that, for example, the profit theories of the Top 20 heterodox economists (link below) are quite different. Clearly, they cannot all be correct at the same time. As a matter of fact, they are all false. This has been demonstrated in a formally rigorous way for Marx (2014a), Keynes (2011b), Kalecki (2011a), and Keen (2013).
This is why not only the orthodox but also the heterodox stories about the functioning of the market system are false (2014b). For the correct heterodox version of Say's Law, see (2015b).
The general relationship between monetary profit Qm, distributed profit Yd, investment I, and saving Sm is given by the formula on Graphic AXEC09c.
It is easy to see that Minsky, too, is contained in this equation as a limiting case for Yd=0 and S=0. To recall “For Minsky, the notion that profits equal investment was ‘a profound insight into how a capitalist economy works’.” (Tapia, 2015, p. 110)
For the formally correct interrelation between aggregate demand and money, see (2015a).
The general relationship between employment, aggregate demand, and changes in money/credit is given with the formula on Graphic AXEC07.
This equation contains Keen's relationship between changes in employment and changes in debt.
José Tapia has shown how major heterodox economists have treated the relationships between aggregate income, aggregate demand, money, credit, profit, and Say's Law in their idiosyncratic approaches. What is lacking is a consistent synthesis, so he leaves Heterodoxy in the woods.
In marked contrast, the structural axiomatic approach puts the essential building blocks in a formally rigorous way. This is the prerequisite for a successful Paradigm Shift.
Given the failure of Orthodoxy, there cannot be the slightest doubt that a Paradigm Shift is overdue.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2011a). What is Wrong With Heterodox Economics? Kalecki’s Profit Theory as an Example. SSRN Working Paper Series, 1845803: 1–9. URL
Kakarot-Handtke, E. (2011b). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–15. URL
Kakarot-Handtke, E. (2013). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. URL
Kakarot-Handtke, E. (2014a). Profit for Marxists. SSRN Working Paper Series, 2414301: 1–25. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Kakarot-Handtke, E. (2015a). Essentials of Constructive Heterodoxy: Aggregate Demand. SSRN Working Paper Series, 2564590: 1–23. URL
Kakarot-Handtke, E. (2015b). Essentials of Constructive Heterodoxy: Say’s Law. SSRN Working Paper Series, 2556434: 1–10. URL
Tapia, J. A. (2015). Money and Say’s Law: On the Macroeconomic Models of Kalecki, Keen, and Marx. real-world economics review, (70): 110–120. URL
Link to Top 20 Heterodox Economics Books here.
February 21, 2015
The real limit of Heterodoxy
Comment on Lars Syll on 'The real limit of public debt'
Blog-Reference
David Graeber makes the crucial point that money and credit are two sides of the same coin. What follows from this? In rough terms, it follows that the Quantity Theory, which is complementary to General Equilibrium theory, is wrong. And from this, it turn follows that Heterodoxy should come up as soon as possible with a new Theory of Money.
That the Bank of England shares Graeber's insight is a good sign. On the other hand, does this eliminate the need for a better Theory of Money, nay, for an new Paradigm, that is, for rethinking economics from the ground up? Certainly not.
Time for everybody to switch to the constructive mode (for a start see 2011).
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–26. URL
Blog-Reference
David Graeber makes the crucial point that money and credit are two sides of the same coin. What follows from this? In rough terms, it follows that the Quantity Theory, which is complementary to General Equilibrium theory, is wrong. And from this, it turn follows that Heterodoxy should come up as soon as possible with a new Theory of Money.
That the Bank of England shares Graeber's insight is a good sign. On the other hand, does this eliminate the need for a better Theory of Money, nay, for an new Paradigm, that is, for rethinking economics from the ground up? Certainly not.
Time for everybody to switch to the constructive mode (for a start see 2011).
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–26. URL
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