Barzilai and the crumbling of the unsafe citadel

Comment on Barzilai's ‘Demand theory is founded or errors’
New paper Slutsky’s Mathematical Economics  Feb 2016

Blog-Reference

The unifying bond of heterodox economists is the conviction that there is something fundamentally wrong with Orthodoxy. With this comes the expectation that Heterodoxy is in some unspecified sense better. Better, clearly, has two meanings: morally better or scientifically better. And here the confusion begins.

What has to be strictly kept apart is political economics and scientific economics. Hence, there are two kinds of Heterodoxy: those economists who reject Orthodoxy ultimately for moral reasons and those who reject it ultimately for methodological reasons. To simply state that conventional economics is bad science blurs this distinction.

With Adam Smith, economics had an inauspicious start. Smith was a moral philosopher with a shallow scientific understanding. His ambition consisted of copying Newton. Heterodoxy never bought into this. Veblen, for example, asked: Why is Economics not an Evolutionary Science? The question indicates that there is something fundamentally wrong with equilibrium economics. However, it also claims that economics is a science.

This is crucial. Veblen signals that he is in a scientific discourse, which means by implication that he is not in a political debate.

Why is this crucial? Because this blog, like many others, constantly mixes politics with science. There is nothing wrong with politics, of course, but the hijacking of science by folks with a political agenda is simply unacceptable.

It is my understanding that this blog is about theoretical economics and not political economics.

The criteria of scientific economics are formal and material consistency. From this follows for Heterodoxy, first, to identify the errors/mistakes of orthodox economics, and second, to develop a paradigm that complies better with the two criteria of science.

Heterodoxy has to be praised for being good at the first task. However, there are differences in quality. The greater part of heterodox critique goes in the right direction but is easy to neutralize. Hahn, who knew from his own research about the fundamental methodological problems of Orthodoxy, was rather comfortable with this type of critique:

“For as I said at the outset, the citadel is not at all secure, and the fact that it is safe from a bombardment of soap bubbles does not mean that it is safe.” (Hahn, 1984, p. 78)

The effective part of heterodox critique goes to the heart of the matter, that is, to the foundational assumptions of Orthodoxy.

We have two criteria to assess a theory: material consistency and formal consistency. A theory must satisfy both criteria; that is to say, it can be rejected either on empirical or on logical grounds alone.

Barzilai has single-handedly brought down the entire theoretical superstructure of marginalism from exchange to growth and distribution by exposing the fundamental formal flaw of utility theory: conventional economics is outside of mathematics, outside of logic, and therefore outside of science. In a diffuse way, heterodox economists have always felt this. However, feeling does not count for much in science. What counts is proof. Barzilai has accomplished the first and foremost task of heterodox economics. Hahn's premonition has literally come true.

The orthodox citadel has never been safe, and Barzilai has provided the ultimate formal argument.

Egmont Kakarot-Handtke


References
Hahn, F. H. (1984). Equilibrium and Macroeconomics. Cambridge: MIT Press.

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REPLY Circular reasoning  comment on Grieve's ‘Right back where we started from’ on Sep 13

The growth of knowledge is the characteristic of science. This growth is mostly smooth, but sometimes it takes the form of a disruptive paradigm shift. In marked contrast, secular stagnation is the outstanding characteristic of economic thinking.

Economics still stands at what may be called Keynes' juncture: “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight – as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (Keynes, 1973, p. 16)

This insight is Keynes' most valuable methodological contribution. In no uncertain terms, he called for a paradigm shift. However, Keynes did not follow his own advice. And what his followers put into practice was his political program, which indeed has a weak theoretical foundation because Keynesians never came forth with the non-Euclidean axioms. There are a lot of new assumptions and commonsensical assertions in the General Theory, but there is no way around it: the formal foundations are logically defective (see 2013 and 2014).

Since the 1930s, when Keynes saw more clearly than his fellow economists that the classical axioms had been refuted once and for all by the Great Depression, economics has been in dire need of new formal foundations. There is no way back before Keynes, and to stay any longer at Keynes's juncture is equally impossible. New Classicals have not got the first point, New Keynesians not the second (cf. Quiggin, 2010). Lacking correct formal foundations, both approaches are agonizing detours.

Why have economists not extricated themselves from the circle of stagnation?

First, many economists either do not understand or do not accept the codex of falsification:
“In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern, 1941, pp. 369-370)

Second, it is the “... failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend, 2004, p. 72)

Neither Classical nor Keynesian economists have transcended (i) supply-function—demand-function—equilibrium, (ii) invisible hand coordination of qualitatively different markets, (iii) the belief that in the end, all turns out for the best, and if not, either labor, the central bank, or the government has been sticky or wrong-headed.

As a matter of fact, about formal and material consistency, there is not much to choose between the Classical and Keynesian approaches:
“Suffice it to say that, in my opinion, what we presently possess by way of so-called pure economic theory is objectively indistinguishable from what the physicist Richard Feynman, in an unflattering sketch of nonsense 'science,' called 'cargo cult science'.” (Clower, 1994, p. 809)

In view of this big picture, the finer points of IS-LM and AS/AD are not of particular significance, and there is no need to recycle them further (see 2014).


References
Clower, R. W. (1994). Economics as an Inductive Science. Southern Economic Journal, 60(4): 805–814.
Feyerabend, P. K. (2004). Problems of Empiricism. Cambridge: Cambridge University Press.
Kakarot-Handtke, E. (2013). Why Post Keynesianism is Not Yet a Science. Economic Analysis and Policy, 43(1): 97–106. URL
Kakarot-Handtke, E. (2014a). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.

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REPLY Teachers, preachers, scientists  comment on Goodwin's ‘Human element’ on Sep 18

Goodwin finishes her article with a call to contribute to making the world a better place. With this, all economists can agree. In fact, this is what they have done, or claim to have done, since Adam Smith.

“However much economists may evoke their purity, they want to change the world. They want to contribute to the solution of urgent practical problems. ... Of course, they also pursue the consistency of the theories they make, for he who contradicts himself proves nothing.” (Klant, 1988, pp. 112-113)

How do economists contribute to solutions? They, first of all, try to figure out how the economy works. This is the precondition because if we do not know how the economy works, we do not really understand what the problem is and cannot do anything effective about it.

“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, 1991, p. 30)

The economist's professional contribution to the betterment of the human condition takes the form of a scientific theory. But have economists developed the true theory? Not yet. Goodwin, speaking for many, neither agrees with conventional theory nor with the behavioral assumptions as codified in the textbooks. The ‘sorry state’ of the economic culture, Wall St. in particular, which gradually evolved from the behavioral axiom of rational self-interest, has repeatedly ‘bubbled up into disasters’. That is, economists do not solve problems; on the contrary, they cause them. In order to prevent future crises, a new approach is needed.

“We are now at a time when economics is in need of another 60-year refresh. The heart of this need is in the question: How are human motivations and behavior to be understood in this human science?” (Goodwin, 2014, p. 99)

Goodwin maintains that conventional economics has become a menace to the public. The ultimate reason is that it rests on a questionable behavioral premise. Methodologists, too, have identified this weak spot.

“But a principle that is not universally true is false. Thus the rationality principle is false. I think there is no way out of this. ... Now if the rationality principle is false, then an explanation that consists of the conjunction of this principle and a model must also be false, even if the particular model is true. But can the model be true? Can any model be true? I do not think so. Any model, whether in physics or in the social sciences, must be an over-simplification. ... I think we have to admit that most successful scientific theories are lucky over-simplifications.” (Popper, 1994, pp. 172-173)

Since J. S. Mill, economists have never defended the axiom of rational self-interest as a social norm but excused it as a necessary oversimplification.

“The science then proceeds to investigate the laws which govern these several operations, under the supposition that man is a being who is determined, by the necessity of his nature, to prefer a greater portion of wealth to a smaller in all cases, without any other exception than that constituted by the two counter-motives already specified. Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed.” (Mill, 1874, V.38)

However, despite all caveats, it was almost inevitable that in the rhetoric of popularizers, the rationality axiom mutated from an oversimplification to ‘greed is good’. Therefore, it is of utmost importance to keep political economics and theoretical economics strictly apart. In theoretical economics, there is no need to contrast pure selfish behavior with honesty, work for the common good, and caring. The task of theoretical economics is to explain how the economy works, neither to deny nor to preach social values. It is politics, philosophy, and religion — the antipodes of science — where the struggle about values takes place.

Having identified the weak spot of conventional economics, there are two ways open: (i) to replace the narrow axiom of rational self-interest with a broader set of behavioral assumptions, or (ii), to exclude behavioral assumptions altogether from the axiomatic foundations of economics. Goodwin chooses the first alternative. That is a mistake.

“The purpose of this paper is to criticise the notion that economics is a science of behaviour or that a science of behaviour is fundamental to economics. This plausible and, as I believe, mistaken idea has sometimes been called (methodological) psychologism, and I follow here this terminology. In opposition to psychologism, I put forward the notion of economics as a study of spontaneous order independent of any behavioural science. My argument is based on the important contributions of Hayek and Popper. If it is correct, then all the attempts to derive an adequate model of economic behaviour (as practised, for example, by the representatives of ‘behavioural’ or ‘psychological economics’) are misconceived.” (Hudík, 2011, p. 147)

Psychologism leads into the swamp of pseudoscience. The general problem with behavioral propositions is that they are vague and uncertain.

“By having a vague theory it is possible to get either result. ... It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can't be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (Feynman, 1992, p. 159)

There is no behavioral assumption that is strong enough to bear a comprehensive theoretical superstructure. But worse, no way leads from the understanding of human motivations and behavior to the understanding of how the economy works (see 2014). Yes, of course, neoclassical economics claims to have found the way.

“When I was beginning my studies in this field economist Robert Solow commented to me that the great strength of economics is that it is fully axiomatized; the entire edifice can be deduced from the basic rationality axiom, which says that rational economic man maximizes his utility.” (Goodwin, 2014, p. 102)

It is widely known that general equilibrium theory does not represent any feasible economy (Ackerman et al., 2004).

“The great contradiction revealed is as follows: one of the theory's greatest strengths — its claim to deduce significant results from very general hypotheses about the behavior of economic agents — turns out to be its greatest weakness.” (Ingrao et al., 1990, p. 364)

Because economics is entirely different from psychology, sociology, and ethics, the solution to the methodological problem spotted by Goodwin consists in this: theoretical economics must not be based on behavioral axioms but on objective structural axioms  (see 2014 and 2013).

Economists do not make the world a better place by justifying bad behavior or preaching good behavior, but only by providing the true theory about how the economy works. It is true/false and not good/bad that science is all about.


References
Ackerman, F., and Nadal, A. (Eds.) (2004). Still Dead After All These Years: Interpreting the Failure of General Equilibrium Theory. London, New York: Routledge.
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Goodwin, N. (2014). The Human Element in the New Economics: A 60-Year Refresh for Economic Thinking and Teaching. real-world economics review, (68): 98–118. URL
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
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. (2014a). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Klant, J. J. (1988). The Natural Order. In N. de Marchi (Ed.), The Popperian Legacy in Economics, 87–117. Cambridge: Cambridge University Press.
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality. London, New York: Routledge.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.

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REPLY  Eternal Return  comment on Davar's Rejoinder to Grieve on Sep 24

I would like to inform you that
(i) the Keynesian formalism is defective since the General Theory (for the proof see 2013 or 2014),
(ii) contrary to the popular interpretation, Walras' Law of Markets does not include the labor market (for the restatement see 2013).

What you are in fact comparing and discussing are two obsolete approaches. To me, this exemplifies that not only Orthodoxy adheres to the philosophy of the return of eternal return but also Heterodoxy.


References
Kakarot-Handtke, E. (2013a). Walras’ Law of Markets as Special Case of the General Period Core Theorem. SSRN Working Paper Series, 2222123: 1–12. URL
Kakarot-Handtke, E. (2013b). Why Post Keynesianism is Not Yet a Science. Economic Analysis and Policy, 43(1): 97–106. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL

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REPLY  concluding remark on Davar's contributions on Sep 29

My comment of 24 Sep clearly states that both the Keynesian and the Walrasian approaches are defective. Thus, to compare them is like comparing the ether and the phlogiston theory. This is simply not a productive use of scarce resources.

It is obvious that the only way out of the impasse is to develop a new paradigm. To continue the discussion about the finer points of bygones is futile.

It is widely known that the Walrasian approach is a failure (Ackerman et al., 2004), and I have provided the decisive axiomatic arguments in my working papers. There is no good reason left why anyone should occupy themselves with any version of conventional equilibrium theory.

My comments are to be understood as an invitation to New Economic Thinking.


References
Ackerman, F., and Nadal, A. (Eds.) (2004). Still Dead After All These Years: Interpreting the Failure of General Equilibrium Theory. London, New York: Routledge.

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Amazon, Jonathan Barzilai, April 5, 2022

Economists’ three-layered scientific incompetence

Comment on Asad Zaman on ‘Project: A heterodox macro textbook’

Blog-Reference and Blog-Reference

Economics is a failed science. This means more specifically for the history of economic thought: Orthodoxy has failed to produce anything of real scientific value and Heterodoxy has failed to develop a superior alternative. Thus, economics is stuck since its inception at the proto-scientific level “... we know little more now about ‘how the economy works,’ or about the modus operandi of the invisible hand than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations.” (Clower, 1999, p. 401)

The failure of economics is provable and therefore no longer a matter of debate.

1st layer: Wrong subject matter

Since Adam Smith, economics claims to be a science. It started as a mixture/intersection of sociology and political science: “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.” (J. S. Mill, 1874, V.39)

Economics has been understood as Political Economy. Economists saw themselves as agenda pushers for some greater good and science as a means to that end. The idea of pure science, i.e. the completely independent pursuit of knowledge, never occurred to the inventors of utility maximization.

With respect to the subject matter, there is no difference between Mill and Marx “My stand-point, from which the evolution of the economic formation of society is viewed as a process of natural history, ...” (Marx, 1906, M.9)

With Jevons/Walras/Menger the focus shifted to methodological individualism and economics became a mixture/intersection of psychology, sociology, and political science.

Economics is NOT a science of individual/social/political behavior — this is the social science delusion#1 — but of the behavior of the monetary economy. Accordingly, the correct definition of the subject matter is objective/structural/systemic: “Economics is the science which studies how the monetary economy works.”

As a consequence, the Copernican turn in economics consists of the methodological switch from behavior-centered bottom-up, i.e. microfoundations, to structure-centered top-down, i.e. macrofoundations of the world economy. All Human-Nature issues are the subject matter of other disciplines (psychology, sociology, anthropology, biology/Darwinism, political science, philosophy, etcetera) and are taken in from these by way of multi-disciplinary cooperation. To paraphrase J. S. Mill: ‘Economics as a systems science presupposes all the physical and social sciences; it takes for granted all such of the truths of those sciences as are concerned with the working of the economic system.’ (cf. Mill, 1874, V.29)

Economists must, first of all, stop the dilettantish dabbling in the so-called social sciences and in politics and focus on their proper subject matter. What they have collectively produced so far in their own domain is scientific garbage.

2nd layer: Wrong axiomatization

Orthodoxy defines itself briefly as “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” (Krugman)

More explicitly and formally, i.e. axiomatically, Orthodoxy has been defined as “The [neo-Walrasian] program is organized around the following hardcore propositions:
HC1 There exist economic agents.
HC2 Agents have preferences over outcomes.
HC3 Agents independently optimize subject to constraints.
HC4 Choices are made in interrelated markets.
HC5 Agents have full relevant knowledge.
HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub, 1985, p. 109)

The fact of the matter is that there is no such thing as an equilibrium in the economy. Methodologically, HC6 is what is known since antiquity as petitio principii. This is an indefensible methodological blunder. Likewise for HC3.

HC6 and HC3 are methodologically unacceptable as axioms. Because of this the whole set of hardcore propositions — the sorta-kinda starting point — breaks apart and with it the WHOLE theoretical superstructure of Orthodoxy.

Keynes identified the pivotal methodological blunder correctly “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)

Consequently, Keynes formulated the foundational syllogism of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (1973, p. 63)

This elementary syllogism is conceptually and logically defective because Keynes did not come to grips with profit and therefore “discarded the draft chapter dealing with it.” (Tómasson et al., 2010, p. 12) As a result, all I=S models including the Keynesian multiplier are false (2014) and with it the WHOLE Post-Keynesian theoretical superstructure.

To see the enormity of intellectual failure one has to let this sink in: Keynes had no idea of the fundamental concepts of economics, viz. profit and income. This did not hinder him to push his economic policy agenda. Keynes’ policy proposals never had sound theoretical foundations but were at best commonsensical.

So, we have two reliable indicators of the intellectual incapacity of present-day economists: Keynesians are for more than 80 years in the dark. Sorta-kinda Neoclassicals are for more than 140 years in the dark. Because they have methodologically disqualified themselves neither Keynesians nor Walrasians can be taken seriously. The same holds for Marxists and Austrians. Economic policy advice has until this day no sound theoretical foundations because economic theory itself has no sound axiomatic foundations.

3rd layer: Wrong formalization

“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.” (Aristotle, Posterior Analytics)

Certain/true/primary premises are hard to come by “There is no more fertile source of error than apparently trivial premises.” (Schumpeter, 1994, p. 269)

To state one’s hardcore premises consistently is the indispensable methodological minimum, to formalize them correctly is an additional step. The pivot of formalization is “Formal axiomatic systems must be interpreted in some domain ... to become an empirical science.” (Boylan et al., 1995, p. 198)

Debreu in his axiomatization of Walrasianism did explicitly the opposite, that is, he disconnected “Allegiance to rigor dictates the axiomatic form of the analysis where the theory, in the strict sense, is logically entirely disconnected from its interpretations.” (Debreu, 1959, p. x)

Debreu missed the crucial point: “From the axiomatic point of view, mathematics appears thus as a storehouse of abstract forms — the mathematical structures; and it so happens — without our knowing why — that certain aspects of empirical reality fit themselves into these forms, as if through a kind of preadaptation. ... It is only in this sense of the word ‘form’ that one can call the axiomatic method a ‘formalism’.” (Bourbaki, 2005, p. 1276)

NOT ALL mathematical structures incorporate a ‘certain aspect of empirical reality’, which means, that there is a “whole crop of monster-structures, entirely without application” (Bourbaki, 2005, p. 1275, fn. 9).

Debreu’s axiomatization of Walrasian General Equilibrium is a mathematical monster-structure that is due to Debreu’s misunderstanding of what formalization is all about. For parallel fatal mistakes with regard to the applicability of mathematical operations in the theory of value see (Barzilai, 2016).

In sum: economists misapply on a regular basis what they take from the ‘storehouse of abstract forms’. The problem is not the application of mathematics per se but the dilettantish application. Generally speaking, the economic content and the mathematical form do not fit together. Hence, the ultimate methodological blunder of what is widely criticized as mathiness has always been this “Knight lamented that there are many members of the economic profession who are ‘mathematicians first and economists afterwards.’ The situation since Knights time has become much worse. There are endeavors that now pass for the most desirable kind of economic contributions although they are just plain mathematical exercises, not only without any economic substance but also without mathematical value. Their authors are not something first and something else afterwards; they are neither mathematicians nor economists.” (Georgescu-Roegen, 1979, p. 317)

A mathematical form that has no interpretation in the monetary economy is vacuous at best and misleading at worst. Because of this, no economic policy proposals can ever be derived from such a model, or, to put the other way round, all policy proposals derived from incorrectly formalized models have no more scientific value than a horoscope.

The cumulated three-fold blunder of orthodox and heterodox economics manifests itself in one of the greater embarrassments in the history of science, that is, that the representative economist cannot tell the difference between the elementary concepts of income and profit.#2 This is like a physicist who cannot tell the difference between potential and kinetic energy. After more than 200 years of dilettantism and failure, there is no place for Walrasians, Keynesians, Marxians, and Austrians in the scientific community.

Egmont Kakarot-Handtke


References
Barzilai, J. (2016). Slutsky’s Mathematical Economics. Scientific metrics working paper, 1–5. URL #3
Bourbaki, N. (2005). The Architecture of Mathematics. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, Volume II, 1265–1276. Oxford, New York: Oxford University Press.
Boylan, T. A., and O’Gorman, P. F. (1995). Beyond Rhetoric and Realism in Economics. Towards a Reformulation of Economic Methodology. London: Routledge.
Clower, R. W. (1999). Post-Keynes Monetary and Financial Theory. Journal of Post Keynesian Economics, 21(3): 399–414. URL
Debreu, G. (1959). Theory of Value. An Axiomatic Analysis of Economic Equilibrium. New Haven, London: Yale University Press.
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic Issues, 13(2): 317–328. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. Library of Economics and Liberty. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL
Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, etc.: Cambridge University Press.

#1 For a full-horizon overview see Meta-References.
#2 How the intelligent non-economist can refute every economist hands down
#3 For the full scope of economists' mathematical incompetence see Jonathan Barzilai, Scientific Metrics Publications

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REPLY  comment on larrymotuz of Feb 12

I have replaced the neo-Walrasian axioms HC1 to HC6 with the objective-structural set of foundational propositions nHC1 to nHC3. See The creative destruction of Wren-Lewis.

This is what a Paradigm Shift is all about. For more details see cross-references Paradigm Shift.

The objective-structural set of foundational propositions yields testable equations, e.g. for employment and profit. See Have data, lack theory

You or anybody else can test the equations at any time. I will certainly accept an empirical refutation. This is how science works.

You take as hardcore proposition 4): “We eat without full knowledge of nutrients in the foods we eat, but, if we can afford it, we are naturally inclined to eat balanced diets.”

Could it be that you have seen too much health channel advertising or do you really think this is heterodox economics?

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Amazon, Jonathan Barzilai, April 5, 2022

Occasional Tweets: Mathiness is not the fatal methodological flaw of economics ― mathematical incompetence is

 

#Economics#FailedScience

Dear Mr. Wisdom,

it obviously escaped your attention that #MicroEconomics and #GameTheory have been proven to be mathematically flawed. See

Pure Economics
by Jonathan Barzilaihttps://t.co/KypQgKSQc8

Your #Wisdom is actually #ProtoScientificGarbage.

— E.K-H (@AXECorg) June 8, 2022

For details of the big picture see cross-references Math/Mathiness.

For more about Jonathan Barzilai see AXECquery. 

Mathiness is NOT the problem — scientific incompetence is

Comment on Lars Syll on ‘Economists — math-heavy astrologers’

Blog-Reference and Blog-Reference and Blog-Reference on May 3, 2017, adapted to context

“The economist Paul Romer at New York University has recently begun calling attention to an issue he dubs ‘mathiness’ ...” (see intro). This is somewhat beside the point. First of all, Paul Romer rediscovered a phenomenon that is as old as neoclassical economics: “Mr. Stanley Jevons, and M. Walras, of Lausanne, without communication, and almost simultaneously, have worked out a ‘mathematical’ theory of Political Economy; — and anyone who thinks what is ordinarily taught in England objectionable, because it is too little concrete in its method, and looks too unlike life and business, had better try the new doctrine, which he will find to be much worse on these points than the old.” (Bagehot, 1885, PE. 27)

Secondly, Paul Romer messes the whole issue up with a false analogy: “Romer believes that macroeconomics, plagued by mathiness, is failing to progress as a true science should, and compares debates among economists to those between 16th-century advocates of heliocentrism and geocentrism.” (See intro)

As a matter of fact, the debates of the advocates of heliocentrism and geocentrism were strictly PHYSICAL, i.e., about whether the earth stands still and the sun moves or just the other way round, and mathematics/geometry was only an issue, insofar as it has been assumed since Plato that planetary orbits must be perfect circles.

So, if the current macroeconomic debates resemble anything medieval, then the debates about how many angels can dance on a pinpoint. This debate was indeed vacuous because angels are NONENTITIES. In contradistinction, the debate about heliocentrism and geocentrism had REAL content. Likewise, the question of whether planetary orbits are circles or ellipses had REAL content. And this is why the measurements of Brahe became decisive. Physicists NEVER had a mathiness problem; only economists have.

As an economist, Romer does not understand what science is all about. This is not a big problem, though, because his fellow economists have no idea either.

Non-science or pseudo-science is easily recognizable. It is much harder with what Feynman called cargo cult science: “So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, ...” #1

What is missing? Clearly, macroeconomic theory lacks content. The fatal defect is the vacuousness of fundamental concepts like utility, optimization, equilibrium, production function, capital, perfect competition, demand function, etcetera. All these concepts are NONENTITIES like angels or the Easter Bunny. It is NOT formalization that has to be criticized in the first place; it is the all-pervasive green-cheese assumptionism that has become the hallmark of current macroeconomics.

Ultimately, NONENTITIES cannot be formalized. With superficial and faulty formalization, economists abuse mathematics: “When very sound and proper mathematics is misused and misapplied to fairyland problems without any basis in the real world, that fact that the mathematics itself is impeccable makes the whole obnoxious game just that more offensive.” (Blatt, 1983, p. 173)

But things are even worse. Mathematical economists do not really understand the math that they apply. This, too, is not news: “The so-called ‘mathematical’ economists in the narrower sense — Walras, Pareto, Fisher, Cassel, and hosts of other later ones — especially, have completely failed even to see the task that was before them. Professor Hicks has to be added to this list, which is regrettable because he wrote several years after decisive work had been done — in principle — by J. von Neumann and A. Wald. (Morgenstern, 1941, p. 369)

The project of the proper formalization of economics, though, had one fatal drawback: von Neumann left the underlying theory untouched: “But this [establishing the analytic mother-structure] required one very crucial maneuver that was nowhere stated explicitly: namely, that the model of Walrasian general equilibrium was the root structure from which all further work in economics would eventuate.” (Weintraub, 2002, p. 121)

This means that von Neumann swallowed all the vacuous concepts of Walrasianism from utility to equilibrium: “In any event, it seems that Morgenstern finally convinced von Neumann that they must proceed tactically by means of the conciliatory move of phrasing the payoffs in terms of an entity called ‘utility’, but one that von Neumann would demonstrate was cardinal — in other words, for all practical purposes indistinguishable from money ...” (Mirowski, 2002, p. 127)

So, we arrive at the proper definition of mathiness as FORMALIZATION OF NONENTITIES. As genuine cargo cult scientists, economists habitually apply mathematics without a deeper understanding: “The mathematical language used to formulate a theory is usually taken for granted. However, it should be recognized that most of mathematics used in physics was developed to meet the theoretical needs of physics. ... The moral is that the symbolic calculus employed by a scientific theory should be tailored to the theory, not the other way round.” (Wittgenstein, quoted in Schmiechen, 2009, p. 368)

From calculus to set theory, economists always did it the other way round. This is the fatal methodological blunder with regard to formalization.

With mathiness, Paul Romer sloganized a pseudo-problem. For a mathematician’s assessment of the ingrained mathematical incompetence of economists, see Jonathan Barzilai’s Open Letter to the President of the American Economic Association. #2

Egmont Kakarot-Handtke


References
Bagehot, W. (1885). The Postulates of English Political Economy. Library of Economics and Liberty. URL
Blatt, J. (1983). How Economists Misuse Mathematics. In A. S. Eichner (Ed.), Why Economics is Not Yet a Science, pages 166–186. Armonk, NY: M.E. Sharpe. Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, Vol. 1. Norderstedt: Books on Demand, 2nd edition. URL
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.

#1 Wikipedia
#2 Jonathan Barzilai, Scientific Metrics, Open Letters and Papers

For a detailed overview, see cross-references Mathiness. See also cross-references Paradigm Shift and Axiomatization. Immediately preceding Mathiness and the Ur-blunder.

Related '#DrainTheScientificSwamp' and 'Hooray! The formalization issue is finally settled' and 'Wikipedia, economics, scientific knowledge, or political agenda pushing?'.

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Graphic AXEC121f

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REPLY to Brian Romanchuk on May 4, 2017

You say, “Mainstream: MMT has no math!”

When you drive a car, you have velocity and acceleration/deceleration. The latter is the first derivative of the former. So, by driving a car, you have the NATURAL math of calculus. It is just there; whether you have ever heard of calculus or not is irrelevant. Whether you actually measure the velocity is irrelevant. The math is just there.

The same holds for economics. The NATURAL math of economics is the elementary math of accounting. Whether you can do the math or whether you actually measure flows or stocks is irrelevant. The math is just there.

The problem with economists is (i) that they do not know what the NATURAL math of a given economic phenomenon is, (ii) that they grab a piece of math from the math department, and apply it without a deeper understanding. A familiar example is the application of calculus to utility maximization, which is downright idiotic because utility is a NONENTITY. And here you have it in a nutshell: “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.” (Porter)

Neither Walras nor the rest understood this, and because they were not immediately fired for their manifest scientific incompetence, they simply carried on.

The proper definition of mathiness is (i) not to understand what the natural math of an economic phenomenon is, and (ii) the formalization of NONENTITIES (demand functions, production functions, IS functions, equilibrium, etc.). Economists got it wrong on both counts from Jevons/Walras/Menger via Keynes to DSGE. With Jason Smith’s information economics mathematical incompetence has actually reached a maximum.#1

The natural math of macroeconomics is the elementary math of national accounting. The fact of the matter is that Keynes, Post Keynesians, and MMT got it provably wrong. #2

Keynes’s two-liner is simply false: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

Neither pro- nor anti-Keynesians have realized in 80+ years that the two-liner is false according to the natural mathematics of accounting. #3 The snag is that stupid people do not understand the unassailable mathematical proof of their stupidity, and this is why IS-LM and MMT and Post Keynesianism and Krugman and Jason Smith and all the other half-wits are still around.

Scientific self-governance, or what has been reintroduced by Paul Romer as Feynman integrity, simply does not work in economics. Economics is for 150+ years a cargo cult science and orthodox mathiness and heterodox anti-math is only the most conspicuous symptom.

#1 IS-LM ― a crash course for EconoPhysicists
#2 Where MMT got macro wrong
#3 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach

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REPLY to Brian Romanchuk on May 4, 2017

So, we agree on these concrete results:

• The statement ‘MMT has no math’ is false.
• Every economic phenomenon has its natural math.
• The natural math of macro/MMT is accounting.
• MMT got the elementary math of accounting provably wrong.
• The error/mistake/blunder is the same as with Keynes. #1
• The problem of MMT is NOT mathiness but insufficient math competence.
• Because the formal foundations of MMT are false, the whole analytical superstructure of MMT is false. #2
• MMT is refuted according to the scientific criteria of formal/material consistency.
• The further propagation of MMT violates scientific standards.

#1 How Keynes got macro wrong and Allais got it right
#2 The final implosion of MMT

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REPLY to Brian Romanchuk on May 5, 2015

Thank you for the clarification. All others are invited to proceed to the future of economics. See True macrofoundations: the reset of economics or here.

DSGE and profit―forget it! MMT and profit―forget it!

Comment on Brian Romanchuk on ‘The Curious Profit Accounting Of DSGE Models’

Blog-Reference and Blog-Reference

Everybody knows that DSGE, as the actual version of the microfoundations approach, is dead. From this follows that a Paradigm Shift is needed: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)

One of the most conspicuous blunders of DSGE is the profit theory. Brian Romanchuk observes: “One of the more puzzling aspects of neo-classical economic theory is the assertion that profits are zero in equilibrium under the conditions that are assumed for many models. One should re-interpret this statement as ‘excess profits’ are zero, but there are still some awkward aspects to the treatment of profits in standard macro models.”

Indeed, there has been something deeply wrong with the profit theory since Adam Smith. Conventional ‘wisdom’ asserts: “The consensus to date has been that it is mathematically impossible for capitalists in the aggregate to make profits.” (Keen) And: “But, from the macro perspective of Walrasian general equilibrium, the total profits, in this case, cannot be other than zero (otherwise, we would need a Santa Claus to provide the aggregated positive profit) but this does not preclude the possibility of short-run profits and losses of individual firms canceling each other out.” (Boland) #1

The curious thing is that macroeconomic profit has been greater than zero for most of the time in most of the known market economies up to the present. This is an empirical fact. Obviously, there is something wrong with conventional profit theory, and Brian Romanchuk is not the first to notice it. As the Palgrave Dictionary puts it: “A satisfactory theory of profits is still elusive.” (Desai)

This, indeed, is the most damning verdict about economics, which claims to be a science: after 200+ years, economists still cannot tell what the pivotal magnitude of their subject matter ― profit ― is. This does not only apply to DSGE but to the four main approaches: Walrasianism, Keynesianism, Marxianism, and Austrianism are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal economic concept of profit wrong.

While Brian Romanchuk notes that DSGE profit theory must be false, he passes over the fact that MMT, the approach he pushes, is not one iota better.

To make matters short, the axiomatically correct relationships are given here without further explanation. #2 It holds, with Qm monetary profit/loss, Sm monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X exports, M imports, Yd distributed profit:

(i) Qm≡−Sm in the elementary production-consumption economy,
(ii) Qm≡I−Sm in the elementary investment economy,
(iii) Qm≡(G−T)+(I−Sm) in the investment economy with government deficit/surplus,
(iv) Qm≡Yd+(X−M)+(G−T)+(I−Sm) in the open economy with distributed profit.

From (iii) follows that ― given business sector investment I and household sector monetary saving Sm ― Public Deficit = Private Profit. This tells one that the MMT policy of deficit spending/money creation benefits only the one-percenters.

It never follows the MMT tripartite balances equation (I−S)+(G−T)+(X−M)=0. The comparison with the axiomatically correct Profit Law (iv) makes it clear that MMT ― just like DSGE ― in effect deals with a zero-profit economy, i.e., Qm, Yd = 0.

Because the foundational sectoral balances equation of MMT is provably false, the whole of MMT is worthless, just like DSGE.

Egmont Kakarot-Handtke


#1 Debunking Squared
#2 MMT is idiocy and fraud
#3 Macro for retarded economists

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REPLY to Brian Romanchuk and Anonymous on Mar 16 and Blog-Reference

Take notice that what you call “normal definition of income” is one of the worst methodological idiocies of economics. Needless to emphasize that the “normal economist” in his incurable scientific incompetence does not realize it.

Here, for intelligent non-economists, the Humpty Dumpty Fallacy in full detail.

In the elementary investment economy, macroeconomic profit Q is defined as the sum of profit in the consumer goods industry, i.e., Qc≡C−Ywc, and the investment goods industry, i.e., Qi≡I−Ywi, that is, Q≡(C−Ywc)+(I−Ywi) or Q≡C+I−Yw (i). Profit Q is greater than zero if the value of output C+I is greater than the total wage income Yw.

Now, Humpty Dumpty introduces a redundant definition by saying that profit may be called “income of the business sector” and that this “income” can be added up with the wage income of the household sector to “total income” Ψ, thus
(a) Ψ≡Q+Yw  and now (i) is rewritten
(b) Q+Yw ≡C+I and then, hey presto,
(c) Ψ≡C+I, that is, “total income” is “by definition” identical to “value of output” or, in the usual sloppy parlance, “income = value of output” which obviously contradicts (i) and ― strangely enough ― makes profit disappear.

This definitional idiocy can be traced back to Keynes “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

Take notice that “income” is NEVER equal to “value of output” and, by implication, that “saving” is NEVER equal to “investment” because profit is NOT “income”.

In accounting terms, wage income Yw is a flow from the business to the household sector, and consumption expenditures C is a flow in the opposite direction, and profit is the difference between the two flows Q≡C−Yw. To add a flow and a balance together is a category mistake. No accountant worth his salt would ever do it, but economists are Humpty Dumpties who do not even understand the elementary mathematics that underlies accounting. #1, #2

The analogous flow to wage income Yw is distributed profit Yd. It is methodologically CORRECT to add the two flows Yw and Yd together to total income, but it is INCORRECT to add the flow Yw and the balance Q together. #3

All this is way above the head of the “normal economist” who misspecifies the foundational economic concepts of profit/income/saving/distributed profit from Adam Smith onward to DSGE and MMT.

To argue that the “normal economist” treats profit for 200+ years without any qualms as “income” is to confirm that the “normal economist” is an incurable idiot, and this, in turn, explains the indisputable fact that economics is a failed/fake science.


#1 A tale of three accountants
#2 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#3 How Keynes got macro wrong and Allais got it right

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REPLY to Brian Romanchuk on Mar 16

“There are always many different opinions and conventions concerning any one problem or subject-matter …. This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides … was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion (hearsay, plausible myth) on the other.” (Popper)

This is exactly the task of the scientist: to figure out which of the conflicting ‘opinions and conventions’ is true. Economists have badly failed at this task.

Keynes is a case in point. He was entirely clueless: “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.). And: “Keynes related his definition of income expressly to ‘the practices of the Income Tax Commissioners.’ He was in grave doubt whether ‘it might be better to employ the term windfalls for what I call profits.’ But he was quite sure that ‘saving and investment are, necessarily and by definition, equal ― which after all, is in full harmony with common sense and the common usage of the world.’” (Coates) #1

After-Keynesians are no better: Kalecki defined profit as P=Cp+I, Minsky as P=I, and Keen applies the commonsensical but provably false Humpty Dumpty definition of total income = wages plus profits. #2

And so it goes on. Ricardo’s profit theory is false, #3 same as Marx, #4 same as MMT. Your assertion “there is general agreement on how to define profits in simpler cases (such as in a mathematical model)” is laughable.

Nothing shows better the scientific incompetence of economists than the fact that every half-wit applies his own confused definition of profit.

Physics has one definition of energy, and this magnitude is an element of a consistent set of foundational magnitudes. Economics has a wild variety of inconsistent profit definitions. And this is why economists never get above the level of confused blather.

The MMT balances equation reads (I−S)+(G−T)+(X−M)=0, the AXEC balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0. Only one equation can be true. As someone with applied mathematics training, you can certainly spontaneously tell which one. #5


#1 Marshall and the Cambridge School of plain economic gibberish
#2 Heterodoxy, too, is proto-scientific garbage
#3 Ricardo, too, got profit theory wrong
#4 Profit for Marxists
#5 Rectification of MMT macro accounting

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REPLY to Roger Sparks on Mar 17 and Blog-Reference MNE

DSGE is the most recent actualization of the microfoundations approach, which was kicked off 150+ years ago by Jevons/Walras/Menger. DSGE is based on the neo-Walrasian axiom set: “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)

The representative economist has not realized it, but methodologically, these premises are forever unacceptable. It should be pretty obvious that the neo-Walrasian hardcore contains three NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5).

Methodologically, the microfoundations approach has already been dead in the cradle. It was Keynes who realized this and tried to move to macrofoundations. However, in his bottomless incompetence, Keynes messed up the Paradigm Shift. This is why the proto-scientific maximization-and-equilibrium rubbish is still around.

But Neoclassicals not only got the axiomatic foundations of economics wrong, but also the mathematics. The proof has been given by the mathematician Jonathan Barzilai. #1

Whoever discusses in our days a DSGE model proves that he has no grasp whatsoever of science/mathematics. DSGE is the economics analog of the Flat Earth Theory and is considered worthy of discussion only by some simpletons.


#1 See An Open Letter to the President of the American Economic Association and An Open Letter to the President of the Canadian Economics Association

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REPLY to Roger Sparks on Mar 17

Congratulations! It seems that you have reanimated Brian Romanchuk’s defunct brain cells. And what revolutionary insights they have produced in the shortest time:
• “You need gasoline to power your car; you cannot fill it up with dollar bills and have it run.”
• “… we need to distinguish financial assets from real ones.”

Who has ever thought such bold thoughts? I am looking forward to the continuation of this mind-boggling dialogue of imbeciles.

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REPLY to Tom Hickey

You ask: “I wonder whether Nordhaus ever responded.”

Wrong question.

Right question: What follows from Jonathan Barzilai’s proof that economists never understood the mathematics they applied?

Right answer: Mr. Nordhaus is the representative of an association of failed/fake scientists. Whether he answered the Open Letter is a matter of indifference. Being the co-author of a supply-demand-equilibrium economics textbook tells everyone that he never had anything worthwhile to say. #1


#1 The father of modern economics and his imbecile kids

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REPLY to Brian Romanchuk, Roger Sparks on March 19, and Blog-Reference MNE

Brian Romanchuk characterizes the DSGE profit equation: “The firm’s pure profit (Π) in real terms is given by (16.2.17): Π(t)=F(t, kb, n)−r(t)kb(t)−w(t)n(t), where w is the real wage, and r is the rental cost of capital.”

Because both of you have never understood what profit is, you do not know that there is no such thing as “profit in real terms”. Take notice that profit is a feature of the monetary economy and that it cannot be captured by a real model.

In order to see this, one has to go back to the most elementary economic configuration, that is, the pure production-consumption economy, which consists of the household and the business sector.#1

In this elementary economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

• In case (i), the monetary saving of the household sector Sm≡Yw−C is zero, and the monetary profit of the business sector Qm≡C−Yw, too, is zero. The product market is cleared, i.e., X=O in all three cases.
• In case (ii), monetary saving Sm is positive, and the business sector makes a loss, i.e., Qm is negative. The market-clearing price is lower than in (i).
• In case (iii), monetary saving Sm is negative, i.e., the household sector dissaves, and the business sector makes a profit, i.e., Qm is positive. The market-clearing price is higher than in (i).

It always holds Qm+Sm=0 or Qm≡−Sm, in other words, at the heart of the monetary economy is an identity: the business sector’s surplus = profit equals the household sector’s deficit = dissaving. And vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law.

Profit is a purely nominal magnitude: NO share of output O corresponds to it. Under the condition of market clearing, the output always goes in full to the household sector. The correspondence of profit is an increase of money in the business sector’s cashbox, as every economist knows from Marx’s famous formula M―C―M’.

That no share of output corresponds to profit is logically obvious because the correspondence of loss would be a negative share of output, and that is a NONENTITY.

There is no such thing as a “real” profit. Profit is a nominal variable and the counterpart of dissaving. The DSGE concept of profit is as brain-dead as can be, and one has to be a brain-dead economist to take it seriously for more than one second. #2, #3


#1 The elementary production-consumption economy is given by three macro 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.
#2 The Profit Theory is False Since Adam Smith
#3 How the intelligent non-economist can refute every economist hands down

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REPLY to Brian Romanchuk on Mar 19 and Blog-Reference MNE

You say: “In this case, all that it done is divide through by the price level. As long as prices are non-zero, that is a legitimate mathematical operation.”

This is simply NOT the case. Nobody, in fact, divides anything by the price level. The DSGE profit equation reads Π(t)=F(t, kb, n)−r(t)kb(t)−w(t)n(t), where F(·) is the “real” production function, where w is the “real” wage, and r is the “real” rental cost of capital. There is NO nominal variable in the equation and NO division through P.

The “real” DSGE profit formula is pure methodological BS and only good for the demonstration of the galactic dimension of economists' scientific incompetence. #1 Because you cannot even read the profit equation, you do not realize that it is all in real variables, while profit is a nominal variable that has to be determined by National Accounting.

Nobody in their right mind applies a Cobb-Douglas production function to determine profit.


#1 The futile attempt to recycle Sraffa

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REPLY to Roger Sparks on Mar 19 and Blog-Reference MNE

You say, “I think the logical gaps between our three positions are very wide.”

Then, we have to determine in earnest who is right and who is wrong. As Popper said, if statements contradict, this shows that they are not all true.

You do not even understand the problem of macroeconomic profit. Marx did: “How can they continually draw 600 p. st. out of circulation, when they continually throw only 500 p. st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.”

This led to the conclusion: “The consensus to date has been that it is mathematically impossible for capitalists in the aggregate to make profits.” (Keen) And this zero-profit conclusion is obviously NOT in accordance with the empirical evidence for 200+ years.

Exactly at this point resides the logical gap = black hole of economists in general, and you and Brian Romanchuk in particular.

The mathematical solution to Marx’s problem of the very existence of macroeconomic profit reads Q≡−S, that is, the business sector as a whole can only draw more out of circulation if the household sector throws more into it; in plain English, profit = dissaving.

This is the core of the life formula of the economic system we happen to live in. Needless to emphasize that, neither you, Brian Romanchuk, Walrasians, Keynesians, Marxians, nor Austrians ever understood it.

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REPLY to Brian Romanchuk

To take DSGE seriously for longer than one minute and to wonder whether market-clearing is assumed (of course, this defines equilibrium in GE) is a sure indicator of substandard intellectual performance.

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REPLY to Roger Sparks on Mar 20 and Blog-Reference MNE

You repeat the core of the axiomatically correct Profit Law, profit = dissaving, and then you go on saying, “Profits do you no good unless they can be used to improve your life and (hopefully) the life of others.”

You obviously do not grasp the implication of what I called the “life formula of the economic system we happen to live in”. Since profit is the very condition of the functioning of the economy, the life formula also tells you when the economy we happen to live in will break down.

This is something that neither DSGE nor MMT nor any other approach will tell you because economists do not know what profit is since economics was established as a proto-science by the silly blatherer Adam Smith. #1

The market economy breaks down as soon as macroeconomic profit turns into loss, and this is, in the most elementary case, when dissaving stops. The macroeconomic Profit Law for the general case reads Qm=Yd+(X−M)+(G−T)+(I−Sm), and you can figure out for yourself the conditions that turn profit eventually into loss.

If you do not understand the life-and-death formula of the monetary economy, there is no need to stop emanating blatant nonsense ― you can still have an absolutely senseless conversation about the crappy DSGE profit formula with Brian Romanchuk or, what amounts to the same, channel your grandma.


#1 Mathematical Proof of the Breakdown of Capitalism

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REPLY to ANC Driver on Mar 24 and Blog-Reference MNE

To sum up. In their DSGE textbook, Recursive Macroeconomic Theory, Lars Ljungqvist and Thomas J. Sargent define macroeconomic profit in real terms. This is methodologically as idiotic as one can get because profit is a nominal variable. The DSGE model suffers from a dimensional inconsistency. Alone, for this reason, it is scientifically worthless.

Neither DSGEers themselves nor their critics have realized that the whole approach is proto-scientific garbage. On second thought, however, this is not really astounding because the representative economist swallows garbage like utility maximization and Supply-Demand-Equilibrium already for 150+ years as if it were manna.

The alternative to microfounded DSGE is macrofounded Post-Keynesianism. It is not one iota better. The macro profit theory is provably false since Keynes. #1 This is the false MMT balances equation (X−M)+(G−T)+(I−S)=0, and this is the true equation (X−M)+(G−T)+(I−S)−(Q−Yd)=0 with profit and distributed profit greater zero. #2

Will Lars Ljungqvist, Thomas Sargent, Brian Romanchuk, Roger Sparks, and the rest of the mentally retarded microfounded macroeconomists ever get it? No chance; these folks have been lost in vacuous proto-scientific space for centuries.


#1 Forget Keynes
#2 True macrofoundations: the reset of economics

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REPLY to Brian Romanchuk on Mar 25 and Blog-Reference MNE

You say, “The equation has been divided through by the price level … that’s a valid mathematical operation.”

The problem is that you are a substandard mathematician. Because of this, you do not realize that DSGE is materially and formally flawed.

The analytical superstructure of DSGE is based upon this set of hardcore propositions, a.k.a. axioms:
HC1 There exist economic agents.
HC2 Agents have preferences over outcomes.
HC3 Agents independently optimize subject to constraints.
HC4 Choices are made in interrelated markets.
HC5 Agents have full relevant knowledge.
HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub, p. 109) #1

HC3 introduces marginalism, which is the all-pervasive principle of standard economics. There are two methodological flaws here: (i) HC3 is an idiotic behavioral assumption, and (ii) constrained optimization of an ordinal preference order is an invalid mathematical operation, as the mathematician Jonathan Barzilai has proven (link has been given above).

Marginalism has been proto-scientific garbage from the very start. #2 DSGE is proof that economists are so stupid that they have not realized in 150+ years that their axiomatic foundations HC1/HC6 are invalid on all methodological counts.

The microfoundations approach is dead. Standard economics is dead. DSGE is dead. Nothing less than a Paradigm Shift will do. Methodologically, it holds: If it isn’t macro-axiomatized, it isn’t economics.


#1 Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, etc.: Cambridge University Press.
#2 Putting the production function back on its feet

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Graphic AXEC143d Profit Law (with increasing complexity) and Sectoral Balances Equation ®

Economics and scientific foolishness

Comment on Lars Syll on ‘The main problem with mainstream economics’

Blog-Reference and Blog-Reference on Oct 12

Lars Syll quotes Feynman approvingly: “The first principle is that you must not fool yourself and you are the easiest person to fool.” Unfortunately, Lars Syll does not apply this insight to himself and to the Malmö branch of Heterodoxy. #1

Malmö Heterodoxy methodologically follows the Cambridge School of Loose Verbal Reasoning with Keynes as the authoritative spokesperson: “It is better to be roughly right than precisely wrong!”

It is just the other way round as Feynman made clear: “By having a vague theory it is possible to get either result. ... It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (1992, p. 159)

While Malmö Heterodoxy regards economics as a social science, Feynman identified the social sciences as cargo cult sciences: “So we really ought to look into theories that don’t work, and science that isn’t science.” (1974, p. 11)

Whoever looks into orthodox and heterodox theories finds that BOTH do not fit the criteria of science, which are well-defined as material and formal consistency. Malmö Heterodoxy simply resorts to Keynesian new-speak, which consists of creating a paradox out of thin air: “Formalization of even a part of what goes into our common sense understanding of society would be, as he [Keynes] said ‘prolix and complicated to the point of obscurity.’ Theories constructed with vague concepts paradoxically can maximize precision and economy.” (Coates, 2007, p. 8)

This is a fine example of Keynesians fooling themselves. Vague concepts are scientifically worthless, have always been, and will always be (2011).

While Malmö Heterodoxy never gets tired of accusing Orthodoxy of applying math, Feynman knew how to properly use its inexplicable but proven effectiveness: “I find it quite amazing that it is possible to predict what will happen by mathematics, which is simply following rules which really have nothing to do with what is going on in the original thing.” (1992, p. 171)

This, of course, is not a justification of mathiness, which is the misapplication of math within the framework of a cargo cult science. #2

Malmö Heterodoxy, which has not produced much scientific value, proposes the abolition of the axiomatic-deductive method: “So ― if we want to develop a new and better economics we have to give up on the deductivist straitjacket methodology.”

Feynman, who has produced some scientific value, predicts just the opposite: “Some day, when physics is complete and we know all the laws, we may be able to start with some axioms, and no doubt somebody will figure out a particular way of doing it so that everything else can be deduced.” (1992, p. 50)

While Malmö Heterodoxy is satisfied with reiterating “the main problem with mainstream economics” Feynman made it clear that critique is not the main task of the scientist: “The problem is not just to say that something might be wrong, but to replace it by something ― and that is not so easy.” (1992, p. 161)

We know that it has been much too hard for traditional Heterodoxy. Neither Orthodoxy nor Heterodoxy ever got above the proto-scientific level. It is indeed foolish for cargo cult scientists to quote genuine scientists on methodology. But then, this is exactly what is to be expected from fools.

Egmont Kakarot-Handtke


References
Coates, J. (2007). The Claims of Common Sense. Moore, Wittgenstein, Keynes and the Social Sciences. Cambridge, New York, etc.: Cambridge University Press.
Feynman, R. P. (1974). Cargo Cult Science. Engineering and Science, 37(7): 10–13. URL
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL

#1 Economics as fool’s paradise
#2 For the proof see Barzilai

Related 'Macroeconomics: Drain the scientific swamp' and 'The clock runs down on economics'. For details of the big picture, see cross-references Failed/Fake Scientists and cross-references Heterodoxy and cross-references Paradigm Shift.

Occasional Tweets: Economics is not a guide to living

 

#Economics#FakeScience#Utility is a psychological/sociological/philosophical concept. Economics is about how the economic #System works. It is NOT a #SocialScience but a #SystemsScience. #Economists never got their foundational concepts right. ⇒https://t.co/5K0YAuqmZ3

— E.K-H (@AXECorg) June 27, 2022

For more about utility see AXECquery.

For the flawed mathematics of utility maximization see

Pure Economics

Jonathan Barzilai

Friesen Press

Amazon

For the philosophy of Utilitarianism see Wikipedia Jeremy Bentham. When economics becomes a science, Utilitarianism will be no longer part of it.

Enough! Economists, retire now!

Comment on Lars Syll on ‘Krugman’s dangerous lack of methodological reflection’

Blog-Reference

(i) There is Orthodoxy with microfoundations, and it has been nicely defined by Krugman: “... most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” #1

(ii) Methodologically, these premises are forever unacceptable. #2

(iii) When the premises/axioms/foundational propositions are false or contain NONENTITIES, the whole theory/model/superstructure is false. Because of this, there is NO need to check the theoretical superstructure or the policy conclusions of Neoclassics in great detail.

(iv) Hydra Rule: It is not only a waste of time to fight the countless heads of the beast and to decapitate them one by one, but de facto counterproductive. #3 The only effective method of refutation is to go directly to the heart of the matter, i.e., to the axioms.

(v) Neoclassical policy proposals have NO valid theoretical foundations. However, because many details/add-ons/illustrations of a longer and mixed argument are accurate, commonsensical, tautological, approximately true on a small/micro-scale, credible, or part of the unquestioned social belief system, the general public cannot see that there is a TOTAL DISCONNECT between an economic policy proposal and the underlying theory. Just as there is a total disconnect between poultry entrails and the utterances of the haruspex, which guided ancient Roman policy. #4

(vi) The Disconnect Generalization: ALL economic policy arguments of Walrasians, Keynesians, Marxians, and Austrians are hanging in midair and are scientifically unfounded.

(vii) The only general statement that can be made with certainty about human behavior is that it is target-oriented. Targets, though, are dependent on expectations. Expectations, in turn, are almost instantaneously adaptable, only loosely connected to objective reality, emotionally inflated, and subject to sudden changes that are transmitted with high speed between individuals. Because of the ONTOLOGICAL UNCERTAINTY of expectations and by implication targets, there can be NO such thing as a behavioral axiom. Axioms must be certain, or as Aristotle put it, certain, true, and primary.

(viii) Because human behavior cannot be axiomatized, the microfoundations program has already been dead in the cradle 150+ years ago.

(ix) Keynes started the macrofoundations research program in the General Theory formally as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” These formal foundations are conceptually and logically defective because Keynes never came to grips with profit (2011; 2012).

(x) Because of this, the macrofoundations approach (including After-Keynesianism, Post-Keynesianism, New Keynesianism, and all I=S/IS-LM models) was already dead in the cradle 80+ years ago.

Review of the Troops. Provably false
• profit theory, for 200+ years,
• microfoundations, for 150+ years,
• macrofoundations, for 80+ years,
• application of elementary (2012) and high-powered mathematical tools, for approx. 100 years. #5

ALL models that contain maximization-and-equilibrium or I=S are a priori false, and this is more than 90 percent of the content of peer-reviewed economic quality journals and 100 percent of textbooks of renowned authors.

(xi) No more proof of scientific incompetence is needed. Remains only one question for society: how to get rid of the ‘throng of superfluous economists’. #6

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL

#1 More detailed, the starting point is given with these 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, 1985)
#2 For details and proofs, see the blog and working papers
#3 Wikipedia Lernaean Hydra
#4 Wikipedia Haruspex
#5 For the REAL mathiness problem, see Jonathan Barzilai, Scientific Metrics, Open Letter to the President of the American Economic Association and papers
#6 Joan Robinson

Related 'Economists ― standing on the shoulders of dwarfs' and 'Hooray! The formalization issue is finally settled' and 'Economics: a science without scientists' and 'Economics: communication without content' and 'Economics: A failed/fake science for 200+ years' and 'Modern macro moronism' and 'The clock runs down on economics' and 'MMT and the canonical macroeconomic model'. For details of the big picture, see cross-references Failed/Fake Scientists.

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COMMENT on Kingsley Lewis on Jul 11

Your positioning of Krugman’s approach is false. Krugman is NOT in the right way and at an early stage of development that will eventually lead to success. Krugman is definitely at the dead-end of the wrong way. So he is not comparable to a precursor like Tycho Brahe#1 but to Ptolemy #2, the iconic representative of geocentrism. Geocentrism was refuted by Copernicus, Kepler, Galileo, and Newton in the course of the Scientific Revolution and was fully REPLACED by heliocentrism.

So, Krugman is the representative of an approach that will vanish from the corpus of accepted scientific truths without a trace.

The actual situation and the alternative futures of economics are summarized in this chart on Graphic AXEC79.

(i) Neoclassical economics is dead but not buried (squares D and G).
(ii) Most heterodox economists are on square E (traditional Heterodoxy) and have the choice between E-C, E-F, and E-I.
(ii) I am on square B (Constructive Heterodoxy).
(iii) Some heterodox economists are on square H (nihilistic Heterodoxy), and they are going nowhere.

The two wrong ways are E-F (toward the pluralism of false/inconclusive theories) and E-I (toward the weaponizing/capturing/politicizing of economics).

Like you, I see Lars Syll in squares H/E, but you in squares G/D. In brief, Orthodoxy/ Krugman/Lewis is at the ultimate end of a cul-de-sac. Compared to this, Lars Syll’s position is progress. It all depends on where he goes from there. Krugman, in marked contrast, is locked and will not go anywhere. Your positioning of Krugman as a hopeful and modestly successful precursor of scientific truth is indefensible.


#1 See Brahe
#2 See Ptolemy

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REPLY to Kingsley Lewis on Jul 11

If you have a serious interest in rigorous formal proofs of Krugman’s and your own scientific incompetence, I recommend

• Post What is dead certain in an uncertain world: economists’ abysmal incompetence,
• working paper on SSRN Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It,
• Working paper Loanable Funds vs. Endogenous Money: Krugman is Wrong, Keen is Right.

Alternatively, you can enter Krugman’s and my full name in Google, and you will get 1.910 hits in 0,38 seconds. This is much faster and more productive than typing silly questions and comments.