Comment on Peter Radford on ‘Tower of Babel’
Blog-Reference
Heterodox economists sometimes wonder why Orthodoxy, which is patently absurd/silly/ unrealistic, endures (See intro). The sad fact of the matter is that it is clueless Heterodoxy itself that keeps obsolete Orthodoxy straying around.
Orthodox economists are well aware that their stuff is junk but they know also that Heterodoxy cannot do better. Hence, there never has been any lack of sneering challenges “... if you think you can do better with a non-neoclassical model ..., then you are quite welcome to try.” (Boland, 1992, p. 19)
Obsolete Orthodoxy endures for one single reason: the lack of something better. Orthodoxy is a scientific zombie waiting to be put down, however, “There is no evidence to suggest that economists abandon degenerating programs in the absence of a progressive alternative.” (Weintraub, 1985, p. 148)
Obsolete Orthodoxy clutches at a shipwreck and cannot let loose. “There is no alternative that is so obviously superior that it would justify everyone abandoning the current orthodoxy.” (Hausman, 1992, p. 255)
Economics is still at the proto-scientific stage of ‘Babylonian incoherent babble’ (Davidson) because of a manifest ‘failure of reason’: “... we may say that the ... omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives ...” (Feyerabend, 2004, p. 72)
A sure indicator of Heterodoxy’s own disorientation is the plea for pluralism — a pluralism of admittedly false theories, that is. Because “If you believe in the correctness of your ideas, you do not want pluralism; you want your ideas to win out because they are correct.” (Colander et al., 2007, p. 308)
An explanation of the failure of economics, though, is by no means an exculpation. Economists violate scientific standards on a daily basis by the endless recycling of refuted theories “... suppose they did reject all theories that were empirically falsified ... Nothing would be left standing; there would be no economics.” (Hands, 2001, p. 404)
This malpractice is long known but has never been rectified “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)
The tragedy of Heterodoxy is that it is well aware of all blunders but has no idea of how to escape the cul-de-sac.
The first step in the right direction is a clear distinction 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 is worthless, no matter what the agenda is.
Theoretical economics has from the very start been hijacked by the agenda pushers of political economics. Smith and Ricardo defined themselves as political economists, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Varoufakis.
Below the political surface, there is no difference between Walrasians, Keynesians, Marxians, or Austrians. All these approaches fail to satisfy the well-defined criteria of science. As a general rule, economic policy proposals have no sound theoretical foundation.
The original task of Heterodoxy is — not to waste time criticizing scientifically incompetent write-offs but — to fully replace all this garbage with a superior Paradigm.#1
“The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
Egmont Kakarot-Handtke
References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Boland, L. A. (1992). The Principles of Economics. Some Lies my Teacher Told Me. London, New York: Routledge.
Colander, D., Holt, R. P., and Rosser, J. B. (2007). Live and Dead Issues in the Methodology of Economics. Journal of Post Keynesian Economics, 30(2): 303–312. URL
Feyerabend, P. K. (2004). Problems of Empiricism. Cambridge: Cambridge University Press.
Hands, D.W. (2001). Reflection without Rules. Economic Methodology and Contemporary Science Theory. Cambridge, New York, etc: Cambridge University Press.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
#1 For a start see cross-references Paradigm Shift
Related 'Political economics and intellectual corruption' and 'Profit and the collective failure of economists' and 'Heterodoxy, too, is scientific junk' and 'Economists and the destructive power of stupidity' and '10 steps to leave cargo cult economics behind for good'.
Showing posts sorted by relevance for query Cambridge. Sort by date Show all posts
Showing posts sorted by relevance for query Cambridge. Sort by date Show all posts
December 2, 2015
February 19, 2016
Caught in secular intellectual stagnation
Comment on Jose Coronado on ‘What’s wrong with heterodox economics’
Blog-Reference and Blog-Reference on Feb 20
All thinking economists have agreed: orthodox economics is, as Keen famously put it, a naked emperor (2011), or as Quiggin put it, a zombie (2010). This is not news, the embarrassment is well advanced in years “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)
The list of defects is indeed almost endless — and exactly this is the problem. As a matter of methodological principle, the proof of one inconsistency should be enough to refute a theory. Actually, the orthodox approach is refuted by every trick in the book — yet it is still trolling around with silly model bricolage. It seems that critique and refutation are not enough to get rid of a failed approach. This, though, is also well known.
• “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
• “If we feel misgivings ..., all we have to do is to start appropriate research. Anything else is pure filibustering.” (Schumpeter, 1994, p. 577)
• “There is no evidence to suggest that economists abandon degenerating programs in the absence of a progressive alternative.” (Weintraub, 1985, p. 148)
• “There is no alternative that is so obviously superior that it would justify everyone abandoning the current orthodoxy.” (Hausman, 1992, p. 255)
• “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., 1990, p. 362)
Let us call this the problem of the missing alternative or nothing-to-choose dilemma. What is common to Orthodoxy and Heterodoxy is the incompetence to find a superior alternative to what is easily recognizable as a failed approach: “Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992, p. 248)
The curious fact is that Keynes has already pointed the way: “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)
These premises are well-known for more than 150 years “For it would not be too much of an oversimplification to present the field as having progressed smoothly and steadily, developing theories of ever greater power and broader scope within an essentially unchanged explanatory framework, based on the concepts of optimizing individual behavior and market equilibrium, that were already central to economic thought in the previous century.” (Woodford, 1999, p. 2)
Or, in the blog-version of 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”.
And here you have it! What we know with absolute certainty is that the new economic paradigm has to be free of these green cheese assumptions. So, there is no need at all to take notice of any peer-reviewed article or textbook or any post which contains maximization-and-equilibrium. Economic policy proposals of marginalists can simply be laughed out of every debate.
Debunking has been wildly successful, now there is only one task left. To paraphrase the great economist and methodologist J. S. Mill: ‘Doubtless, the most effectual mode of showing how the science of Economics may be constructed, would be to construct it ...’ (2006, p. 834)#1
Egmont Kakarot-Handtke
References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
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.
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.
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical Mirror: On the Break-Up of a Vision, 1–16. Cambridge, New York, Melbourne: Cambridge University Press.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Woodford, M. (1999). Revolution and Evolution in Twentieth-Century Macroeconomics. Mimeo, pages 1–32. URL
#1 See How to restart economics and How economics finally became a science
REPLY comment on Julian Wells on Feb 21
The misapplication of statistical tools is not exactly at the core of the problem. The core is that standard economic theory is provably false. This begins with supply-demand-equilibrium. Provable means according to well-established scientific criteria.
So, a good start would be for orthodox journals to adopt a 'policy of automatic rejection' of any work that contains maximization-and-equilibrium.
Yet, one has to go one decisive step further and ask who produces this scientific garbage in the first place. And here you have it: “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)
So, in order to make economics a science, the best start is to adopt a policy of automatic retirement of Krugman and the other sorta-kinda neoclassicals.
Blog-Reference and Blog-Reference on Feb 20
All thinking economists have agreed: orthodox economics is, as Keen famously put it, a naked emperor (2011), or as Quiggin put it, a zombie (2010). This is not news, the embarrassment is well advanced in years “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)
The list of defects is indeed almost endless — and exactly this is the problem. As a matter of methodological principle, the proof of one inconsistency should be enough to refute a theory. Actually, the orthodox approach is refuted by every trick in the book — yet it is still trolling around with silly model bricolage. It seems that critique and refutation are not enough to get rid of a failed approach. This, though, is also well known.
• “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
• “If we feel misgivings ..., all we have to do is to start appropriate research. Anything else is pure filibustering.” (Schumpeter, 1994, p. 577)
• “There is no evidence to suggest that economists abandon degenerating programs in the absence of a progressive alternative.” (Weintraub, 1985, p. 148)
• “There is no alternative that is so obviously superior that it would justify everyone abandoning the current orthodoxy.” (Hausman, 1992, p. 255)
• “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., 1990, p. 362)
Let us call this the problem of the missing alternative or nothing-to-choose dilemma. What is common to Orthodoxy and Heterodoxy is the incompetence to find a superior alternative to what is easily recognizable as a failed approach: “Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992, p. 248)
The curious fact is that Keynes has already pointed the way: “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)
These premises are well-known for more than 150 years “For it would not be too much of an oversimplification to present the field as having progressed smoothly and steadily, developing theories of ever greater power and broader scope within an essentially unchanged explanatory framework, based on the concepts of optimizing individual behavior and market equilibrium, that were already central to economic thought in the previous century.” (Woodford, 1999, p. 2)
Or, in the blog-version of 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”.
And here you have it! What we know with absolute certainty is that the new economic paradigm has to be free of these green cheese assumptions. So, there is no need at all to take notice of any peer-reviewed article or textbook or any post which contains maximization-and-equilibrium. Economic policy proposals of marginalists can simply be laughed out of every debate.
Debunking has been wildly successful, now there is only one task left. To paraphrase the great economist and methodologist J. S. Mill: ‘Doubtless, the most effectual mode of showing how the science of Economics may be constructed, would be to construct it ...’ (2006, p. 834)#1
Egmont Kakarot-Handtke
References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
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.
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.
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical Mirror: On the Break-Up of a Vision, 1–16. Cambridge, New York, Melbourne: Cambridge University Press.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Woodford, M. (1999). Revolution and Evolution in Twentieth-Century Macroeconomics. Mimeo, pages 1–32. URL
#1 See How to restart economics and How economics finally became a science
***
REPLY comment on Julian Wells on Feb 21
The misapplication of statistical tools is not exactly at the core of the problem. The core is that standard economic theory is provably false. This begins with supply-demand-equilibrium. Provable means according to well-established scientific criteria.
So, a good start would be for orthodox journals to adopt a 'policy of automatic rejection' of any work that contains maximization-and-equilibrium.
Yet, one has to go one decisive step further and ask who produces this scientific garbage in the first place. And here you have it: “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)
So, in order to make economics a science, the best start is to adopt a policy of automatic retirement of Krugman and the other sorta-kinda neoclassicals.
September 15, 2016
Marshall and the Cambridge School of plain economic gibberish
Comment on Lars Syll on ‘Proper use of math’
Blog-Reference
“The currently prevailing pattern of economic theorizing exhibits the following three characteristics: (1) a syncopated style of argument fluctuating back and forth between literary and symbolic modes of expression, (2) naive translation, or the loose paraphrasing of formulae into sentences, and (3) loose verbal reasoning for certain aspects of theoretical argumentation where explicit symbolic formulation is lacking.” (Dennis, 1982, p. 698)
As many have noted, current economics in the incarnation of Walrasianism, Keynesianism, Marxianism, and Austrianism is not science but gibberish decorated with more or less mathematics. How did we get stuck in this bottomless swamp?
To make the world we live in understandable to ourselves, we have not only myth and science but also common sense ― uneasily sitting between the two. John Stuart Mill had no friendly word for common sense: “People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcileable with the theory they held and with a totally different one. It seems strange that such an instance as this, ..., should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.” (2006, p. 783)
The message that common sense is not merely a huge obstacle to science but its very ANTITHESIS got lost on Keynes. Before starting work on the General Theory, he had made up his mind: “In the early thirties he confessed to Roy Harrod that he was ‘returning to an age-long tradition of common sense’.” (Coates, 2007, p. 11)
Now, economics deals not only with individuals and social relations but the economic system as a whole, and Keynes had to come to grips with ‘definitions and ideas’. In fact, he did not. He spent an immense amount of his time on Book II ‘and still left his successors in confusion’ (Moggridge, 1976, p. 33).
Being more an agenda pusher than a scientist, Keynes, like Marshall before him, had the ambition to gain the applause of the practical man, the politician, the businessman, and the general public represented by the business journalist ― however, without ever giving up the appearance of a scientist. “By choosing definitions on the ground that they correspond with actual usage Keynes was formulating an ordinary language social science, one that bears a resemblance to those argued for by philosophers of hermeneutics.” (Coates, 2007, p. 90)
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.’ (Keynes, quoted in Coates, 2007, pp. 93, 91)
As a result, the opportunistic commonsenser Keynes never arrived at a clear idea of the fundamental economic concepts of income and profit, and he knew it: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010, pp. 12-13, 16)
In the discussions following the publication of the General Theory, Keynes had ‘no desire’ that the particular forms of his ‘comparatively simple fundamental ideas ... should be crystallized at the present state of the debate’ (cited in Rotheim, 1981, p. 571). Keynes kept the discussion within the compass of common sense, where ‘nothing is clear and everything is possible’. (1973, p. 292)
Keynes followed the philosophically well-established Cambridge tradition of loose verbal reasoning: “Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. ... Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from ‘the richness of context.’” (Coates, 2007, p. 87)
This spurious freedom of reading into the GT or out of it whatever seemed convenient led to the vacuous discussion of “what Keynes really meant” and the phenomenon that virtually everybody can call himself a Keynesian. This, though, did not help much: “Looking back over the last 70 years it is an inescapable fact that the theoretical arm of the Keynesian Revolution never got off the ground.” (Rogers, 2010, p. 152)
Like Walrasianism, Keynesianism is a failed approach. But both still have some application as a scientific fig leaf in politics, which explains their zombie-like survival.
The Cambridge tradition, continual failure notwithstanding, still holds the majority of retarded economists: “For Keynes as for Post Keynesians the guiding motto is ‘it is better to be roughly right than precisely wrong!’” (Davidson, 1984, p. 574). This contrasts with the motto of science: “It is better to be precisely right than roughly wrong!”
The methodological debate between rigorous Orthodoxy and loose Heterodoxy quite naturally ended in the cul-de-sac: “Mathematical economics, it seems, had the great virtue of demonstrable irrelevance, which was morally preferable to spurious relevance.” (Porter, 1994, p. 155)
The fact of the matter is that both Orthodoxy and Heterodoxy got the foundational concepts wrong. Without consistent conceptual foundations, though, economics will never get out of the self-made thickness of confusion: “I mean by this that formalization eliminates provincial and inessential features of the way in which a scientific theory has been thought about. ... Formalization is a way of setting off from the forest of implicit assumptions and the surrounding thickness of confusion, the ground that is required for the theory being considered. ... In areas of science where great controversy exists about even the most elementary concepts, the value of such formalization can be substantial.” (Suppes, 1968, pp. 654-655)
Formalization is indispensable in economics but presupposes clarifying elementary concepts. With vacuous concepts/NONENTITIES formalization degenerates to mathiness. There is nothing to choose between Keynesian loose verbal reasoning and Walrasian mathiness.
Economists of ALL schools have messed up the foundational concepts of profit and income. With Marshall and Keynes as leading spokesmen, the Cambridge School of Loose Verbal Reasoning is an outstanding example of utter scientific incompetence to this day.
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.
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Dennis, K. (1982). Economic Theory and the Problem of Translation (I). Journal of Economic Issues, 16(3): 691–712. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. London, Basingstoke: Macmillan.
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.
Moggridge, D. E. (1976). Keynes. London, Basingstoke: Macmillan.
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.
Rogers, C. (2010). The Principle of Effective Demand: The Key to Understanding the General Theory. In R. W. Dimand, R. A. Mundell, and A. Vercelli (Eds.), Keynes’s General Theory after Seventy Years, IEA Conference Vol.147, 136–156. Houndmills, Basingstoke, New York: Palgrave Macmillan.
Rotheim, R. J. (1981). Keynes’ Monetary Theory of Value (1933). Journal of Post Keynesian Economics, 3(4): 568–585. URL
Suppes, P. (1968). The Desirability of Formalization in Science. Journal of Philosophy, 65(20): 651–664.
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
Related 'Keynesianism: The triumph of blathering over thinking' and 'How Keynes got macro wrong and Allais got it right' and 'Economists and the destructive power of stupidity' and 'Economics ― worse than fake'. For details of the big picture, see cross-references Failed/Fake Scientists and cross-references Math/Mathiness and cross-references Marshall and 'Links on Alfred Marshall' and cross-references Paradigm Shift.
Blog-Reference
“The currently prevailing pattern of economic theorizing exhibits the following three characteristics: (1) a syncopated style of argument fluctuating back and forth between literary and symbolic modes of expression, (2) naive translation, or the loose paraphrasing of formulae into sentences, and (3) loose verbal reasoning for certain aspects of theoretical argumentation where explicit symbolic formulation is lacking.” (Dennis, 1982, p. 698)
As many have noted, current economics in the incarnation of Walrasianism, Keynesianism, Marxianism, and Austrianism is not science but gibberish decorated with more or less mathematics. How did we get stuck in this bottomless swamp?
To make the world we live in understandable to ourselves, we have not only myth and science but also common sense ― uneasily sitting between the two. John Stuart Mill had no friendly word for common sense: “People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcileable with the theory they held and with a totally different one. It seems strange that such an instance as this, ..., should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.” (2006, p. 783)
The message that common sense is not merely a huge obstacle to science but its very ANTITHESIS got lost on Keynes. Before starting work on the General Theory, he had made up his mind: “In the early thirties he confessed to Roy Harrod that he was ‘returning to an age-long tradition of common sense’.” (Coates, 2007, p. 11)
Now, economics deals not only with individuals and social relations but the economic system as a whole, and Keynes had to come to grips with ‘definitions and ideas’. In fact, he did not. He spent an immense amount of his time on Book II ‘and still left his successors in confusion’ (Moggridge, 1976, p. 33).
Being more an agenda pusher than a scientist, Keynes, like Marshall before him, had the ambition to gain the applause of the practical man, the politician, the businessman, and the general public represented by the business journalist ― however, without ever giving up the appearance of a scientist. “By choosing definitions on the ground that they correspond with actual usage Keynes was formulating an ordinary language social science, one that bears a resemblance to those argued for by philosophers of hermeneutics.” (Coates, 2007, p. 90)
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.’ (Keynes, quoted in Coates, 2007, pp. 93, 91)
As a result, the opportunistic commonsenser Keynes never arrived at a clear idea of the fundamental economic concepts of income and profit, and he knew it: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010, pp. 12-13, 16)
In the discussions following the publication of the General Theory, Keynes had ‘no desire’ that the particular forms of his ‘comparatively simple fundamental ideas ... should be crystallized at the present state of the debate’ (cited in Rotheim, 1981, p. 571). Keynes kept the discussion within the compass of common sense, where ‘nothing is clear and everything is possible’. (1973, p. 292)
Keynes followed the philosophically well-established Cambridge tradition of loose verbal reasoning: “Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. ... Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from ‘the richness of context.’” (Coates, 2007, p. 87)
This spurious freedom of reading into the GT or out of it whatever seemed convenient led to the vacuous discussion of “what Keynes really meant” and the phenomenon that virtually everybody can call himself a Keynesian. This, though, did not help much: “Looking back over the last 70 years it is an inescapable fact that the theoretical arm of the Keynesian Revolution never got off the ground.” (Rogers, 2010, p. 152)
Like Walrasianism, Keynesianism is a failed approach. But both still have some application as a scientific fig leaf in politics, which explains their zombie-like survival.
The Cambridge tradition, continual failure notwithstanding, still holds the majority of retarded economists: “For Keynes as for Post Keynesians the guiding motto is ‘it is better to be roughly right than precisely wrong!’” (Davidson, 1984, p. 574). This contrasts with the motto of science: “It is better to be precisely right than roughly wrong!”
The methodological debate between rigorous Orthodoxy and loose Heterodoxy quite naturally ended in the cul-de-sac: “Mathematical economics, it seems, had the great virtue of demonstrable irrelevance, which was morally preferable to spurious relevance.” (Porter, 1994, p. 155)
The fact of the matter is that both Orthodoxy and Heterodoxy got the foundational concepts wrong. Without consistent conceptual foundations, though, economics will never get out of the self-made thickness of confusion: “I mean by this that formalization eliminates provincial and inessential features of the way in which a scientific theory has been thought about. ... Formalization is a way of setting off from the forest of implicit assumptions and the surrounding thickness of confusion, the ground that is required for the theory being considered. ... In areas of science where great controversy exists about even the most elementary concepts, the value of such formalization can be substantial.” (Suppes, 1968, pp. 654-655)
Formalization is indispensable in economics but presupposes clarifying elementary concepts. With vacuous concepts/NONENTITIES formalization degenerates to mathiness. There is nothing to choose between Keynesian loose verbal reasoning and Walrasian mathiness.
Economists of ALL schools have messed up the foundational concepts of profit and income. With Marshall and Keynes as leading spokesmen, the Cambridge School of Loose Verbal Reasoning is an outstanding example of utter scientific incompetence to this day.
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.
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Dennis, K. (1982). Economic Theory and the Problem of Translation (I). Journal of Economic Issues, 16(3): 691–712. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. London, Basingstoke: Macmillan.
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.
Moggridge, D. E. (1976). Keynes. London, Basingstoke: Macmillan.
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.
Rogers, C. (2010). The Principle of Effective Demand: The Key to Understanding the General Theory. In R. W. Dimand, R. A. Mundell, and A. Vercelli (Eds.), Keynes’s General Theory after Seventy Years, IEA Conference Vol.147, 136–156. Houndmills, Basingstoke, New York: Palgrave Macmillan.
Rotheim, R. J. (1981). Keynes’ Monetary Theory of Value (1933). Journal of Post Keynesian Economics, 3(4): 568–585. URL
Suppes, P. (1968). The Desirability of Formalization in Science. Journal of Philosophy, 65(20): 651–664.
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
Related 'Keynesianism: The triumph of blathering over thinking' and 'How Keynes got macro wrong and Allais got it right' and 'Economists and the destructive power of stupidity' and 'Economics ― worse than fake'. For details of the big picture, see cross-references Failed/Fake Scientists and cross-references Math/Mathiness and cross-references Marshall and 'Links on Alfred Marshall' and cross-references Paradigm Shift.
***
#Science#TheScientistIsNoActivist#TheActivistIsNoScientist
— E.K-H (@AXECorg) September 16, 2020
At some point in history, Cambridge has been captured by the Oligarchy and turned into a political propaganda outlet. To erect a False-Hero-Memorial for Mr. Gates Sr is a futile attempt to turn disgrace into merit.
January 30, 2016
How Heterodoxy keeps the Naked-Emperor Zombie alive
Comment on Asad Zaman on ‘Fundamental Flaws of Conventional Economics’
Blog-Reference
All thinking economists are agreed: orthodox economics is, as Keen famously put it, a naked emperor (2011), or as Quiggin put it, a zombie (2010). This is not news, the embarrassment is well advanced in years “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)
The list of defects is indeed almost endless — and exactly this is the problem. As a matter of methodological principle, the proof of one inconsistency should be enough to refute a theory. Ironically, Orthodoxy has delivered this proof themselves “The enemies, on the other hand, have proved curiously ineffective and they have very often aimed their arrows at the wrong targets. Indeed if it is the case that today General Equilibrium Theory is in some disarray, this is largely due to the work of General Equilibrium theorists, and not to any successful assault from outside.” (Hahn, 1980, p. 127)
The orthodox approach is refuted by every trick in the book — yet it is still trolling around with silly model bricolage. It seems that critique and refutation are not enough to get rid of a failed approach. This, though, is also well known.
• “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
• “If we feel misgivings ..., all we have to do is to start appropriate research. Anything else is pure filibustering.” (Schumpeter, 1994, p. 577)
• “There is no evidence to suggest that economists abandon degenerating programs in the absence of a progressive alternative.” (Weintraub, 1985, p. 148)
• “There is no alternative that is so obviously superior that it would justify everyone abandoning the current orthodoxy.” (Hausman, 1992, p. 255)
• “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., 1990, p. 362)
Let us call this the problem of the missing alternative or the nothing-to-choose dilemma. What is common to Orthodoxy and Heterodoxy is the incompetence to find a superior alternative to what is easily recognizable as a failed approach: “Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992, p. 248) This is a program for secular stagnation. Until a promising alternative is available, the Zombie cannot die.
A repetitive critique of Orthodoxy is a waste of time. Students need to know how the market economy works and need no historical account of how their ancestors messed up both theory and methodology. The sooner all this scientific garbage is referred to the historians of economic thought, the better.
Asad Zaman has not yet got the point but repeats the multitude of already known defects. The curious fact is that Keynes has already pointed the way: “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)
These premises are well-known for more than 150 years “For it would not be too much of an oversimplification to present the field as having progressed smoothly and steadily, developing theories of ever greater power and broader scope within an essentially unchanged explanatory framework, based on the concepts of optimizing individual behavior and market equilibrium, that were already central to economic thought in the previous century.” (Woodford, 1999, p. 2)
Or, in the blog version of 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”.
And here you have it! What we know with absolute certainty is that the new economic paradigm has to be free of these green cheese assumptions. So, there is no need at all to take notice of any peer-reviewed article or textbook or any post which contains maximization-and-equilibrium. Economic policy proposals of marginalists can simply be laughed out of every debate. Because of this, there is no need at all to criticize and discuss DSGE or RBC or the freshwater/saltwater junk on a heterodox blog. What is more, there is no need to criticize and discuss Walrasianism, Keynesianism, Marxianism, and Austrianism. All this is obsolete stuff.
The ground has been cleared over and over again. Debunking has been wildly successful, now the only worthwhile task is construction, or, to paraphrase the great economist and methodologist J. S. Mill: ‘Doubtless, the most effectual mode of showing how the science of Economics may be constructed, would be to construct it ...’ (2006, p. 834)#1
Egmont Kakarot-Handtke
References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Hahn, F. H. (1980). General Equilibrium Theory. Public Interest. Special Issue: The Crisis in Economic Theory, 123–138.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
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.
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.
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, Melbourne: Cambridge University Press.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Woodford, M. (1999). Revolution and Evolution in Twentieth-Century Macroeconomics. Mimeo, 1–32. URL
#1 How to restart economics
Blog-Reference
All thinking economists are agreed: orthodox economics is, as Keen famously put it, a naked emperor (2011), or as Quiggin put it, a zombie (2010). This is not news, the embarrassment is well advanced in years “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)
The list of defects is indeed almost endless — and exactly this is the problem. As a matter of methodological principle, the proof of one inconsistency should be enough to refute a theory. Ironically, Orthodoxy has delivered this proof themselves “The enemies, on the other hand, have proved curiously ineffective and they have very often aimed their arrows at the wrong targets. Indeed if it is the case that today General Equilibrium Theory is in some disarray, this is largely due to the work of General Equilibrium theorists, and not to any successful assault from outside.” (Hahn, 1980, p. 127)
The orthodox approach is refuted by every trick in the book — yet it is still trolling around with silly model bricolage. It seems that critique and refutation are not enough to get rid of a failed approach. This, though, is also well known.
• “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
• “If we feel misgivings ..., all we have to do is to start appropriate research. Anything else is pure filibustering.” (Schumpeter, 1994, p. 577)
• “There is no evidence to suggest that economists abandon degenerating programs in the absence of a progressive alternative.” (Weintraub, 1985, p. 148)
• “There is no alternative that is so obviously superior that it would justify everyone abandoning the current orthodoxy.” (Hausman, 1992, p. 255)
• “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., 1990, p. 362)
Let us call this the problem of the missing alternative or the nothing-to-choose dilemma. What is common to Orthodoxy and Heterodoxy is the incompetence to find a superior alternative to what is easily recognizable as a failed approach: “Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992, p. 248) This is a program for secular stagnation. Until a promising alternative is available, the Zombie cannot die.
A repetitive critique of Orthodoxy is a waste of time. Students need to know how the market economy works and need no historical account of how their ancestors messed up both theory and methodology. The sooner all this scientific garbage is referred to the historians of economic thought, the better.
Asad Zaman has not yet got the point but repeats the multitude of already known defects. The curious fact is that Keynes has already pointed the way: “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)
These premises are well-known for more than 150 years “For it would not be too much of an oversimplification to present the field as having progressed smoothly and steadily, developing theories of ever greater power and broader scope within an essentially unchanged explanatory framework, based on the concepts of optimizing individual behavior and market equilibrium, that were already central to economic thought in the previous century.” (Woodford, 1999, p. 2)
Or, in the blog version of 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”.
And here you have it! What we know with absolute certainty is that the new economic paradigm has to be free of these green cheese assumptions. So, there is no need at all to take notice of any peer-reviewed article or textbook or any post which contains maximization-and-equilibrium. Economic policy proposals of marginalists can simply be laughed out of every debate. Because of this, there is no need at all to criticize and discuss DSGE or RBC or the freshwater/saltwater junk on a heterodox blog. What is more, there is no need to criticize and discuss Walrasianism, Keynesianism, Marxianism, and Austrianism. All this is obsolete stuff.
The ground has been cleared over and over again. Debunking has been wildly successful, now the only worthwhile task is construction, or, to paraphrase the great economist and methodologist J. S. Mill: ‘Doubtless, the most effectual mode of showing how the science of Economics may be constructed, would be to construct it ...’ (2006, p. 834)#1
Egmont Kakarot-Handtke
References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Hahn, F. H. (1980). General Equilibrium Theory. Public Interest. Special Issue: The Crisis in Economic Theory, 123–138.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
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.
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.
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, Melbourne: Cambridge University Press.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Woodford, M. (1999). Revolution and Evolution in Twentieth-Century Macroeconomics. Mimeo, 1–32. URL
#1 How to restart economics
May 19, 2023
Key Issues: Methodology ― from anything-goes to rien-ne-va-plus
Economics is a perplexing subject. Though I have spent the better part of my academic career thinking about its aims and methods, I have never been confident that I or anyone else for that matter really understand its cognitive status. ... Without assurance about the cognitive status of the theory, there is no basis of confidence in it. (Rosenberg, 1994, pp. 216-217)
***
Now, the doubts about the explanatory relevance of general equilibrium theory suggest that it cannot explain choice within constraints. That is, so to speak, how the problem of justifying general equilibrium theory starts. (Rosenberg, 1994, p. 221)The great contradiction revealed is as follows: one of the theory's greatest strength – its claim to deduce significant results from very general hypotheses about the behavior of economic agents – turns out to be its greatest weakness. (Ingrao and Israel, 1990, p. 364)To the extent that they [alternative theories] trade in the preferences and expectations of individuals, they will do no better than neoclassical economics. (Rosenberg, 1994, p. 233)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)If we ask, ‘What is the most adequate model of behaviour for economics?’ we implicitly assume that economics actually needs a model of behaviour; hence, we already assume psychologism of a kind. (Hudík, 2011, p. 147)
***
In fact, it has not been such a good idea to organize economic theory around a model of behavior.
The scientific method has rather narrow limits, especially in dealing with human behavior and social phenomena. (Knight, 1921, p. 144)... there has been no progress in developing laws of human behavior for the last twenty-five hundred years. (Hausman, 1992, p. 320), (Rosenberg, 1980, pp. 2-3)... theorists all over the world have become aware that anything based on this mock-up [GET] is unlikely to fly, ... (Hahn, 1981, p. 1036)The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory. (Blaug, 1998, p. 703)
***
What particular reality is described by a given theory can be ascertained only from that theory's axiomatic foundation. (Georgescu-Roegen, 1966, p. 361)The process of axiomatic thought is then a method both for accreting and warranting knowledge claims, for those claims, if developed from independent and consistent axioms, themselves make strong claims on our attention and reason. (Weintraub, 2002, p. 87)
Axiomatization is indispensable because the methodological anything-goes mentality among economists is the proximate reason for the proto-scientific condition of conventional economics. Because of conceptual sloppiness, neither Orthodoxy nor Heterodoxy has a clear idea of the fundamental economic concepts of income and profit. Doing economics without a clear idea of income and profit is like doing physics without a clear idea of force and mass — it cannot possibly yield practical results, it has not, and it will not.
I think it is the lack of quite sharply defined concepts that the main difficulty lies, and not in any intrinsic difference between the fields of economics and other sciences. (von Neumann, quoted in Mirowski, 2002, p. 146 fn. 49)
***
Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the social science, while we look at the facts in the concrete, clothed in all the complexity with which nature has surrounded them, and endeavour to elicit a general law by a process of induction from a comparison of details; there remains no other method than the à priori one, or that of “abstract speculation.” (Mill, 2004, pp. 113-114)
Abstract speculation starts with clearly stated foundational propositions.
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. (Mill, 2006, p. 746)
These propositions must relate to economic facts and not to human behavior.
The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; no claim of truth is implied in the term ‘axiom’ as here used). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations. (Popper, 1980, p. 71)
***
His [Adam Smith’s] method is always the method of Newton, which we have already seen applied to psychology and morals: to attain, by generalization, certain simple truths, from which it will be possible to reconstruct, synthetically, the world of experience. (Halévy, 1960, p. 100)
By sketchily copying Newton and by applying the axiomatic method to psychology and morals, Adam Smith set economics on the wrong track. There is nothing wrong with Newton or the axiomatic method, only with Smith's shallow scientific understanding, which still prevails among economists.
If one takes seriously what Popper says about falsifiability and the critical attitude, then the methodological practice of economics is not only mistaken, it is stupid and intellectually reprehensible. (Hausman, 1992, p. 275)One hopes that the economics profession will not spend the whole twenty-first century waiting for a new Newton or Einstein of formal economics to emerge to shed a more powerful light in the current darkness. (Nelson, 2006, p. 227)
As a matter of fact, it is not a question of hope and waiting: As long as the darkness persists, economists have no mandate to speak in the name of science. At present, economic policy advice is, at bottom, the personal opinion of someone who cannot tell the difference between income and profit.
References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Georgescu-Roegen, N. (1966). Analytical Economics, chapter Economic Theory and Agrarian Economics, 359–397. Cambridge: Harvard University Press.
Hahn, F. H. (1981). Review: A Neoclassical Analysis of Macroeconomic Policy. Economic Journal, 91(364): 1036–1039.
Halévy, E. (1960). The Growth of Philosophic Radicalism. Boston: Beacon Press.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
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.
Knight, F. H. (1921). Traditional Economic Theory ― Discussion. American Economic Review, Papers and Proceedings, 11(1): 143–147.
Mill, J. S. (2004). Essays on Some Unsettled Questions of Political Economy, chapter On the Definition of Political Economy; and the Method of Investigation Proper to It., 93–125. Electronic Classic Series PA 18202: Pennsylvania State University.
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Vol. 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.
Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania: Pennsylvania State University Press.
Popper, K. R. (1980). The Logic of Scientific Discovery. London, Melbourne, Sydney: Hutchinson, 10th edition.
Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.
Rosenberg, A. (1994). What is the Cognitive Status of Economic Theory? In R. E. Backhouse (Ed.), New Directions in Economic Methodology, 216–235. London, New York: Routledge.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
© 2013 EKH, except original quotes
September 8, 2016
Putting the production function back on its feet
Comment on Steve Keen on ‘Incorporating energy into production functions’
Blog-Reference
Orthodox economics messed up the theory of production, but Heterodoxy never developed a viable replacement despite the fact that, with Georgescu-Roegen’s approach, it had already been on the right track (1970; 1971). Georgescu-Roegen was quite clear about “... the completely faulty form by which standard economics represents a production process” (1979, p. 318), but he failed to see that it was not enough to rectify the theory of production. What had to be replaced then and still has to be done is to scrap standard economics as a WHOLE. Partial improvements are as pointless as adding just another epicycle to the geocentric model. Nothing less than a Paradigm Shift will do.
The whole analytical superstructure of Orthodoxy 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, 1985, p. 109)
HC3 introduces marginalism, which is the all-pervasive principle of Orthodoxy. Needless to emphasize that marginalism is proto-scientific garbage.
In order to be applicable, marginalism requires some auxiliary assumptions. One of them is the concept of a well-behaved production function. This concept implicitly excludes increasing returns (2011a). As every economist knows from Adam Smith’s pin factory, though, the beauty and triumph of capitalism consist exactly of increasing returns due to the division of labor and the mechanization of a growing number of sub-processes.
Thus, the green-cheese behavioral assumption HC3 ultimately determines the analytical representation of the physically objective production process: “Indeed, here we find the neoclassical economist dictating the laws of physics to the physicist!” (Mirowski, 1995, p. 328). It is impossible to surpass the scientific incompetence of economists.
Steve Keen is perfectly right: “Arguably, therefore, the production functions used in economic theory — whether spouted by mainstream Neoclassical or non-orthodox Post Keynesians — deserve to ‘collapse in deepest humiliation.’" In very practical terms, this means that NO economic journal can accept papers that contain a Cobb-Douglas or any other well-behaved production function without violating scientific standards.
All these half measures, though, do not cut much ice. The very task of constructive Heterodoxy is to fully replace Orthodoxy as defined by HC1/HC6 and by implication the obsolete production function. For the correct approach and the correct sequential production function, see (2011b, Sec. 4).
Egmont Kakarot-Handtke
References
Georgescu-Roegen, N. (1970). The Economics of Production. American Economic Review, Papers and Proceedings, 60(2): 1–9. URL
Georgescu-Roegen, N. (1971). The Entropy Law and the Economic Process. Cambridge: Cambridge University Press.
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic
Issues, 13(2): 317–328. URL
Kakarot-Handtke, E. (2011a). Increasing Returns and Stability. SSRN Working Paper Series, 1921267: 1–19. URL
Kakarot-Handtke, E. (2011b). Matter Matters: Productivity, Resources, and Prices. SSRN Working Paper Series, 1946874: 1–21. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, etc.: Cambridge University Press.
Blog-Reference
Orthodox economics messed up the theory of production, but Heterodoxy never developed a viable replacement despite the fact that, with Georgescu-Roegen’s approach, it had already been on the right track (1970; 1971). Georgescu-Roegen was quite clear about “... the completely faulty form by which standard economics represents a production process” (1979, p. 318), but he failed to see that it was not enough to rectify the theory of production. What had to be replaced then and still has to be done is to scrap standard economics as a WHOLE. Partial improvements are as pointless as adding just another epicycle to the geocentric model. Nothing less than a Paradigm Shift will do.
The whole analytical superstructure of Orthodoxy 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, 1985, p. 109)
HC3 introduces marginalism, which is the all-pervasive principle of Orthodoxy. Needless to emphasize that marginalism is proto-scientific garbage.
In order to be applicable, marginalism requires some auxiliary assumptions. One of them is the concept of a well-behaved production function. This concept implicitly excludes increasing returns (2011a). As every economist knows from Adam Smith’s pin factory, though, the beauty and triumph of capitalism consist exactly of increasing returns due to the division of labor and the mechanization of a growing number of sub-processes.
Thus, the green-cheese behavioral assumption HC3 ultimately determines the analytical representation of the physically objective production process: “Indeed, here we find the neoclassical economist dictating the laws of physics to the physicist!” (Mirowski, 1995, p. 328). It is impossible to surpass the scientific incompetence of economists.
Steve Keen is perfectly right: “Arguably, therefore, the production functions used in economic theory — whether spouted by mainstream Neoclassical or non-orthodox Post Keynesians — deserve to ‘collapse in deepest humiliation.’" In very practical terms, this means that NO economic journal can accept papers that contain a Cobb-Douglas or any other well-behaved production function without violating scientific standards.
All these half measures, though, do not cut much ice. The very task of constructive Heterodoxy is to fully replace Orthodoxy as defined by HC1/HC6 and by implication the obsolete production function. For the correct approach and the correct sequential production function, see (2011b, Sec. 4).
Egmont Kakarot-Handtke
References
Georgescu-Roegen, N. (1970). The Economics of Production. American Economic Review, Papers and Proceedings, 60(2): 1–9. URL
Georgescu-Roegen, N. (1971). The Entropy Law and the Economic Process. Cambridge: Cambridge University Press.
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic
Issues, 13(2): 317–328. URL
Kakarot-Handtke, E. (2011a). Increasing Returns and Stability. SSRN Working Paper Series, 1921267: 1–19. URL
Kakarot-Handtke, E. (2011b). Matter Matters: Productivity, Resources, and Prices. SSRN Working Paper Series, 1946874: 1–21. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, etc.: Cambridge University Press.
December 29, 2014
Why J.S. Mill had no friendly word for the bigots and votaries of common sense
Comment on Lars Syll on 'The riddle of induction'
Blog-Reference
When the discussion is about induction/deduction, then the appeal to common sense is utterly misleading.
To be quite clear: nobody denies that common sense is good for getting out of bed, crossing the street, and many other practical purposes. However, the task is to keep it out of science. Why? Because common sense is so convincing.
There is no need to go back a few hundred years. If, in a discussion, participant A says that it is nonsense and a conspiracy of these arrogant scientists to claim that the earth moves with a tremendous speed, because he and nobody else in this room feels the slightest movement, then he has a good chance to get the assent of roughly 80 percent of an average audience (cf. Mirowski, 1995, p. 104). Participant B, who tries to explain the optical illusion with the theory of relative motion, has a hard time.
It is a curious fact that science is necessarily counter-intuitive: “... that the new physics of the seventeenth century, which replaced the older concepts of motion, rest, and change, involved a radical reorientation of the view of the cosmos and the possibilities of an infinite void space, thus yielding an almost entirely new philosophy of nature and a wholly different physics that contradicted ordinary intuition and common sense.” (Cohen, 1977, pp. 318-319)
The problem with economics is that it has a strong and proud tradition of common sense: “... [Adam Smith] disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter, 1994, p. 185)
This tradition has a stronghold in Cambridge: “In the early thirties, he [Keynes] confessed to Roy Harrod that he was 'returning to an age-long tradition of common sense'” (Coates, 2007, p. 11)
And this explains why Keynesianism is not a science to this day (2011). Again and again, it turns out that common sense is a millstone around the neck of economics. This was already clear to Mill (!), and this is why he had no friendly word for it (2006, pp. 783, 790).
As Einstein famously put it: “... common sense is the collection of prejudices acquired by age eighteen.”
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.
Cohen, I. B. (1977). History and the Philosopher of Science. In F. Suppe (Ed.), The Structure of Scientific Theories, 308–349. Urbana, Chicago: University of Illinois Press.
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–15. URL
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.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Related 'The bigots of common sense' and 'Economics, too, has been almost ruined by the bigots of common sense' and 'A brief history of soapbox economics' and 'Appearances and evidence' and 'Misled by ordinary intuition and common sense' and 'Marshall and the Cambridge School of plain economic gibberish' and 'First Lecture in New Economic Thinking'.
Blog-Reference
To be quite clear: nobody denies that common sense is good for getting out of bed, crossing the street, and many other practical purposes. However, the task is to keep it out of science. Why? Because common sense is so convincing.
There is no need to go back a few hundred years. If, in a discussion, participant A says that it is nonsense and a conspiracy of these arrogant scientists to claim that the earth moves with a tremendous speed, because he and nobody else in this room feels the slightest movement, then he has a good chance to get the assent of roughly 80 percent of an average audience (cf. Mirowski, 1995, p. 104). Participant B, who tries to explain the optical illusion with the theory of relative motion, has a hard time.
It is a curious fact that science is necessarily counter-intuitive: “... that the new physics of the seventeenth century, which replaced the older concepts of motion, rest, and change, involved a radical reorientation of the view of the cosmos and the possibilities of an infinite void space, thus yielding an almost entirely new philosophy of nature and a wholly different physics that contradicted ordinary intuition and common sense.” (Cohen, 1977, pp. 318-319)
The problem with economics is that it has a strong and proud tradition of common sense: “... [Adam Smith] disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter, 1994, p. 185)
This tradition has a stronghold in Cambridge: “In the early thirties, he [Keynes] confessed to Roy Harrod that he was 'returning to an age-long tradition of common sense'” (Coates, 2007, p. 11)
And this explains why Keynesianism is not a science to this day (2011). Again and again, it turns out that common sense is a millstone around the neck of economics. This was already clear to Mill (!), and this is why he had no friendly word for it (2006, pp. 783, 790).
As Einstein famously put it: “... common sense is the collection of prejudices acquired by age eighteen.”
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.
Cohen, I. B. (1977). History and the Philosopher of Science. In F. Suppe (Ed.), The Structure of Scientific Theories, 308–349. Urbana, Chicago: University of Illinois Press.
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–15. URL
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.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Related 'The bigots of common sense' and 'Economics, too, has been almost ruined by the bigots of common sense' and 'A brief history of soapbox economics' and 'Appearances and evidence' and 'Misled by ordinary intuition and common sense' and 'Marshall and the Cambridge School of plain economic gibberish' and 'First Lecture in New Economic Thinking'.
September 19, 2016
Critique is good, refutation is better, Paradigm Shift is best
Comment on Lars Syll on ‘Why critique in economics is so important’
Blog-Reference and Blog-Reference on Sep 22
It is long known that DSGE is a failed approach, and nobody needs the critique of Romer et al., which amounts to not much more than the smarter rats abandoning the sinking ship. What is needed is a constructive idea about how to switch from the degenerated neoclassical research program to a progressive paradigm. As Blaug put it: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (1998, p. 703)
The only reason why DSGE is still around despite the fact that even its dullest proponents have realized by now that it is indefensible garbage is that Heterodoxy has failed to develop a suitable alternative: “... we may say that ... the omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend, 2004, p. 72)
Heterodoxy’s failure is due to the fact that it stands methodologically still in the Cambridge tradition of loose verbal reasoning: “For Keynes as for Post Keynesians the guiding motto is ‘it is better to be roughly right than precisely wrong!’” (Davidson, 1984, p. 574). #1 This contrasts with the motto of science, “it is better to be precisely right than roughly wrong!”
There is nothing to choose between failed Orthodoxy and failed Heterodoxy. Both are logically and empirically refuted. Effective critique does NOT consist of Romer’s folk-psychological crap about heroic critique and killing poor Bob; it consists of throwing false theories out of the window and incompetent scientists out of science.
As Feynman knew: “The problem is not just to say that something might be wrong, but to replace it by something ― and that is not so easy.”
Egmont Kakarot-Handtke
References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Feyerabend, P. K. (2004). Problems of Empiricism. Cambridge: Cambridge University Press.
#1 Marshall and the Cambridge school of plain economic gibberish
Blog-Reference and Blog-Reference on Sep 22
It is long known that DSGE is a failed approach, and nobody needs the critique of Romer et al., which amounts to not much more than the smarter rats abandoning the sinking ship. What is needed is a constructive idea about how to switch from the degenerated neoclassical research program to a progressive paradigm. As Blaug put it: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (1998, p. 703)
The only reason why DSGE is still around despite the fact that even its dullest proponents have realized by now that it is indefensible garbage is that Heterodoxy has failed to develop a suitable alternative: “... we may say that ... the omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend, 2004, p. 72)
Heterodoxy’s failure is due to the fact that it stands methodologically still in the Cambridge tradition of loose verbal reasoning: “For Keynes as for Post Keynesians the guiding motto is ‘it is better to be roughly right than precisely wrong!’” (Davidson, 1984, p. 574). #1 This contrasts with the motto of science, “it is better to be precisely right than roughly wrong!”
There is nothing to choose between failed Orthodoxy and failed Heterodoxy. Both are logically and empirically refuted. Effective critique does NOT consist of Romer’s folk-psychological crap about heroic critique and killing poor Bob; it consists of throwing false theories out of the window and incompetent scientists out of science.
As Feynman knew: “The problem is not just to say that something might be wrong, but to replace it by something ― and that is not so easy.”
Egmont Kakarot-Handtke
References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Feyerabend, P. K. (2004). Problems of Empiricism. Cambridge: Cambridge University Press.
#1 Marshall and the Cambridge school of plain economic gibberish
December 30, 2014
Marshall: a monument of scientific incompetence
Comment on Lars Syll on 'Proper use of math in economics'
Blog-Reference
Marshall was unable to render an appropriate portrayal of the market. For the correct three-dimensional depiction of a market, see Graphic AXEC_001, and for the underlying rationale, see (2014a).
Marshall could not tell the difference between profit and income, which is not exactly a recommendation for an economist. For the correct Profit Law, see (2014b).
Marshall's application of mathematics bordered on utter dilettantism: “In patriotic duty bound, the Cambridge of Newton adhered to Newton’s fluxions, to Newton’s geometry, to the very text of Newton’s Principia … Thus English mathematics was isolated: Cambridge became a school that was self-supporting, self-content, almost marooned in its limitations.” (Forsyth, quoted in Mirowski, 2004, p. 355)
“Marshall … was a product of this system, which valued … down-to-earth geometry over continental analysis, and regimented conformity in puzzle solving and humble prostration before timeless truths over originality.” (Mirowski, 2004, p. 355)
Quite unsurprisingly, Marshall applied mathematics incorrectly. “As was standard with Marshall, the narrative told one story, the mathematics another.” (Mirowski, 1995, p. 299)
Compare Marshall's approach to the creative use of mathematics in physics: “Experience can of course guide us in our choice of serviceable mathematical concepts; it cannot possibly be the source from which they are derived; experience of course remains the sole criterion of the serviceability of a mathematical construction for physics, but the truly creative principle resides in mathematics.” (Einstein, 1934, p. 167)
The botched application of mathematics by Marshall and the Orthodoxy is no reason to dismiss it. “When very sound and proper mathematics is misused and misapplied to fairyland problems without any basis in the real world, the fact that the mathematics itself is impeccable makes the whole obnoxious game just that more offensive.” (Blatt, 1983, p. 173)
Rule number one of the good hand and brain craftsman: never blame the tool. Not much of Marshall will be part of truly scientific economics. Certainly not his burn-phrase. This is the way forward: “... perhaps the most legitimate research program in economics should generate its own mathematical tools simultaneously with its development of the economic theory, ...” (Mirowski, 1986, p. 221), see also (Velupillai, 2005, pp. 866-870), (Morishima, 1984, p. 67)
To cite Marshall on mathematics is self-defeating.
Egmont Kakarot-Handtke
References
Blatt, J. (1983). How Economists Misuse Mathematics. In A. S. Eichner (Ed.), Why Economics is Not Yet a Science, 166–186. Armonk: M.E. Sharpe.
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Kakarot-Handtke, E. (2014a). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Mirowski, P. (1986). Mathematical Formalism and Economic Explanation. In P. Mirowski (Ed.), The Reconstruction of Economic Theory,179–240. Boston, Dordrecht, Lancaster: Kluwer-Nijhoff.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Mirowski, P. (2004). The Effortless Economy of Science?, chapter Smooth Operator: How Marshall’s Demand and Supply Curves Made Neoclassicism Safe for Public Consumption but Unfit for Science. Durham, London: Duke University Press.
Morishima, M. (1984). The Good and Bad Use of Mathematics. In P. Wiles and G. Routh (Eds.), Economics in Disarray, 51–73. Oxford: Blackwell.
Velupillai, K. (2005). The Unreasonable Ineffectiveness of Mathematics in Economics. Cambridge Journal of Economics, 29: 849–872.
Blog-Reference
Marshall was unable to render an appropriate portrayal of the market. For the correct three-dimensional depiction of a market, see Graphic AXEC_001, and for the underlying rationale, see (2014a).
Marshall could not tell the difference between profit and income, which is not exactly a recommendation for an economist. For the correct Profit Law, see (2014b).
Marshall's application of mathematics bordered on utter dilettantism: “In patriotic duty bound, the Cambridge of Newton adhered to Newton’s fluxions, to Newton’s geometry, to the very text of Newton’s Principia … Thus English mathematics was isolated: Cambridge became a school that was self-supporting, self-content, almost marooned in its limitations.” (Forsyth, quoted in Mirowski, 2004, p. 355)
“Marshall … was a product of this system, which valued … down-to-earth geometry over continental analysis, and regimented conformity in puzzle solving and humble prostration before timeless truths over originality.” (Mirowski, 2004, p. 355)
Quite unsurprisingly, Marshall applied mathematics incorrectly. “As was standard with Marshall, the narrative told one story, the mathematics another.” (Mirowski, 1995, p. 299)
Compare Marshall's approach to the creative use of mathematics in physics: “Experience can of course guide us in our choice of serviceable mathematical concepts; it cannot possibly be the source from which they are derived; experience of course remains the sole criterion of the serviceability of a mathematical construction for physics, but the truly creative principle resides in mathematics.” (Einstein, 1934, p. 167)
The botched application of mathematics by Marshall and the Orthodoxy is no reason to dismiss it. “When very sound and proper mathematics is misused and misapplied to fairyland problems without any basis in the real world, the fact that the mathematics itself is impeccable makes the whole obnoxious game just that more offensive.” (Blatt, 1983, p. 173)
Rule number one of the good hand and brain craftsman: never blame the tool. Not much of Marshall will be part of truly scientific economics. Certainly not his burn-phrase. This is the way forward: “... perhaps the most legitimate research program in economics should generate its own mathematical tools simultaneously with its development of the economic theory, ...” (Mirowski, 1986, p. 221), see also (Velupillai, 2005, pp. 866-870), (Morishima, 1984, p. 67)
To cite Marshall on mathematics is self-defeating.
Egmont Kakarot-Handtke
References
Blatt, J. (1983). How Economists Misuse Mathematics. In A. S. Eichner (Ed.), Why Economics is Not Yet a Science, 166–186. Armonk: M.E. Sharpe.
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Kakarot-Handtke, E. (2014a). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Mirowski, P. (1986). Mathematical Formalism and Economic Explanation. In P. Mirowski (Ed.), The Reconstruction of Economic Theory,179–240. Boston, Dordrecht, Lancaster: Kluwer-Nijhoff.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Mirowski, P. (2004). The Effortless Economy of Science?, chapter Smooth Operator: How Marshall’s Demand and Supply Curves Made Neoclassicism Safe for Public Consumption but Unfit for Science. Durham, London: Duke University Press.
Morishima, M. (1984). The Good and Bad Use of Mathematics. In P. Wiles and G. Routh (Eds.), Economics in Disarray, 51–73. Oxford: Blackwell.
Velupillai, K. (2005). The Unreasonable Ineffectiveness of Mathematics in Economics. Cambridge Journal of Economics, 29: 849–872.
December 20, 2015
Quixotic Keynes exegesis
Comment on David Glasner on ‘Keynes on the Theory of the Rate of Interest’
Blog-Reference
Keynes was a political economist and he said many things on many occasions: “It is well known that John Maynard was born anew every morning; for this reason, his colleagues at Bretton Woods commented that he was too intelligent to be consistent.” (Valentino, 1988, p. 239)
Logical consistency — one essential criterion of science — has never been Keynes’ main concern. Just the contrary, Keynes’ natural habitat has always been the wish-wash zone where “nothing is clear and everything is possible.” (Keynes, 1973, p. 292)
Accordingly, Keynes has been the most outspoken proponent of the Cambridge School of Loose Verbal Reasoning “Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. ... Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from ‘the richness of context’.” (Coates, 2007, p. 87)
So, here you have it: the reader is allowed to infer his meaning. This invitation to free ink-blot association gave rise to the great palaver about ‘what Keynes really meant’. It should have been clear from the very beginning to every person of average wit and life experience that this palaver could never ever have a worthwhile outcome. And it has not until this very day. Nonetheless, David Glasner heroically carries on with the interpretation of Keynes’ interpretation of what the classicals could have meant.
The methodological moronism of the Cambridge School of Loose Verbal Reasoning has been carved in stone for the amusement of posterity with this statement: “Marshall followed the maxim: Better to be ambiguous and relevant than precise and irrelevant.” (Colander, 1995, p. 283)
This phony trade-off exists only in the minds of economists. Science is qua definition precise and relevant. Because Keynes and the After-Keynesians never understood this they are outside of science (2011).
There is no use to refute Keynes’ employment theory or his theory of interest or the multiplier or the ex-ante/ex-post equality of I and S or whatnot. Keynes’ profit theory is provably false, and that is enough. When the foundational concept of profit is false then the whole theoretical superstructure falls apart.#1
Because Keynes has been logically inconsistent the attempt to find out what he really meant has always been a quixotic enterprise. Keynes cannot be saved. There is one passage in the General Theory that is — in contrast to the usual verbiage — formally crystal clear and it says “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (Keynes, 1973, p. 63) This syllogism is provably false and no amount of interpretation and exegesis can talk this away.#2
That Keynes as a political economist produced not much of scientific value is bad but what the neoclassical maximization-and-equilibrium sect has produced then and now is worse. “I consider that Keynes had no real grasp of formal economic theorizing (and also disliked it), and that he consequently left many gaping holes in his theory. I none the less hold that his insights were several orders more profound and realistic than those of his recent critics.” (Hahn, 1982, pp. x-xi)
What Keynes and Fisher had in common was a false profit theory and this is the worst thing that can happen to an economist. In addition, they applied NONENTITIES like constrained optimization and equilibrium. More than 80 years later economists are still occupied with making sense of what had no sense right from the start. Not very efficient all this loose verbal reasoning, to say the least.
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.
Colander, D. (1995). Marshallian General Equilibrium Analysis. Eastern Economic Journal, 21(3): 281–293. URL
Hahn, F. H. (1982). Money and Inflation. Oxford: Blackwell.
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. 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.
Valentino, R. (1988). Discussion. In H. Hanusch (Ed.), Evolutionary Economics. Applications of Schumpeter’s Ideas, 238–249. Cambridge, New York, etc.: Cambridge University Press.
#1 How the intelligent non-economist can refute every economist hands down
#2 For details of the big picture see cross-references Refutation of I=S.
Related 'Dear idiots, time to get saving and investment straight' and 'Macroeconomics for retarded economists' and 'Keynes and the logical brilliance of Bedlam'. For details of the big picture see cross-references Keynesianism.
Blog-Reference
Keynes was a political economist and he said many things on many occasions: “It is well known that John Maynard was born anew every morning; for this reason, his colleagues at Bretton Woods commented that he was too intelligent to be consistent.” (Valentino, 1988, p. 239)
Logical consistency — one essential criterion of science — has never been Keynes’ main concern. Just the contrary, Keynes’ natural habitat has always been the wish-wash zone where “nothing is clear and everything is possible.” (Keynes, 1973, p. 292)
Accordingly, Keynes has been the most outspoken proponent of the Cambridge School of Loose Verbal Reasoning “Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. ... Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from ‘the richness of context’.” (Coates, 2007, p. 87)
So, here you have it: the reader is allowed to infer his meaning. This invitation to free ink-blot association gave rise to the great palaver about ‘what Keynes really meant’. It should have been clear from the very beginning to every person of average wit and life experience that this palaver could never ever have a worthwhile outcome. And it has not until this very day. Nonetheless, David Glasner heroically carries on with the interpretation of Keynes’ interpretation of what the classicals could have meant.
The methodological moronism of the Cambridge School of Loose Verbal Reasoning has been carved in stone for the amusement of posterity with this statement: “Marshall followed the maxim: Better to be ambiguous and relevant than precise and irrelevant.” (Colander, 1995, p. 283)
This phony trade-off exists only in the minds of economists. Science is qua definition precise and relevant. Because Keynes and the After-Keynesians never understood this they are outside of science (2011).
There is no use to refute Keynes’ employment theory or his theory of interest or the multiplier or the ex-ante/ex-post equality of I and S or whatnot. Keynes’ profit theory is provably false, and that is enough. When the foundational concept of profit is false then the whole theoretical superstructure falls apart.#1
Because Keynes has been logically inconsistent the attempt to find out what he really meant has always been a quixotic enterprise. Keynes cannot be saved. There is one passage in the General Theory that is — in contrast to the usual verbiage — formally crystal clear and it says “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (Keynes, 1973, p. 63) This syllogism is provably false and no amount of interpretation and exegesis can talk this away.#2
That Keynes as a political economist produced not much of scientific value is bad but what the neoclassical maximization-and-equilibrium sect has produced then and now is worse. “I consider that Keynes had no real grasp of formal economic theorizing (and also disliked it), and that he consequently left many gaping holes in his theory. I none the less hold that his insights were several orders more profound and realistic than those of his recent critics.” (Hahn, 1982, pp. x-xi)
What Keynes and Fisher had in common was a false profit theory and this is the worst thing that can happen to an economist. In addition, they applied NONENTITIES like constrained optimization and equilibrium. More than 80 years later economists are still occupied with making sense of what had no sense right from the start. Not very efficient all this loose verbal reasoning, to say the least.
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.
Colander, D. (1995). Marshallian General Equilibrium Analysis. Eastern Economic Journal, 21(3): 281–293. URL
Hahn, F. H. (1982). Money and Inflation. Oxford: Blackwell.
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. 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.
Valentino, R. (1988). Discussion. In H. Hanusch (Ed.), Evolutionary Economics. Applications of Schumpeter’s Ideas, 238–249. Cambridge, New York, etc.: Cambridge University Press.
#1 How the intelligent non-economist can refute every economist hands down
#2 For details of the big picture see cross-references Refutation of I=S.
Related 'Dear idiots, time to get saving and investment straight' and 'Macroeconomics for retarded economists' and 'Keynes and the logical brilliance of Bedlam'. For details of the big picture see cross-references Keynesianism.
May 19, 2013
Key Issues: Newton and economic methodology
... Newton had insisted on the certainty of an approach founded on rigorous method. (Westfall, 2008, p. 346)
***
Like most of his fellow moral philosophers, Hume thought it was worth a try to make all sciences as rigorous as Newtonian physics ... (Redman, 1997, p. 111)
But what is important is that the entire topic had become a scandal in the eighteenth century. If scientific method could institute some degree of order in chemistry, in physics, in astrophysics, in astronomy and so forth, why did we have to be plunged into this dreadful chaos of conflicting opinions, with not a thread to guide us? ... so that nobody is able to institute the kind of order which Newton established in the great realm of nature? Naturally enough, men’s wishes began to move towards the delineation of some simple single principle which would guarantee just such order and yield truths of just such an objective, general, lucid, irrefutable kind as had so successfully been obtained concerning the external world. (Berlin, 2002, p. 9)
So impressive were the accomplishments of Newtonian physics that eighteenth-century philosophers, including the founders of political economy, never questioned the suitability of transferring Newton's methods to moral philosophy. After all, as they saw it, philosophy, science, social science, and ethics were all the same kind of activity. (Redman, 1997, p. 109)
His [Adam Smith’s] method is always the method of Newton, which we have already seen applied to psychology and morals: to attain, by generalization, certain simple truths, from which it will be possible to reconstruct, synthetically, the world of experience. (Halévy, 1960, p. 100, 494), see also (Hollander, 1977)
For Edgeworth, to apply mathematical reasoning to the science of political economy is to look to mathematical physics to see how mathematics can aid in the construction of propositions within the science. ... In the land of Newton, and in the century of science, how could it be otherwise? (Weintraub, 2002, p. 30)
Walras’s early reading consolidated his boundless admiration for Newtonian astronomy and the solid edifice of classical mechanics, which he regarded as unequaled models of scientific knowledge throughout his life. (Ingrao and Israel, 1990, p. 88)
Now there is simply no doubt that whatever was the source of inspiration for Jevons, Menger and Walras, all three invoked whatever physics they knew to lend prestige to their theoretical innovations. Unfortunately, with the exception of Jevons, that was the physics of Newton, not the physics of Helmholtz, Joule and Maxwell; Adam Smith, Ricardo, James Mill and McCulloch had been just as eager in earlier days to invoke the name of Newton to legitimise their theoretical claims. (Blaug, 1989, p. 1226)
Today's economics, in fact, comes closer to using Newton's approach than Smith's did: his system neither strived for logical consistency nor boasted a fancy axiomatic foundation. (Redman, 1997, p. 357)
***
Could all the phaenomena of nature be deduced from only thre [sic] or four general suppositions there might be great reason to allow those suppositions to be true. (Newton, quoted in Westfall, 2008, p. 642)This, then, is the Newtonian style:
The Principia begins with an idealized world, a simple mental construct, a “system” of a single mathematical particle and a centrally directed force in a mathematical space. Under these idealized conditions, Newton freely develops the mathematical consequences of the laws of motion that are the axioms of the Principia. At a later stage, after contrasting this ideal world with the world of physics, he will add further conditions to his intellectual construct – for example, by introducing a second body that will interact with the first one and then exploring further mathematical consequences. ... In this way he can approach by stages nearer and nearer to the condition of the world of experiment and observation, introducing bodies of different shapes and composition and finally bodies moving in variant types of resistant mediums rather than in free space. (Cohen, 1994, p. 77)Economics, too, starts with an idealized world, but then it does not move nearer and nearer to the world of experiment and observation, but in the opposite direction to rationalize an unsuccessful initial idealization. Thus, idealization, which is indispensable, becomes counterproductive. There is only a thin line between fruitful abstraction and barren absurdity. To assume that the moon is a mass point is unrealistic but fruitful; to assume that it is made of green cheese is unrealistic but nothing else. Most assumptions of conventional microeconomics fall into the green cheese category.
In the most fruitful applications of mathematics to the physical world, some nonmathematical axioms also enter. The Newtonian system of mathematical mechanics depends as much on the Newtonian laws of motion and gravitation as it does on the axioms of mathematics. (Kline, 1981, p. 469)It is often said that axioms must be self-evident. This is a slight misunderstanding. Axioms may turn common sense on its head:
We may, therefore, agree with Ernst Mach, who very wisely pointed out that the law of inertia could hardly be “obvious” or “self-evident” since throughout most of recorded history men believed in a quite different law and would have denied the Cartesian-Newtonian inertial principle. (Cohen, 1977, p. 328 fn. 57)As clueless epigones, the social scientists, and economists in particular, borrowed a lot from Newton but did not grasp the Newtonian style. By consequence, it cannot be said that Newton's method has failed in the social sciences. It has never been applied properly but was soon made redundant by Hamilton’s reformulation of rational mechanics (Cohen, 1994, pp. 71-75). With this, if anything, the misunderstandings grew even worse (Mirowski, 1995).
***
The crucial point of the Newtonian style is the undissolvable combination of axiomatics and empiricism. Despite heavy borrowing, this point never got across:
References
Berlin, I. (2002). Freedom and Its Betrayal. London: Chatto Windus.
Blaug, M. (1989). Review. Economic Journal, 99(398): 1225–1226. URL
Brush, S. G. (1976). Irreversibility and Indeterminism: Fourier to Heisenberg. Journal of the History of Ideas, 37(4): 603–630. URL
Clower, R. W. (1999). Post-Keynes Monetary and Financial Theory. Journal of Post Keynesian Economics, 21(3): 399–414. URL
Cohen, I. B. (1977). History and the Philosopher of Science. In F. Suppe (Ed.), The Structure of Scientific Theories, 308–349. Urbana, Chicago:
University of Illinois Press
Cohen, I. B. (1994). Natural Images in Economic Thought, chapter Newton and the Social Sciences, With Special Reference to Economics, or, the Case of the
Missing Paradigm, 55–90. Cambridge: Cambridge University Press.
Halévy, E. (1960). The Growth of Philosophic Radicalism. Boston: Beacon Press.
Hollander, S. (1977). Adam Smith and the Self-Interest Axiom. Journal of Law and Economics, 20(1): 133–152. URL
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Kirman, A. (2010). The Economic Crisis is a Crisis for Economic Theory. CESifoEconomic Studies, 56(4): 498–535. DOI
Kline, M. (1981). Mathematics and the Physical World. New York: Dover.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Newton, I. (1999). The Principia: Mathematical Principles of Natural Philosophy. Berkeley, Los Angeles, London: University of California Press.
Prigogine, I. (2005). The Rediscovery of Value and the Opening of Economics. In K. Dopfer (Ed.), The Evolutionary Foundations of Economics, 61–69, Cambridge: Cambridge University Press.
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, London: MIT Press.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.
Did anyone ever attempt to found a system of social science or economics on the level of identity with Newtonian rational mechanics or the Newtonian system of the world? In my research I have never found such an example. (…) In the Newtonian system, furthermore, there is no equilibrium, no balancing of contrary forces as in the case of a lever. (Cohen, 1994, p. 61)An amusing point is that Newton was not Newtonian. He, on the contrary, believed in an evolving world. The world would go into ‘confusion’ and the ‘agent’ (God?) would have to repair it. (Prigogine, 2005, p. 63).
According to one widely held viewpoint in the history of ideas, eighteenth-century thought was dominated by the concept of the "Newtonian world-machine". God had been assigned the role of master clockmaker who designed a universe so perfect that it could run indefinitely without any need for divine tinkering. Closer inspection of Newton's own writings shows that he was actually quite firmly opposed to this concept, which had been popularized by earlier writers such as Robert Boyle. Newton's objections were both physical and moral: he pointed to the existence of irreversible processes tending to dissipate motion and gravitational perturbations that seemed to threaten the stability of the solar system, and he warned that restricting God to the creation and design of the world while denying His continual supervision was a step on the road to atheism. (Brush, 1976, p. 605)Equilibrium theorists completely missed the point:
As we shall see, general economic equilibrium theory originated and developed in the context of a project put forward in varying forms by different scholars to repeat Newton’s titanic achievement – i.e., the fulfillment of Galileo’s program for a quantitative (mathematical) study of physical processes – in the field of the social sciences. (Ingrao and Israel, 1990, pp. 33-34)Newton was quite explicit about the difference between theory (hypotheses non fingo) and storytelling (assumptions don't matter):
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 second edition of Newton’s Principia, Newton, 1999, p. 386)
***
From the perspective of Newton's methodology, utility maximization, equilibrium, or diminishing returns, for instance, are feigned hypotheses.
According to his [Helvétius's] principle, the only thing which men wish is pleasure, and the only things which men wish to avoid are pains. The pursuit of pleasure and the avoidance of pain are the only motives which in fact act upon men, as gravitation and other physical principles are said to act on inanimate bodies. (Berlin, 2002, pp. 12-13)Generally speaking, “equilibrium” is simply the solution of a system of equations. (Ingrao and Israel, 1990, p. 263)
Virtually every concept in neoclassical microeconomics depends on diminishing marginal productivity for firms on the one hand, and diminishing marginal utility for the community on the other. If both these foundations are unsound, then almost nothing else remains standing. (Keen, 2011, p. 127)As a consequence
... 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)Newton's method works, of course, but only with an applicable set of axioms. After a long detour, this becomes progressively clear:
To repeat, starting from individuals with standard preferences and adding them up allows one to show that there is an equilibrium but does not permit one to say that it is unique nor how it could be attained. With such severe drawbacks, one might wonder why we have persisted with our models based on the General Equilibrium approach. The idea that the economy is essentially in an equilibrium state or on an equilibrium path from which it is sometimes perturbed seems simply to be the wrong departure point. (Kirman, 2010, p. 511)
***
Newton's most important methodological message is: hypotheses non fingo. Economists have done the opposite with much alacrity but little success. To criticize economics as Newtonian is a gross unfairness towards Newton. Despite incessant copying, there is not one iota of Newton's scientific spirit in economics. His axioms have nothing in common with the green cheese assumptionism of conventional economists.
References
Berlin, I. (2002). Freedom and Its Betrayal. London: Chatto Windus.
Blaug, M. (1989). Review. Economic Journal, 99(398): 1225–1226. URL
Brush, S. G. (1976). Irreversibility and Indeterminism: Fourier to Heisenberg. Journal of the History of Ideas, 37(4): 603–630. URL
Clower, R. W. (1999). Post-Keynes Monetary and Financial Theory. Journal of Post Keynesian Economics, 21(3): 399–414. URL
Cohen, I. B. (1977). History and the Philosopher of Science. In F. Suppe (Ed.), The Structure of Scientific Theories, 308–349. Urbana, Chicago:
University of Illinois Press
Cohen, I. B. (1994). Natural Images in Economic Thought, chapter Newton and the Social Sciences, With Special Reference to Economics, or, the Case of the
Missing Paradigm, 55–90. Cambridge: Cambridge University Press.
Halévy, E. (1960). The Growth of Philosophic Radicalism. Boston: Beacon Press.
Hollander, S. (1977). Adam Smith and the Self-Interest Axiom. Journal of Law and Economics, 20(1): 133–152. URL
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Kirman, A. (2010). The Economic Crisis is a Crisis for Economic Theory. CESifoEconomic Studies, 56(4): 498–535. DOI
Kline, M. (1981). Mathematics and the Physical World. New York: Dover.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Newton, I. (1999). The Principia: Mathematical Principles of Natural Philosophy. Berkeley, Los Angeles, London: University of California Press.
Prigogine, I. (2005). The Rediscovery of Value and the Opening of Economics. In K. Dopfer (Ed.), The Evolutionary Foundations of Economics, 61–69, Cambridge: Cambridge University Press.
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, London: MIT Press.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.
April 22, 2016
Heterodoxy: From bad to better or from bad to worse?
Comment on Asad Zaman on ‘The Education of an Economist’
Blog-Reference and Blog-Reference on Apr 26 adapted to context
“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)
You say: “In our PhD Economics program at Stanford, we learnt nothing about the history of major economic events of the twentieth century. Instead, we were taught the rather arcane and difficult skill of building models.”
Yes, standard economics is cargo cult science and your education has been a waste of time and money. The question is, how does Heterodoxy proceed from this common understanding of the actual situation?
Obviously, criticizing model bricolage and mathiness and unrealism is fully justified but not very productive. What is the alternative? The flight to naive empiricism and history is the wrong way. The acceptance of the pluralism of false models is the wrong way. To discuss Trump vs. Clinton is the wrong way.
“The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
Orthodoxy has failed, no doubt, but traditional Heterodoxy has failed to develop a superior alternative. Economics, represented by the four sects Walrasians, Keynesians, Marxians, Austrians, is still at the proto-scientific stage.
One possible reaction to this embarrassment is to give up the idea of scientific truth in economics and to resort to anything goes. This attitude is rather popular among heterodox economists — and it is self-defeating.
“If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug, 1990, p. 111). Without this aspiration, economics degenerates to mere opinion, pluralism of false theories, and in the last consequence to brain-dead political blather.
For economists the mission is clear since J. S. Mill: develop the true theory. The true theory of the market economy is neither to be found in Econ 101 nor in the textbooks nor in the journals nor in the newspapers nor in the history books. There is a lot to do for constructive Heterodoxy.
Egmont Kakarot-Handtke
References
Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield: Edward Elgar.
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
“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)
Standard economics is cargo cult science. The question is, how does Heterodoxy proceed from this common understanding of the actual situation?
Obviously, criticizing model bricolage and mathiness and unrealism is fully justified but not very productive. What is the alternative? The flight to naive empiricism and history is the wrong way. The acceptance of the pluralism of false models is the wrong way. To discuss Trump vs. Clinton is the wrong way.
“The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
Orthodoxy has failed, no doubt, but Heterodoxy has failed to develop a superior alternative. Economics, represented by the four sects Walrasians, Keynesians, Marxians, Austrians, is still at the proto-scientific stage.
One possible reaction to this embarrassment is to give up the idea of scientific truth in economics and to resort to anything goes and storytelling. This attitude is rather popular among heterodox economists — and it is self-defeating.
“If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug, 1990, p. 111). Without this aspiration, economics degenerates to mere opinion, pluralism of false theories, and in the last consequence to brain-dead political blather.
True, Krugman does “not understand the problem with models” but neither does Nanikore or the Swedish branch of Heterodoxy.
References
Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield: Edward Elgar.
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
You remind me: “You are missing out the Georgist School of macroeconomic thought and philosophy.”
True, but my argument applies to the Georgist School as well.
It is of utmost importance to distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, scientific standards are observed.
It is perfectly legitimate to push an agenda. That’s NOT the point. The point is that agenda pushers use economic theory as a means to an end. And that is the wrong priority from the viewpoint of science.
Adam Smith, Ricardo, Marx, Henry George, Keynes, Hayek, or Friedman were political economists. I do not criticize their political objectives, I criticize that they were lousy scientists, that is, their respective theories do not satisfy the scientific criteria of formal and material consistency. In other words, when the underlying theory is provable false economic policy proposals are hanging in midair. It does no matter how good and sensible they appear, they are scientifically worthless.
This said I agree with the Georgist School that the treatment of land in standard economics is false since Ricardo (2011).
I do not agree, though, with this job description ‘consequential macroeconomics–rationalizing is about how our social system works.’
To figure out how the social system works is the task of sociology and/or political science. The task of economics is to figure out how the economic system works.
The ludicrousness of economists derives from the fact that they have failed on their mission and cannot explain how the actual monetary economy works (2015) but tell the world how to improve society — which is none of their business as scientists.
References
Kakarot-Handtke, E. (2011). When Ricardo Saw Profit, He Called it Rent: On the Vice of Parochial Realism. SSRN Working Paper Series, 1932119: 1–19. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Blog-Reference and Blog-Reference on Apr 26 adapted to context
“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)
You say: “In our PhD Economics program at Stanford, we learnt nothing about the history of major economic events of the twentieth century. Instead, we were taught the rather arcane and difficult skill of building models.”
Yes, standard economics is cargo cult science and your education has been a waste of time and money. The question is, how does Heterodoxy proceed from this common understanding of the actual situation?
Obviously, criticizing model bricolage and mathiness and unrealism is fully justified but not very productive. What is the alternative? The flight to naive empiricism and history is the wrong way. The acceptance of the pluralism of false models is the wrong way. To discuss Trump vs. Clinton is the wrong way.
“The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
Orthodoxy has failed, no doubt, but traditional Heterodoxy has failed to develop a superior alternative. Economics, represented by the four sects Walrasians, Keynesians, Marxians, Austrians, is still at the proto-scientific stage.
One possible reaction to this embarrassment is to give up the idea of scientific truth in economics and to resort to anything goes. This attitude is rather popular among heterodox economists — and it is self-defeating.
“If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug, 1990, p. 111). Without this aspiration, economics degenerates to mere opinion, pluralism of false theories, and in the last consequence to brain-dead political blather.
For economists the mission is clear since J. S. Mill: develop the true theory. The true theory of the market economy is neither to be found in Econ 101 nor in the textbooks nor in the journals nor in the newspapers nor in the history books. There is a lot to do for constructive Heterodoxy.
Egmont Kakarot-Handtke
References
Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield: Edward Elgar.
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
***
REPLY to Nanikore on Apr 26“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)
Standard economics is cargo cult science. The question is, how does Heterodoxy proceed from this common understanding of the actual situation?
Obviously, criticizing model bricolage and mathiness and unrealism is fully justified but not very productive. What is the alternative? The flight to naive empiricism and history is the wrong way. The acceptance of the pluralism of false models is the wrong way. To discuss Trump vs. Clinton is the wrong way.
“The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
Orthodoxy has failed, no doubt, but Heterodoxy has failed to develop a superior alternative. Economics, represented by the four sects Walrasians, Keynesians, Marxians, Austrians, is still at the proto-scientific stage.
One possible reaction to this embarrassment is to give up the idea of scientific truth in economics and to resort to anything goes and storytelling. This attitude is rather popular among heterodox economists — and it is self-defeating.
“If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug, 1990, p. 111). Without this aspiration, economics degenerates to mere opinion, pluralism of false theories, and in the last consequence to brain-dead political blather.
True, Krugman does “not understand the problem with models” but neither does Nanikore or the Swedish branch of Heterodoxy.
References
Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield: Edward Elgar.
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
***
REPLY to David Chester on Apr 27You remind me: “You are missing out the Georgist School of macroeconomic thought and philosophy.”
True, but my argument applies to the Georgist School as well.
It is of utmost importance to distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, scientific standards are observed.
It is perfectly legitimate to push an agenda. That’s NOT the point. The point is that agenda pushers use economic theory as a means to an end. And that is the wrong priority from the viewpoint of science.
Adam Smith, Ricardo, Marx, Henry George, Keynes, Hayek, or Friedman were political economists. I do not criticize their political objectives, I criticize that they were lousy scientists, that is, their respective theories do not satisfy the scientific criteria of formal and material consistency. In other words, when the underlying theory is provable false economic policy proposals are hanging in midair. It does no matter how good and sensible they appear, they are scientifically worthless.
This said I agree with the Georgist School that the treatment of land in standard economics is false since Ricardo (2011).
I do not agree, though, with this job description ‘consequential macroeconomics–rationalizing is about how our social system works.’
To figure out how the social system works is the task of sociology and/or political science. The task of economics is to figure out how the economic system works.
The ludicrousness of economists derives from the fact that they have failed on their mission and cannot explain how the actual monetary economy works (2015) but tell the world how to improve society — which is none of their business as scientists.
References
Kakarot-Handtke, E. (2011). When Ricardo Saw Profit, He Called it Rent: On the Vice of Parochial Realism. SSRN Working Paper Series, 1932119: 1–19. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
May 19, 2013
Key Issues: Logic and platitude
Deductive logic is one pattern of rationality in reasoning, but it is not the only one; good reasoning in science typically yields conclusions that go beyond the logical entailments of deductive logic. (Suppe, 1977, p. 657)
The economists of the twentieth century, by pushing the neoclassical model to its logical conclusions, and thereby illuminating the absurdities of the world which they had created, have made an invaluable contribution to the economics of the coming century: they have set the agenda, work on which has already begun. (Stiglitz, 1991, p. 136)
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. (Keynes, 1973, p. xxi)
***
For Keynes as for Post Keynesians the guiding motto is "it is better to be roughly right than precisely wrong!" (Davidson, 1984, p. 574)
Marshall followed the maxim: Better to be ambigous and relevant than precise and irrelevant. (Colander, 1995, p. 283)
It is well known that John Maynard was born anew every morning; for this reason, his colleagues at Bretton Woods commented that he was too intelligent to be consistent. (Valentino, 1988, p. 239)
... a remorseless logician can end up in Bedlam. (Keynes, quoted in Moggridge, 1976, p. 36)
But Keynes, too, sometimes gave the impression of not having fully grasped the logic of his own system. (Laidler, 1999, p. 281)
Toutes ses [Keynes’s] deductions, à notre avis, manquent absolument de rigeur. ... L’intuition de Keynes lui a fait sentir où se trouvaient les difficultés, mais son insuffisance logique ne lui a pas permis de résoudre les problèmes que son intuition lui avait fait entrevoir. (Allais, 1993, p. 70)
***
Even if we cannot prove a theory or model is true, at the very minimum to be true it must be logically consistent. (Boland, 2003, p. 24)When we define the ambition of science as getting it precisely right, then the guiding motto of Post Keynesianism amounts to an invitation to ‘Babylonian incoherent babble’ and leads, predictably, to a loss of theoretical coherence. Confronted with the phony alternative relevance vs. rigor or truth vs. precision, the non-Keynesians opted for rigor: "Mathematical economics, it seems, had the great virtue of demonstrable irrelevance, which was morally preferable to spurious relevance." (Porter, 1994, p. 155)
... each chief step in science has been a lesson in logic. (Peirce, 1992, p. 111)
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)
Economists today do not wish to discuss the ‘truth’ of economic theories but only examine their logical validity. (Boland, 1992, p. 36)
Logical validity is indispensable. However, if the premises are false, the logical validity of the conclusions is pointless. Truth resides in the axioms, not in the deductive process. Because of a logical blind spot — the place one stands on is, for the moment, invisible — economists today cannot see that they operate with inadmissible axioms. Logical validity is indispensable but not sufficient.
And so — faithful to the theory's conceptual cornerstones and hoping against all hope that the unthinkable may still be achieved (i.e., a satisfactory theory of the price mechanism) — the tormented upholders of the validity of the paradigmatic core of economic equilibrium theory appear singularly reluctant to face the problem of comparing expectations and results and assessing the consistency of the theory. (Ingrao and Israel, 1990, p. 346)Formal consistency does not count for much if the axioms lack material consistency. Realism does not count for much if it cannot be properly formalized.
***
We are lost in a swamp, the morass of our ignorance. ... We have to find the roots and get ourselves out! ... Braids or bootstraps are necessary for two purposes: to pull ourselves out of the swamp and, afterwards, to keep our bits and pieces together in an orderly fashion. (Schmiechen, 2009, p. 11)Logical bootstrapping is what axiomatization is all about. Therefore, one has to jump to new premises to see the defects of the previous premises. There is no path between them. Axiom Sets are incommensurable; there is no synthesis and no continuity; the previous set is simply abandoned. In practical terms, this means that both Walrasians and Keynesians are left behind the curve for good. Both approaches can still fulfill a useful role as practical examples of how not to do science.
References
Allais, M. (1993). Les Fondements Comptables de la Macro-Économie. Paris: Presses Universitaires de France, 2nd edition.
Boland, L. A. (1992). The Principles of Economics. Some Lies My Teacher Told Me. London, New York: Routledge.
Boland, L. A. (2003). The Foundations of Economic Method. A Popperian Perspective. London, New York: Routledge, 2nd edition.
Colander, D. (1995). Marshallian General Equilibrium Analysis. Eastern Economic Journal, 21(3): 281–293. URL
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Hudson, M. (2010). The Use and Abuse of Mathematical Economics. real-world economics review, (55): 2–22. URL
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London: Macmillan.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Laidler, D. (1999). Fabricating the Keynesian Revolution. Cambridge: Cambridge University Press.
Moggridge, D. E. (1976). Keynes. London, Basingstoke: Macmillan.
Peirce, C. S. (1992). The Fixation of Belief. In N. Houser and C. Kloesel (Eds.), The Essential Peirce. Selected Philosophical Writings, Vol. 1,109–123. Bloomington: Indiana University Press.
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.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition.
Stiglitz, J. E. (1991). Another Century of Economic Science. Economic Journal, 101(404): 134–141. URL
Suppe, F. (1977). Afterword. In F. Suppe (Ed.), The Structure of Scientific Theories, 615–730. Urbana, Chicago: University of Illinois Press.
Valentino, R. (1988). Discussion. In H. Hanusch (Ed.), Evolutionary Economics. Applications of Schumpeter’s Ideas, 238–249. Cambridge, New York, etc.: Cambridge University Press.
Related 'Why Post Keynesianism is Not Yet a Science URL' and 'Crisis and Methodology, Sec. 3 URL' and 'Objective Principles of Economics URL'.
© 2013 EKH, except original quotes
Allais, M. (1993). Les Fondements Comptables de la Macro-Économie. Paris: Presses Universitaires de France, 2nd edition.
Boland, L. A. (1992). The Principles of Economics. Some Lies My Teacher Told Me. London, New York: Routledge.
Boland, L. A. (2003). The Foundations of Economic Method. A Popperian Perspective. London, New York: Routledge, 2nd edition.
Colander, D. (1995). Marshallian General Equilibrium Analysis. Eastern Economic Journal, 21(3): 281–293. URL
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Hudson, M. (2010). The Use and Abuse of Mathematical Economics. real-world economics review, (55): 2–22. URL
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London: Macmillan.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Laidler, D. (1999). Fabricating the Keynesian Revolution. Cambridge: Cambridge University Press.
Moggridge, D. E. (1976). Keynes. London, Basingstoke: Macmillan.
Peirce, C. S. (1992). The Fixation of Belief. In N. Houser and C. Kloesel (Eds.), The Essential Peirce. Selected Philosophical Writings, Vol. 1,109–123. Bloomington: Indiana University Press.
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.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition.
Stiglitz, J. E. (1991). Another Century of Economic Science. Economic Journal, 101(404): 134–141. URL
Suppe, F. (1977). Afterword. In F. Suppe (Ed.), The Structure of Scientific Theories, 615–730. Urbana, Chicago: University of Illinois Press.
Valentino, R. (1988). Discussion. In H. Hanusch (Ed.), Evolutionary Economics. Applications of Schumpeter’s Ideas, 238–249. Cambridge, New York, etc.: Cambridge University Press.
Related 'Why Post Keynesianism is Not Yet a Science URL' and 'Crisis and Methodology, Sec. 3 URL' and 'Objective Principles of Economics URL'.
© 2013 EKH, except original quotes
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