Comment on Lars Syll on ‘Why testing axioms is necessary in economics’
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Lars Syll writes often about the axiomatic-deductive method, but it is painfully obvious that he simply cannot get his head around it.
(i) He writes: “For although the economist himself (implicitly) claims that his axiom is universally accepted as true and in no need of proof, that is in no way a justified reason for the rest of us to simpliciter accept the claim.”
It is simply a silly misunderstanding that axioms have to be universally accepted as true. Axiomatization works as follows: “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) #1
Repeat: No claim of truth is implied in the term ‘axiom’ as here used. A set of axioms is the point to start with and it is taken as tentatively true. Nobody starts intentionally with false axioms. To establish the empirical truth of a properly axiomatized theory is understood as the indispensable complementary task of the scientific enterprise: “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)
Axioms must satisfy certain formal properties, e.g., independence and consistency.
(ii) It is misleading to retell again and again that ‘axioms must be universally accepted as true’. This has NEVER been the case, and the best example is Euclid’s famous fifth postulate: “For two thousand years, many attempts were made to prove the parallel postulate using Euclid’s first four postulates. The main reason that such a proof was so highly sought after was that, unlike the first four postulates, the parallel postulate is not self-evident.” #2
(iii) It is also misleading to retell again and again that “… of course, the rejection of the parallel postulate (or axiom) did come from empirical tests showing that it does not hold in space-time in general due to gravity curving it.” (Rosser)
It was just the other way round. Non-Euclidean geometry had been developed well before the theory by mathematicians (Lobachevsky, Bolyai, Gauss, Hilbert, Riemann, Poincaré, etc.). Without non-Euclidean geometry, Einstein could not have formulated the theory. It is well known by now that he was not particularly good at math.
(iv) With regard to testing it holds as a matter of course: “Whether an axiom is or is not valid can be ascertained either through direct experimentation or by verification through the result of observations, or, if such a thing is impossible, the correctness of the axiom can be judged through the indirect method of verifying the laws which proceed from the axiom by observation or experimentation. (If the axiom is deemed to be incorrect it must be modified or instead a correct axiom must be found.)” (Morishima) #3
(v) This, of course, holds also for the Walrasian axioms, which are given as follows: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)
Now it should be pretty obvious that the Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every model that contains a nonentity is A PRIORI false. In practical terms, as soon as the word equilibrium/disequilibrium appears in an economic paper, it can be thrown into the wastebasket. The same holds for utility maximization and all other nonentities. This simplifies matters considerably.
(vi) Up to this point, the critique of mainstream economics is on the right track, but then it exhausts itself in futile repetition. There is no ambition to move forward and to tackle the paradigm shift. Thus, economics got stuck in the pluralism of false theories/models.
(vii) The fact is that Walrasianism is a failed approach, so there is no longer any need to test it. What is urgently needed is a replacement. What has to be done is to move from obsolete microfoundations to macrofoundations.
(viii) This is the (tentatively) true set of macro axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X. #4
These axioms are objective, behavior-free, certain, true, and primary, and therefore satisfy all methodological requirements. The set of premises is minimal, that is, it cannot be reduced further, only expanded. The set contains no longer nonentities like maximization or equilibrium and no normative assertions.
(ix) Lars Syll concludes: “If theories and models do not directly or indirectly tell us anything of the world we live in ― then why should we waste any of our precious time on them?” True, but the same holds for the critique of mainstream economics. #5 The four main approaches are known to be axiomatically false, and the sooner they are replaced and forgotten, the better.
Egmont Kakarot-Handtke
#1 Keynes, Euclid, and economic methodology
#2 Wikipedia, Parallel postulate
#3 Methodological wrong-way drivers
#4 How to restart economics
#5 How the mainstream vanished in the gutter
Showing posts sorted by relevance for query axiom. Sort by date Show all posts
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July 15, 2017
February 21, 2016
Causa finita
Comment on Barkley Rosser and Lars Syll on ‘How could “testing axioms” be controversial?’
Blog-Reference
Barkley Rosser writes “Curiously, they [Lucas and Sargent] did not seem to care whether the assumption was actually true, because it was ‘an axiom,’ something that is assumed and cannot be tested …” (See intro)
The first methodological idiotism consisted in Lucas’/Sargent’s idea of what an axiom is; the second idiotism consisted in the rest of the profession swallowing the first idiotism hook, line, and sinker.
Every half-witted economist can know from the founding fathers that an axiom is defined by its ROLE in a consistent set of propositions, a.k.a. theory: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are is the opus magnum of the more recondite mental philosophy.” (Mill, 2006, p. 746)
To receive a proposition for the time being without proof never meant that any green cheese assumption is acceptable as an axiom.
As a rule, the proof of axioms is in the deductively derived conclusions. If what the theory says should be the case is actually the case, then the axioms are indirectly corroborated. If not, they are refuted qua modus tollens. “Whether an axiom is or is not valid can be ascertained either through direct experimentation or by verification through the result of observations, or, if such a thing is impossible, the correctness of the axiom can be judged through the indirect method of verifying the laws which proceed from the axiom by observation or experimentation. (If the axiom is deemed to be incorrect it must be modified or instead a correct axiom must be found.) (Morishima, 1984, p. 53)
All this is well-known since Newton: “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.” (quoted in Westfall, 2008, p. 642)
Not only physicists but mathematicians, too, have tested their axioms: “One of the most famous stories about Gauss depicts him measuring the angles of the great triangle formed by the mountain peaks of Hohenhagen, Inselberg, and Brocken for evidence that the geometry of space is non-Euclidean.” (Brown, 2011, p. 565)
No mathematician will ever accept the rational expectations assumption as premise of economic theory as Lucas/Sargent could have known from history: “Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter, 1994, p. 154)
What Walras and his neoclassical followers simply never understood was that the expression ‘... perhaps requires a certain reserve’ is a code among mathematicians which translates into ‘do not bother me with your brain-dead garbage’.
So here is how to deal with economics from Walras to DSGE: “As with any Lakatosian research program, the neo-Walrasian program is characterized by its hardcore, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.
By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program. ‘Taken to be true’ means that the hard-core functions like axioms for a geometry, maintained for the duration of study of that geometry.” (Weintraub, 1985, p. 147)
To begin with, no one with an iota of scientific instinct will ever accept HC1 to HC6 as axioms. All the more so, as after the “duration of study”, that is, after more than 140 years of pointless model bricolage, even the dullest economist has now realized that this approach has failed in all methodological dimensions. The duration of acceptance of HC1 to HC6 is a simple metric for scientific incompetence.
Walrasian axioms have never been acceptable and will never be. They have to be fully replaced. #1
Egmont Kakarot-Handtke
References
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
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. URL
Morishima, M. (1984). The Good and Bad Use of Mathematics. In P. Wiles and G. Routh (Eds.), Economics in Disarray, 51–73. Oxford: Blackwell.
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.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.
Blog-Reference
Barkley Rosser writes “Curiously, they [Lucas and Sargent] did not seem to care whether the assumption was actually true, because it was ‘an axiom,’ something that is assumed and cannot be tested …” (See intro)
The first methodological idiotism consisted in Lucas’/Sargent’s idea of what an axiom is; the second idiotism consisted in the rest of the profession swallowing the first idiotism hook, line, and sinker.
Every half-witted economist can know from the founding fathers that an axiom is defined by its ROLE in a consistent set of propositions, a.k.a. theory: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are is the opus magnum of the more recondite mental philosophy.” (Mill, 2006, p. 746)
To receive a proposition for the time being without proof never meant that any green cheese assumption is acceptable as an axiom.
As a rule, the proof of axioms is in the deductively derived conclusions. If what the theory says should be the case is actually the case, then the axioms are indirectly corroborated. If not, they are refuted qua modus tollens. “Whether an axiom is or is not valid can be ascertained either through direct experimentation or by verification through the result of observations, or, if such a thing is impossible, the correctness of the axiom can be judged through the indirect method of verifying the laws which proceed from the axiom by observation or experimentation. (If the axiom is deemed to be incorrect it must be modified or instead a correct axiom must be found.) (Morishima, 1984, p. 53)
All this is well-known since Newton: “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.” (quoted in Westfall, 2008, p. 642)
Not only physicists but mathematicians, too, have tested their axioms: “One of the most famous stories about Gauss depicts him measuring the angles of the great triangle formed by the mountain peaks of Hohenhagen, Inselberg, and Brocken for evidence that the geometry of space is non-Euclidean.” (Brown, 2011, p. 565)
No mathematician will ever accept the rational expectations assumption as premise of economic theory as Lucas/Sargent could have known from history: “Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter, 1994, p. 154)
What Walras and his neoclassical followers simply never understood was that the expression ‘... perhaps requires a certain reserve’ is a code among mathematicians which translates into ‘do not bother me with your brain-dead garbage’.
So here is how to deal with economics from Walras to DSGE: “As with any Lakatosian research program, the neo-Walrasian program is characterized by its hardcore, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.
By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program. ‘Taken to be true’ means that the hard-core functions like axioms for a geometry, maintained for the duration of study of that geometry.” (Weintraub, 1985, p. 147)
To begin with, no one with an iota of scientific instinct will ever accept HC1 to HC6 as axioms. All the more so, as after the “duration of study”, that is, after more than 140 years of pointless model bricolage, even the dullest economist has now realized that this approach has failed in all methodological dimensions. The duration of acceptance of HC1 to HC6 is a simple metric for scientific incompetence.
Walrasian axioms have never been acceptable and will never be. They have to be fully replaced. #1
Egmont Kakarot-Handtke
References
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
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. URL
Morishima, M. (1984). The Good and Bad Use of Mathematics. In P. Wiles and G. Routh (Eds.), Economics in Disarray, 51–73. Oxford: Blackwell.
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.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.
May 26, 2016
Methodological wrong-way drivers
Comment on Asad Zaman on ‘Economists confuse Greek method with science’
Blog-Reference
The most ridiculous mistake of heterodox economists is that they take the claim of orthodox economists seriously that what they do is science. It is NOT. It is what Feynman called a cargo cult or look-alike science. Because of this, the methodological critique of Heterodoxy regularly runs into a vacuum. Here is the exact point where the discussion plunges into utter confusion.
(i) “As with any Lakatosian research program, the neo-Walrasian program is characterized by its hardcore, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.”
(ii) “By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program. ‘Taken to be true’ means that the hard-core functions like axioms for a geometry, maintained for the duration of study of that geometry.” (Weintraub, 1985, p. 147)
The mistake is in part (ii), that is, in “taken to be true and irrefutable”. No genuine scientist makes the claim that his hardcore propositions, a.k.a. axioms, are irrefutable. This is, or should be, well-known to every economist: “Whether an axiom is or is not valid can be ascertained either through direct experimentation or by verification through the result of observations, or, if such a thing is impossible, the correctness of the axiom can be judged through the indirect method of verifying the laws which proceed from the axiom by observation or experimentation. (If the axiom is deemed to be incorrect it must be modified or instead a correct axiom must be found.)” (Morishima, 1984, p. 53)
The claim that axioms are irrefutable is quite simply silly. Asad Zaman, however, does not get the point: “I am single-mindedly focused on one central idea here. What I call the Greek Method is the Axiomatic-Deductive method. This method has no possibility of conflict with observations. This because axiom are certainties, and logical deductions from axioms are equally certain.”
The mistake is in “axioms are certainties”. Axioms are taken as TENTATIVE certainties for the duration of analysis and NOT as absolute or irrefutable certainties. Axioms are, as a matter of principle, open to scrutiny and revision. The best-known example is the critique of the axiom of parallels and the subsequent development of non-Euclidean geometries. Paradigm Shift means replacement of axiomatic foundations, either because they are false or more general axioms have been found.
Hence, Asad Zaman’s assertion that “This method has no possibility of conflict with observations” is patently false: “One of the most famous stories about Gauss depicts him measuring the angles of the great triangle formed by the mountain peaks of Hohenhagen, Inselberg, and Brocken for evidence that the geometry of space is non-Euclidean.” (Brown, 2011, p. 565)
Asad Zaman is so single-mindlessly focused on his methodological hallucination that he cannot see the elephant in the economics living room. All one has to do is to critically re-read section (i) above. What should become clear immediately is that HC2, HC4, and HC5 are not acceptable as axioms and therefore the whole set is unacceptable. The axiomatic foundation of standard economics is PROVABLY false. As a consequence, the whole logical superstructure from supply-demand-equilibrium onward is false.
The heterodox methodological idiocy consists of rejecting the axiomatic-deductive method instead of replacing the false Walrasian axiom set with correct heterodox axioms. To repeat ad nauseam that Orthodoxy is garbage is, while true, not a noteworthy scientific achievement. Both orthodox AND heterodox economists are methodologically wrong-way drivers.
Egmont Kakarot-Handtke
References
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
Morishima, M. (1984). The Good and Bad Use of Mathematics. In P. Wiles and G. Routh (Eds.), Economics in Disarray, pp. 51–73. Oxford: Blackwell.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Related 'Causa finita' and 'Axiomatics — the heterodox bugbear' and 'Over the cliff and 'The consistent ancients and the confused moderns' and 'Axiomatization: cross-references' and 'Paradigm Shift: cross-references'.
Blog-Reference
The most ridiculous mistake of heterodox economists is that they take the claim of orthodox economists seriously that what they do is science. It is NOT. It is what Feynman called a cargo cult or look-alike science. Because of this, the methodological critique of Heterodoxy regularly runs into a vacuum. Here is the exact point where the discussion plunges into utter confusion.
(i) “As with any Lakatosian research program, the neo-Walrasian program is characterized by its hardcore, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.”
(ii) “By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program. ‘Taken to be true’ means that the hard-core functions like axioms for a geometry, maintained for the duration of study of that geometry.” (Weintraub, 1985, p. 147)
The mistake is in part (ii), that is, in “taken to be true and irrefutable”. No genuine scientist makes the claim that his hardcore propositions, a.k.a. axioms, are irrefutable. This is, or should be, well-known to every economist: “Whether an axiom is or is not valid can be ascertained either through direct experimentation or by verification through the result of observations, or, if such a thing is impossible, the correctness of the axiom can be judged through the indirect method of verifying the laws which proceed from the axiom by observation or experimentation. (If the axiom is deemed to be incorrect it must be modified or instead a correct axiom must be found.)” (Morishima, 1984, p. 53)
The claim that axioms are irrefutable is quite simply silly. Asad Zaman, however, does not get the point: “I am single-mindedly focused on one central idea here. What I call the Greek Method is the Axiomatic-Deductive method. This method has no possibility of conflict with observations. This because axiom are certainties, and logical deductions from axioms are equally certain.”
The mistake is in “axioms are certainties”. Axioms are taken as TENTATIVE certainties for the duration of analysis and NOT as absolute or irrefutable certainties. Axioms are, as a matter of principle, open to scrutiny and revision. The best-known example is the critique of the axiom of parallels and the subsequent development of non-Euclidean geometries. Paradigm Shift means replacement of axiomatic foundations, either because they are false or more general axioms have been found.
Hence, Asad Zaman’s assertion that “This method has no possibility of conflict with observations” is patently false: “One of the most famous stories about Gauss depicts him measuring the angles of the great triangle formed by the mountain peaks of Hohenhagen, Inselberg, and Brocken for evidence that the geometry of space is non-Euclidean.” (Brown, 2011, p. 565)
Asad Zaman is so single-mindlessly focused on his methodological hallucination that he cannot see the elephant in the economics living room. All one has to do is to critically re-read section (i) above. What should become clear immediately is that HC2, HC4, and HC5 are not acceptable as axioms and therefore the whole set is unacceptable. The axiomatic foundation of standard economics is PROVABLY false. As a consequence, the whole logical superstructure from supply-demand-equilibrium onward is false.
The heterodox methodological idiocy consists of rejecting the axiomatic-deductive method instead of replacing the false Walrasian axiom set with correct heterodox axioms. To repeat ad nauseam that Orthodoxy is garbage is, while true, not a noteworthy scientific achievement. Both orthodox AND heterodox economists are methodologically wrong-way drivers.
Egmont Kakarot-Handtke
References
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
Morishima, M. (1984). The Good and Bad Use of Mathematics. In P. Wiles and G. Routh (Eds.), Economics in Disarray, pp. 51–73. Oxford: Blackwell.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
Related 'Causa finita' and 'Axiomatics — the heterodox bugbear' and 'Over the cliff and 'The consistent ancients and the confused moderns' and 'Axiomatization: cross-references' and 'Paradigm Shift: cross-references'.
***
Graphic AXEC113f
May 27, 2017
What is the fuss with New Economic Thinking all about?
Comment on Barkley Rosser on ‘Fighting Zombies with Zombies’
Blog-Reference
I said: ‘It is obvious from your posts that you never had a proper understanding of what axiomatization, equilibrium, or profit is all about, and in this all-inclusive scientific incompetence you are the very personification of the representative economist.’
You answered: “… I actually read your papers on why Keynesian economics is incomplete, wrong, and so on.”
So, let us see whether you understood what you read.
The whole point of axiomatization is known since J. S. Mill: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are is the opus magnum of the more recondite mental philosophy.”
Or, as Aristotle put it: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”
By consequence, when the premises are false, the whole analytical superstructure is false even if the intermediary logical steps are all correct. This is the case with the four main approaches. From this follows that the Walrasian-Keynesian-Marxian-Austrian premises have to be fully REPLACED. This is what paradigm shift means. Because economics is a failed science, the paradigm shift is the PRIMARY task for ALL economists. This is what the much-touted New Economic Thinking means.
What can actually be observed, though, is that the representative economist messes up new thinking just as he messed up old thinking.
You say the first axiom [total income is wage rate times hours worked (WL) plus dividend times the number of shares (DN)] is false because there is interest, royalties, land rent, etc. Yes, there are many other phenomena in the economy, but this is NOT the point. The point of axiomatization is to consistently formulate the MINIMUM set of premises and then to successively derive all other economic phenomena from the axioms. It holds: “A theory is the more impressive the greater the simplicity of its premises, the more different kinds of things it relates, and the more extended is its area of applicability.” (Einstein)
Schumpeter understood this: “The highest ambition an economist can entertain who believes in the scientific character of economics would be fulfilled as soon as he succeeded in constructing a simple model displaying all the essential features of the economic process by means of a reasonably small number of equations connecting a reasonably small number of variables. Work on this line is laying the foundations of the economics of the future.” In economics, the most elementary systemic configuration is the elementary production-consumption economy. So, ALL of economics has to start here.
The immediately obvious point of the first axiom is that it does NOT state that total income is the sum of wage income and profit but that total income is the sum of wage income and DISTRIBUTED profit.
The crucial point of the first axiom is that it replaces the hitherto false concept of total income with the correct concept. From the first axiom then follows profit as Qm≡DN−Sm. In methodological terms: the Profit Law follows as a theorem; profit is NOT in the axioms.
The idiocy of the representative economist consists of starting with the superficial assumption that profit is just another form of income. #1 This is dead wrong. It is distributed profit that is just another form of income. #2 To treat profit as income is a category mistake.
The significance of the first axiom is that it brings the foundational concepts of income, profit, and distributed profit into the logically correct relationship. This is something the founding fathers should have done 200+ years ago. Their inexcusable sloppiness has not been rectified by their equally incompetent heirs to this day. The first axiom is sufficient to send Walrasianism-Keynesianism-Marxianism-Austrianism directly into the scientific wastebasket.
You say: “somehow he does not notice that output involves inputs besides labor.”
The second axiom replaces the unacceptable concept of a production function. The formal representation of the relationship between output, productivity, and various inputs comes with the DIFFERENTIATION of the second axiom. #3 According to the methodological minimum principle ― also known as Occam’s Razor ― the axioms contain one output and one input. #4
You say: “The problem is that the X or ‘quantity sold’ is completely meaningless. It is an aggregation that makes aggregating capital look like child’s play.”
Given the axioms, which refer explicitly to ONE giant firm, one has to proceed top-down by successive DIFFERENTIATION until one arrives at the individual agent. Differentiation is the inverse of bottom-up or aggregation. It is microfoundations and bottom-up that are the defining idiocy of Walrasianism, which literally PRODUCES the aggregation problem. With macrofoundations, there is NO aggregation problem.
Your statement “X or ‘quantity sold’ is completely meaningless” is the ultimate proof of your illiteracy. The enumeration of the macrofoundational axioms starts with: “(A0) The objectively given and most elementary configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.” So X unambiguously refers to ONE firm and ONE product and is NOT an aggregate.
Economics is a failed science because economists are incompetent scientists. Their lethal blunder consists of the Fallacy of Insufficient Abstraction. The old sloppy micro-thinking of the representative economist has, for all to see, finally crashed against the wall at the end of the cul-de-sac. New thinking requires first of all the replacement of the premises of the old thinking. As Hutchison put it: “For it can fairly be insisted that no advance in the elegance and comprehensiveness of the theoretical superstructure can make up for the vague and uncritical formulation of the basic concepts and postulates, and sooner or later ... attention will have to return to the foundations.”
The axiomatic foundations of economics have been false for 200+ years. The representative economist has proved beyond doubt that he is incapable of thinking, so new thinking is forever beyond his means. NOT ONE of Barkley Rosser’s arguments holds water.
New Economic Thinking starts with a new axiom set, or it is just another futile variant of the same old proto-scientific Walrasian-Keynesian-Marxian-Austrian-Rosserian garbage. The methodological rule of New Economic Thinking is: If it isn’t macro-axiomatized, it isn’t economics.
Egmont Kakarot-Handtke
#1 How the Intelligent Non-Economist Can Refute Every Economist Hands Down
#2 For the correct treatment of interest, land rent, and nonmonetary profit, see the papers on SSRN.
#3 See Section 4 of Matter Matters: Productivity, Profit, and Non-Marginal Factor Prices.
#4 For the introduction of capital, see Squaring the Investment Cycle.
Immediately preceding Productivity and the zombie apocalypse.
Related 'New economic thinking, or, let’s put lipstick on the dead pig' and 'The thinking economist' and 'Smart young empirically-minded economists: another vain hope' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy' and 'Media-fake-farce-fraud-storytelling-macro' and 'Economics between cargo cult, farce, and fraud' and 'Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist'
Related 'First Lecture in New Economic Thinking'.
Blog-Reference
I said: ‘It is obvious from your posts that you never had a proper understanding of what axiomatization, equilibrium, or profit is all about, and in this all-inclusive scientific incompetence you are the very personification of the representative economist.’
You answered: “… I actually read your papers on why Keynesian economics is incomplete, wrong, and so on.”
So, let us see whether you understood what you read.
The whole point of axiomatization is known since J. S. Mill: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are is the opus magnum of the more recondite mental philosophy.”
Or, as Aristotle put it: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”
By consequence, when the premises are false, the whole analytical superstructure is false even if the intermediary logical steps are all correct. This is the case with the four main approaches. From this follows that the Walrasian-Keynesian-Marxian-Austrian premises have to be fully REPLACED. This is what paradigm shift means. Because economics is a failed science, the paradigm shift is the PRIMARY task for ALL economists. This is what the much-touted New Economic Thinking means.
What can actually be observed, though, is that the representative economist messes up new thinking just as he messed up old thinking.
You say the first axiom [total income is wage rate times hours worked (WL) plus dividend times the number of shares (DN)] is false because there is interest, royalties, land rent, etc. Yes, there are many other phenomena in the economy, but this is NOT the point. The point of axiomatization is to consistently formulate the MINIMUM set of premises and then to successively derive all other economic phenomena from the axioms. It holds: “A theory is the more impressive the greater the simplicity of its premises, the more different kinds of things it relates, and the more extended is its area of applicability.” (Einstein)
Schumpeter understood this: “The highest ambition an economist can entertain who believes in the scientific character of economics would be fulfilled as soon as he succeeded in constructing a simple model displaying all the essential features of the economic process by means of a reasonably small number of equations connecting a reasonably small number of variables. Work on this line is laying the foundations of the economics of the future.” In economics, the most elementary systemic configuration is the elementary production-consumption economy. So, ALL of economics has to start here.
The immediately obvious point of the first axiom is that it does NOT state that total income is the sum of wage income and profit but that total income is the sum of wage income and DISTRIBUTED profit.
The crucial point of the first axiom is that it replaces the hitherto false concept of total income with the correct concept. From the first axiom then follows profit as Qm≡DN−Sm. In methodological terms: the Profit Law follows as a theorem; profit is NOT in the axioms.
The idiocy of the representative economist consists of starting with the superficial assumption that profit is just another form of income. #1 This is dead wrong. It is distributed profit that is just another form of income. #2 To treat profit as income is a category mistake.
The significance of the first axiom is that it brings the foundational concepts of income, profit, and distributed profit into the logically correct relationship. This is something the founding fathers should have done 200+ years ago. Their inexcusable sloppiness has not been rectified by their equally incompetent heirs to this day. The first axiom is sufficient to send Walrasianism-Keynesianism-Marxianism-Austrianism directly into the scientific wastebasket.
You say: “somehow he does not notice that output involves inputs besides labor.”
The second axiom replaces the unacceptable concept of a production function. The formal representation of the relationship between output, productivity, and various inputs comes with the DIFFERENTIATION of the second axiom. #3 According to the methodological minimum principle ― also known as Occam’s Razor ― the axioms contain one output and one input. #4
You say: “The problem is that the X or ‘quantity sold’ is completely meaningless. It is an aggregation that makes aggregating capital look like child’s play.”
Given the axioms, which refer explicitly to ONE giant firm, one has to proceed top-down by successive DIFFERENTIATION until one arrives at the individual agent. Differentiation is the inverse of bottom-up or aggregation. It is microfoundations and bottom-up that are the defining idiocy of Walrasianism, which literally PRODUCES the aggregation problem. With macrofoundations, there is NO aggregation problem.
Your statement “X or ‘quantity sold’ is completely meaningless” is the ultimate proof of your illiteracy. The enumeration of the macrofoundational axioms starts with: “(A0) The objectively given and most elementary configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.” So X unambiguously refers to ONE firm and ONE product and is NOT an aggregate.
Economics is a failed science because economists are incompetent scientists. Their lethal blunder consists of the Fallacy of Insufficient Abstraction. The old sloppy micro-thinking of the representative economist has, for all to see, finally crashed against the wall at the end of the cul-de-sac. New thinking requires first of all the replacement of the premises of the old thinking. As Hutchison put it: “For it can fairly be insisted that no advance in the elegance and comprehensiveness of the theoretical superstructure can make up for the vague and uncritical formulation of the basic concepts and postulates, and sooner or later ... attention will have to return to the foundations.”
The axiomatic foundations of economics have been false for 200+ years. The representative economist has proved beyond doubt that he is incapable of thinking, so new thinking is forever beyond his means. NOT ONE of Barkley Rosser’s arguments holds water.
New Economic Thinking starts with a new axiom set, or it is just another futile variant of the same old proto-scientific Walrasian-Keynesian-Marxian-Austrian-Rosserian garbage. The methodological rule of New Economic Thinking is: If it isn’t macro-axiomatized, it isn’t economics.
Egmont Kakarot-Handtke
#1 How the Intelligent Non-Economist Can Refute Every Economist Hands Down
#2 For the correct treatment of interest, land rent, and nonmonetary profit, see the papers on SSRN.
#3 See Section 4 of Matter Matters: Productivity, Profit, and Non-Marginal Factor Prices.
#4 For the introduction of capital, see Squaring the Investment Cycle.
Immediately preceding Productivity and the zombie apocalypse.
Related 'New economic thinking, or, let’s put lipstick on the dead pig' and 'The thinking economist' and 'Smart young empirically-minded economists: another vain hope' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy' and 'Media-fake-farce-fraud-storytelling-macro' and 'Economics between cargo cult, farce, and fraud' and 'Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist'
Related 'First Lecture in New Economic Thinking'.
April 2, 2016
Austrian blather
Reply to Major.Freedom on 'Fiscal multiplier studies — it's far worse than I thought'
Blog-Reference
(i) I did not ask you for a “good piece of advice”, so do not pester me with it.
(ii) My pivotal point is that there is no such thing as a specific BEHAVIORAL axiom in economics because axioms have to be ‘certain, true, and primary’. This is definitively not the case with the maximization axiom HC3 of Neoclassics and the action axiom of Praxeology.
Strictly speaking, a ‘behavioral axiom’ is an oxymoron. This has been known to scientists of all ages: “The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition ... is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown, 2011, p. 211)
From the general proposition that human action is original or, alternatively, target-oriented with any number of possible targets NOTHING specific follows. So, after the first step, one is already at the end of the road.
This, in turn, explains why Praxeology is a failed approach: “Now, at any rate, we have an explanation for why the assumptions of economic theory about individual action have not been improved, corrected, sharpened, specified, or conditioned in ways that would improve the predictive power of the theory. None of these things have been done by economists because they cannot be done. The intentional nature of the fundamental explanatory variables of economic theory prohibits such improvement.” (Rosenberg, 1992, p. 149)
For cogent methodological reasons: (1) economic theory cannot be built upon a behavioral assumption like the maximization axiom or the action axiom or any other, for that matter, and (2), as a matter of principle, NO way leads from the explanation of individual human behavior to the explanation of how the monetary economy works. Because of this, ALL subjective-behavioral approaches are bound to fail.
(iii) You say about the action axiom “It is IMPOSSIBLE for it to be proven false.” Obviously, you did not realize that this is NOT a strong point but, just the contrary, the very antithesis of science: “But a method that can explain everything that might happen explains nothing.” (Popper, 1960, p. 154)
To recall, when the ancient Greek thinkers, who invented science, heard a man saying “I can explain everything, Zeus did it, and you cannot prove me wrong” they showed him the way to the temple and threw him out of the academy.
(iv) This thread is about testing. As long as Austrians cannot produce a testable proposition about the overall profit of the monetary economy they have nothing worthwhile to say. Who does not understand profit understands nothing. Folk psychology is not economics.
(v) I do not engage in criticizing Praxeology or Austrianism. I understand that there must be something like economics for the scientifically retarded and I am quite content that you faithfully stick to it.
(vi) If you wish to prove the structural-axiomatic approach wrong it suffices to empirically refute the Profit Law. All else is obsolete Austrian blather.
References
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
Popper, K. R. (1960). The Poverty of Historicism. London, Henley: Routledge and Kegan Paul.
Rosenberg, A. (1992). Economics ― Mathematical Politics or Science of Diminishing Returns? Chicago: University of Chicago Press.
Related 'The futility of testing economics blather' and 'Hayek was not an economist' and 'Both Austrianism and MMT are proto-scientific garbage' and 'Austrians, too, are either stupid or corrupt or both'.
For more about Austrianism see AXECquery.
You say: “It [Praxeology] is strictly a theory of human action.” It is obviously beyond your horizon that human action is the realm of the so-called social sciences (psychology, sociology, anthropology, political science, history, etc.). Economics is about the behavior of the monetary economy. So, economics is a system science (2014). The so-called social sciences have been accurately characterized by Feynman as cargo cult sciences (see Wikipedia). Praxeology is a case in point.
So there is no need at all to clarify the finer points of Praxeology just as there is no need to quarrel about whether geocentrism worked with 20 or 25 epicycles because geocentrism has been buried long ago and everybody — except Flat-Earthers and Austrians — understands by now that epicycles are NONENTITIES like angels and the Easter Bunny.
You say: “But we are not God, and we are not superhuman. We are human.” Trivially true, but not much follows from brain-dead tautologies.
Folk psychology and the "subtle and sophisticated process of self-reflection" are not economics. Praxeology is proto-scientific garbage and more is not to say about it.
Science is well-defined as formal and empirical consistency (Klant, 1994, p. 31). No genuine scientist ever had a problem with this definition. Curiously, those who are known not to have produced one tiny piece of science can exactly explain why the scientific method does not work.
Here is the collection of the most ridiculous excuses: “Economics is a strange sort of discipline. The booby traps I mentioned often make it sound as if it is all just a matter of opinion. That is not so. Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. . . . There are always differences of opinion at the cutting edge of a science, . . . . But they last longer in economics . . . and there are reasons for that. As already mentioned, rival theories cannot be put to an experimental test. All there is to observe is history, and history does not conduct experiments: too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, . . . You can’t even count on a long and undisturbed run of history, because the ‘laws’ of behavior change and evolve. Excuses, excuses. But the point is not to provide excuses. (Solow, 1998, x-xi)
The obvious explanation is missing: the scientific incompetence of economists. The first thing to understand is that there are no ‘laws of behavior’ but that there are objective and testable systemic laws.
After more than 200 years economists can still not tell the difference between profit and income. Economics is at the level of medieval physics before the concept of potential and kinetic energy was properly understood. Austrians, too, cannot explain how the economy works but they have any number of excuses for why they have achieved nothing of scientific value.
You say: “We’re pigeons playing chess, pooping on the board, and flying away.” Again trivially true, dear Austrians, but now take your poop and play somewhere else. As Shaw put it "People who say it cannot be done should not interrupt those who are doing it."
References
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The Academic Scribblers. Princeton: Princeton University Press, 3rd edition.
Related 'The zombie wars are over'.
Blog-Reference
(i) I did not ask you for a “good piece of advice”, so do not pester me with it.
(ii) My pivotal point is that there is no such thing as a specific BEHAVIORAL axiom in economics because axioms have to be ‘certain, true, and primary’. This is definitively not the case with the maximization axiom HC3 of Neoclassics and the action axiom of Praxeology.
Strictly speaking, a ‘behavioral axiom’ is an oxymoron. This has been known to scientists of all ages: “The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition ... is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown, 2011, p. 211)
From the general proposition that human action is original or, alternatively, target-oriented with any number of possible targets NOTHING specific follows. So, after the first step, one is already at the end of the road.
This, in turn, explains why Praxeology is a failed approach: “Now, at any rate, we have an explanation for why the assumptions of economic theory about individual action have not been improved, corrected, sharpened, specified, or conditioned in ways that would improve the predictive power of the theory. None of these things have been done by economists because they cannot be done. The intentional nature of the fundamental explanatory variables of economic theory prohibits such improvement.” (Rosenberg, 1992, p. 149)
For cogent methodological reasons: (1) economic theory cannot be built upon a behavioral assumption like the maximization axiom or the action axiom or any other, for that matter, and (2), as a matter of principle, NO way leads from the explanation of individual human behavior to the explanation of how the monetary economy works. Because of this, ALL subjective-behavioral approaches are bound to fail.
(iii) You say about the action axiom “It is IMPOSSIBLE for it to be proven false.” Obviously, you did not realize that this is NOT a strong point but, just the contrary, the very antithesis of science: “But a method that can explain everything that might happen explains nothing.” (Popper, 1960, p. 154)
To recall, when the ancient Greek thinkers, who invented science, heard a man saying “I can explain everything, Zeus did it, and you cannot prove me wrong” they showed him the way to the temple and threw him out of the academy.
(iv) This thread is about testing. As long as Austrians cannot produce a testable proposition about the overall profit of the monetary economy they have nothing worthwhile to say. Who does not understand profit understands nothing. Folk psychology is not economics.
(v) I do not engage in criticizing Praxeology or Austrianism. I understand that there must be something like economics for the scientifically retarded and I am quite content that you faithfully stick to it.
(vi) If you wish to prove the structural-axiomatic approach wrong it suffices to empirically refute the Profit Law. All else is obsolete Austrian blather.
References
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
Popper, K. R. (1960). The Poverty of Historicism. London, Henley: Routledge and Kegan Paul.
Rosenberg, A. (1992). Economics ― Mathematical Politics or Science of Diminishing Returns? Chicago: University of Chicago Press.
Related 'The futility of testing economics blather' and 'Hayek was not an economist' and 'Both Austrianism and MMT are proto-scientific garbage' and 'Austrians, too, are either stupid or corrupt or both'.
For more about Austrianism see AXECquery.
***
REPLY to Major.Freedom on Apr 2You say: “It [Praxeology] is strictly a theory of human action.” It is obviously beyond your horizon that human action is the realm of the so-called social sciences (psychology, sociology, anthropology, political science, history, etc.). Economics is about the behavior of the monetary economy. So, economics is a system science (2014). The so-called social sciences have been accurately characterized by Feynman as cargo cult sciences (see Wikipedia). Praxeology is a case in point.
So there is no need at all to clarify the finer points of Praxeology just as there is no need to quarrel about whether geocentrism worked with 20 or 25 epicycles because geocentrism has been buried long ago and everybody — except Flat-Earthers and Austrians — understands by now that epicycles are NONENTITIES like angels and the Easter Bunny.
You say: “But we are not God, and we are not superhuman. We are human.” Trivially true, but not much follows from brain-dead tautologies.
Folk psychology and the "subtle and sophisticated process of self-reflection" are not economics. Praxeology is proto-scientific garbage and more is not to say about it.
Science is well-defined as formal and empirical consistency (Klant, 1994, p. 31). No genuine scientist ever had a problem with this definition. Curiously, those who are known not to have produced one tiny piece of science can exactly explain why the scientific method does not work.
Here is the collection of the most ridiculous excuses: “Economics is a strange sort of discipline. The booby traps I mentioned often make it sound as if it is all just a matter of opinion. That is not so. Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. . . . There are always differences of opinion at the cutting edge of a science, . . . . But they last longer in economics . . . and there are reasons for that. As already mentioned, rival theories cannot be put to an experimental test. All there is to observe is history, and history does not conduct experiments: too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, . . . You can’t even count on a long and undisturbed run of history, because the ‘laws’ of behavior change and evolve. Excuses, excuses. But the point is not to provide excuses. (Solow, 1998, x-xi)
The obvious explanation is missing: the scientific incompetence of economists. The first thing to understand is that there are no ‘laws of behavior’ but that there are objective and testable systemic laws.
After more than 200 years economists can still not tell the difference between profit and income. Economics is at the level of medieval physics before the concept of potential and kinetic energy was properly understood. Austrians, too, cannot explain how the economy works but they have any number of excuses for why they have achieved nothing of scientific value.
You say: “We’re pigeons playing chess, pooping on the board, and flying away.” Again trivially true, dear Austrians, but now take your poop and play somewhere else. As Shaw put it "People who say it cannot be done should not interrupt those who are doing it."
References
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The Academic Scribblers. Princeton: Princeton University Press, 3rd edition.
Related 'The zombie wars are over'.
January 1, 2015
Testing is better than critique
Comment on Admin on 'Saving=Investment fallacy'
Blog-Reference
I certainly do not want to stop you from testing existing theories. Just the contrary, I explicitly encourage testing of the structural axiom set and its logical implications in my mission statement and elsewhere in my papers.
This brings me right back to our starting point. So, let us put methodological questions for a moment aside. You said that I=S is a fallacy. I agree. Not only this, I also present the correct relation. It is in Graphic AXEC09.
This is the relation for the investment economy. It gets a bit more complex if foreign trade and government are included. But that is not the point at issue at the moment. The equation says that household sector saving and business sector investment are never equal. And this is sufficient in the first round to empirically refute the standard approach.
Now the rest is quite simple. You have the data. A cursory comparison of the data with the formula above will convince you that the formula is essentially correct. Then the crucial test has to be designed.
What will the outcome of this test be? The structural axiom set will be corroborated with a precision of two decimal places. This is how science works:
“Whether an axiom is or is not valid can be ascertained either through direct experimentation or by verification through the result of observations, or, if such a thing is impossible, the correctness of the axiom can be judged through the indirect method of verifying the laws which proceed from the axiom by observation or experimentation. (If the axiom is deemed to be incorrect, it must be modified, or instead a correct axiom must be found.)” (Morishima, 1984, p. 53)
This answers the first question of your comment: “How do you know (or prove) that your new set of axioms is better than the old set?” Then, obviously, there is no urgent need to discuss the rest.
In light of your comment, a better title of my previous contribution would have been: No more filibuster about economics, test the axioms!
Egmont Kakarot-Handtke
References
Morishima, M. (1984). The Good and Bad Use of Mathematics. In P. Wiles and G. Routh (Eds.), Economics in Disarray, 51–73. Oxford: Blackwell.
Blog-Reference
I certainly do not want to stop you from testing existing theories. Just the contrary, I explicitly encourage testing of the structural axiom set and its logical implications in my mission statement and elsewhere in my papers.
This brings me right back to our starting point. So, let us put methodological questions for a moment aside. You said that I=S is a fallacy. I agree. Not only this, I also present the correct relation. It is in Graphic AXEC09.
This is the relation for the investment economy. It gets a bit more complex if foreign trade and government are included. But that is not the point at issue at the moment. The equation says that household sector saving and business sector investment are never equal. And this is sufficient in the first round to empirically refute the standard approach.
Now the rest is quite simple. You have the data. A cursory comparison of the data with the formula above will convince you that the formula is essentially correct. Then the crucial test has to be designed.
What will the outcome of this test be? The structural axiom set will be corroborated with a precision of two decimal places. This is how science works:
“Whether an axiom is or is not valid can be ascertained either through direct experimentation or by verification through the result of observations, or, if such a thing is impossible, the correctness of the axiom can be judged through the indirect method of verifying the laws which proceed from the axiom by observation or experimentation. (If the axiom is deemed to be incorrect, it must be modified, or instead a correct axiom must be found.)” (Morishima, 1984, p. 53)
This answers the first question of your comment: “How do you know (or prove) that your new set of axioms is better than the old set?” Then, obviously, there is no urgent need to discuss the rest.
In light of your comment, a better title of my previous contribution would have been: No more filibuster about economics, test the axioms!
Egmont Kakarot-Handtke
References
Morishima, M. (1984). The Good and Bad Use of Mathematics. In P. Wiles and G. Routh (Eds.), Economics in Disarray, 51–73. Oxford: Blackwell.
May 28, 2017
First Lecture in New Economic Thinking
Comment on Barkley Rosser and Sandwichman on ‘Fighting Zombies with Zombies’
Blog-Reference
1. How Walrasians got it wrong
The microfoundations approach is based on methodological individualism and clearly defined by this axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)
The Walrasian approach comes in several variants and a loose definition has been given by Krugman: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
The Walrasian axioms = microfoundations are methodologically unacceptable. #1 Because the axiomatic foundations are false, the whole analytical superstructure is false. Walrasian economics is scientifically worthless. Scientific truth is defined by material and formal consistency. Sorta-kinda neoclassical or mainstream economics lacks both.
2. How Keynesians got it wrong
Keynes formulated the formal core of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)
This elementary syllogism is conceptually defective because Keynes never came to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end, he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)
Because the formal core of Keynesianism is false, the whole analytical superstructure, including all I=S, IS-LM and New Keynesian models, is false. #2 All variants of Keynesian economics are scientifically worthless.
3. How Marxians, Austrians, and Pluralists got it wrong
The rest of the approaches are either not properly axiomatized, that is, the premises are never explicitly stated or consist of an inconsistent combination of Walrasian, Keynesian, and plucked-out-of-thin-air elements. Approaches without clearly stated and consistent premises are scientifically worthless. This applies to ALL of the political economics and to ALL psychological/sociological/historical/Human Nature storytelling.
4. Rectification
The Keynesian premises are methodologically superior because they are behavior-free and objective-systemic. Since they are defective with regard to the definition of income/profit they have to be replaced by the correct macrofoundations.
(A0) The objectively given and most elementary configuration of the (world-) economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm.
(A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L,
(A2) O=RL output O is equal to productivity R times working hours L,
(A3) C=PXConsumption expenditure (C) is equal to the price (P) multiplied by the quantity bought or sold (X).
For the graphical representation of this ABSOLUTE formal MINIMUM see under the label Graphic AXEC31.
5. Proofs
(i) The sector balances (Sm≡Yw−C, Qm≡C−Yw) always add up to zero, i.e. Qm≡−Sm, that is, the business sector makes a monetary profit Qm, which is equal to the household sector’s dissaving −Sm or a loss which is equal to saving. From this immediately follows that saving and investment are NEVER equal, neither ex-ante nor ex-post, and ALL Keynesian and Post Keynesian models are provably false. #3
(ii) By expansion of the absolute formal minimum, the Profit Law expands to Qm≡Yd+(I−Sm)+(G−T)+(X−M). This is a testable proposition because all variables are measurable.
(iii) By expansion of the absolute formal minimum, the Employment Law also expands. See Graphic AXEC62. This is a testable proposition because all variables are measurable. #4
The successful test of propositions that have been logically derived from a consistent axiom set corroborates the axioms: “Whether an axiom is or is not valid can be ascertained either through direct experimentation or by verification through the result of observations, or, if such a thing is impossible, the correctness of the axiom can be judged through the indirect method of verifying the laws which proceed from the axiom by observation or experimentation.” (Morishima)
6. Conclusion
Your comments are another instance of brain-dead blather and utter scientific incompetence.
Egmont Kakarot-Handtke
#1 For detailed arguments, proof, and references, see axecorg.blogspot.de
#2 How Keynes got macro wrong and Allais got it right
#3 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#4 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
Related 'The canonical macroeconomic model' and 'New Economic Thinking: The 10 crucial points'. For details of the big picture see cross-references Paradigm Shift.
Immediately preceding What is the fuss with New Economic Thinking all about?
You say: “you have added another fundamental axiom you do not mention in a bunch of the (mostly justifiably unpublished) papers by you that you cite, this A0.”
(A0) is a verbal description of what the three following equations refer to. It is NOT an axiom. (A0) invokes a picture of the pure production-consumption economy. The zero clearly indicates that it is NOT counted as an axiom.
ALL macro deals with the abstraction of one firm. National accounting, in effect, aggregates all firms to one firm by eliminating the transactions between them. Keynes’s foundational propositions, as given above, also refer to one firm=business sector.
Your argument: “It is not now and never has been ever and never will be true that the world economy operates or has operated via a single business enterprise …” is the badge of the moronic realist since science was invented by the ancient Greeks. Just like ‘triangle’ is an idea, the ‘economy’ is an idea. So-called realists do not understand until this day what Plato and Pythagoras meant with idea (see Wikipedia). #1
When Newton laid down the first axiom of motion, i.e. “… an object either remains at rest or continues to move at a constant velocity …” (see Wikipedia), the moronic realist or what J. S. Mill called the bigot of common sense exclaimed: “It is not now and never has been ever and never will be true” that bodies move at constant velocity. And this is what J. S. Mill told the Barkley Rossers' and Sandwichmen of his time: “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.” #2
You say: “All this does is make you even more in trouble with Einstein.” Not at all, I am in perfect accordance with Einstein: “The basic concepts and laws which are not logically further reducible constitute the indispensable and not rationally deducible part of the theory. It can scarcely be denied that the supreme goal of all theory is to make the irreducible basic elements as simple and as few as possible without having to surrender the adequate representation of a single datum of experience.” #3
One firm is obviously the “not logically further reducible… indispensable and not rationally deducible part of the theory.”
I am not only in perfect accordance with Einstein but, even better, with the great economist and methodologist J. S. Mill: “They [Einstein and Dirac] agreed that science was fundamentally about explaining more and more phenomena in terms of fewer and fewer theories, a view they had read in Mill’s A System of Logic.” (Farmelo)
Needless to emphasize that Barkley Rosser and the other Trump University economists have never read/understood A System of Logic.
So I am in perfect accordance with J. S. Mill by characterizing the bigots of common sense as ignorant and scientifically incompetent.
#1 “Though there never were a circle or triangle in nature, the truths demonstrated by Euclid would for ever retain their certainty and evidence.” (Hume)
#2 Economics, too, has been almost ruined by the bigots of common sense
#3 Warning: Einstein can be hazardous to heterodox methodology
You say: “There most certainly are objects in constant motion, e.g. the earth going around the sun. Granted it is slowing down very very slowly, but it is close enough to constant for all practical purposes.”
Yes, there are objects with fast and slow motion. Humanity, though, had not to wait for a failed economist like Barkley Rosser to realize this. The point at issue is that Newton (i) took a patently “unrealistic” assertion about motion as the first axiom, and (ii), that Newtonian physics was empirically successful beyond the wildest dreams. Moronic realists, or what J. S. Mill called the bigots of common sense, did not understand the crucial methodological point then, as they do not understand it now: “There is no doubt a strong tendency to revolt against abstract reasoning. Human nature has a strong ‘factish’ element in it. The reasonings of Principia are now accepted. But in the beginning they were ‘mere crotchets of Mr. Newton’s;’ Flamstead, the greatest astronomical discoverer of his day ― the man of facts, par excellence ― so called them; they have irresistibly conquered, but at first even those most conversant with the matter did not believe them.” (Bagehot)
Flamstead, then, can be taken as a perfect example of a moronic realist. The defining difference between the moronic realist and the scientist is that the latter rejects an argument because it is formally/empirically inconsistent, but NEVER as “unrealistic”. As Feynman put it: “It does not matter that moos and goos cannot appear in the guess. You can have as much junk in the guess as you like, provided that the consequences can be compared with experiment.” This means for economics that you cannot have NONENTITIES like utility in the premises because NONENTITIES have NO testable consequences. This is why Walrasianism has been dead for 150+ years.
The whole discussion about realism or unrealism, which is so characteristic of economists, is the ultimate proof of their utter scientific incompetence.
You say: “the economy is not an idea. It is a very real thing.” The economy as the subject matter of economics is a mental construct or what Plato called an idea or what may be characterized as idealization/abstraction. A good metaphor for the relationship between idea and reality is that between plan and landscape. An idea/theory must satisfy two criteria in order to be accepted to the corpus of scientific knowledge: material and formal consistency. Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing. The economy is an idea that has to be clearly defined by a set of premises, a.k.a. foundational propositions, a.k.a. axioms. Without clear premises, all conclusions are for the wastebasket, the whole argument is scientifically worthless, and policy guidance is useless at best.
The idea of the economy, which, respectively, Walrasians, Keynesians, Marxians, and Austrians have put forward, does NOT satisfy the two criteria of science. All of economics is refuted: “… suppose they [the economists] did reject all theories that were empirically falsified … Nothing would be left standing; there would be no economics.” (Hands)
This is the point to start with: economics is a failed science. Both orthodox and heterodox economics is indefensible and to criticize them is a waste of time: “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) Or: “The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy.” (Feynman)
The scientific incompetence of the representative economist consists (i) in still defending theories that have been logically/empirically refuted long ago, and (ii), in the incapacity to fully replace defunct approaches by the true theory.
The economist who does not understand that the actual state of economics is that of a failed science is a moron. The economist who does understand that Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism is proto-scientific garbage but still defends one of these approaches and claims to do science is a fraudster.
The three career paths of the economist are currently: (i) moron, (ii) fraudster, or (iii) paradigm shifter. Neither you nor Sandwichman nor the rest of your Trump University colleagues belong to group (iii), i.e. the scientific elite.
You say: “So, the problem is not profit theory and the failure to distinguish retained profits from distributed ones, it is capital theory and the failure to distinguish unrealized capital gains and realized ones.”
In fact, it is BOTH. Profit theory, as it has been taught for 200+ years, fails to axiomatically distinguish between (i) monetary profit and distributed profit and (ii) monetary and nonmonetary profit. Issue (ii) has been dealt with elsewhere. #1 Your wow-yippee argument proves that you are ill-informed.
Capital is NOT in the axiom set of the pure production-consumption economy, which explicitly defines the MINIMUM set. Capital has to be DERIVED from the minimum set and comes logically in a later step. Capital has been dealt with elsewhere. #1 You are simply ill-informed.
You say: “Oh, and make that second axiom be about output equals per capital output times population. That is even more general, and thus more scientific than your second axiom.”
The relationship between total labor input L and population is given with AXEC93. The differentiated individual labor time Li is formally split into the norm time U, e.g. 8 hours per day times working days per period, and an individual factor l1, l2 … li … ln, such that Li=Uli. A value of li=0 means that the person is not in the labor force, li=1 means that the i-th worker works full-time, li=0.5 means half-time, and li greater than 1 means overtime. This gives the relationship between total labor input L in the axioms and total population n. The issue has been dealt with elsewhere. #1 You are simply ill-informed.
In sum: Nice try to filibuster away the fact that economists do NOT know until this day what profit is and that Econ 101 is axiomatically false and beyond repair. #2 Filibuster, though, does not help: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley)
Whatever it is that Peter Dorman (he/him), Sandwichman, and you are doing on this blog, it is NOT economics and it is NOT science.
#1 See blog and working papers
#2 The father of modern economics and his imbecile kids and Profit and the collective failure of economists.
Blog-Reference
1. How Walrasians got it wrong
The microfoundations approach is based on methodological individualism and clearly defined by this axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)
The Walrasian approach comes in several variants and a loose definition has been given by Krugman: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
The Walrasian axioms = microfoundations are methodologically unacceptable. #1 Because the axiomatic foundations are false, the whole analytical superstructure is false. Walrasian economics is scientifically worthless. Scientific truth is defined by material and formal consistency. Sorta-kinda neoclassical or mainstream economics lacks both.
2. How Keynesians got it wrong
Keynes formulated the formal core of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)
This elementary syllogism is conceptually defective because Keynes never came to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end, he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)
Because the formal core of Keynesianism is false, the whole analytical superstructure, including all I=S, IS-LM and New Keynesian models, is false. #2 All variants of Keynesian economics are scientifically worthless.
3. How Marxians, Austrians, and Pluralists got it wrong
The rest of the approaches are either not properly axiomatized, that is, the premises are never explicitly stated or consist of an inconsistent combination of Walrasian, Keynesian, and plucked-out-of-thin-air elements. Approaches without clearly stated and consistent premises are scientifically worthless. This applies to ALL of the political economics and to ALL psychological/sociological/historical/Human Nature storytelling.
4. Rectification
The Keynesian premises are methodologically superior because they are behavior-free and objective-systemic. Since they are defective with regard to the definition of income/profit they have to be replaced by the correct macrofoundations.
(A0) The objectively given and most elementary configuration of the (world-) economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm.
(A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L,
(A2) O=RL output O is equal to productivity R times working hours L,
(A3) C=PXConsumption expenditure (C) is equal to the price (P) multiplied by the quantity bought or sold (X).
For the graphical representation of this ABSOLUTE formal MINIMUM see under the label Graphic AXEC31.
5. Proofs
(i) The sector balances (Sm≡Yw−C, Qm≡C−Yw) always add up to zero, i.e. Qm≡−Sm, that is, the business sector makes a monetary profit Qm, which is equal to the household sector’s dissaving −Sm or a loss which is equal to saving. From this immediately follows that saving and investment are NEVER equal, neither ex-ante nor ex-post, and ALL Keynesian and Post Keynesian models are provably false. #3
(ii) By expansion of the absolute formal minimum, the Profit Law expands to Qm≡Yd+(I−Sm)+(G−T)+(X−M). This is a testable proposition because all variables are measurable.
(iii) By expansion of the absolute formal minimum, the Employment Law also expands. See Graphic AXEC62. This is a testable proposition because all variables are measurable. #4
The successful test of propositions that have been logically derived from a consistent axiom set corroborates the axioms: “Whether an axiom is or is not valid can be ascertained either through direct experimentation or by verification through the result of observations, or, if such a thing is impossible, the correctness of the axiom can be judged through the indirect method of verifying the laws which proceed from the axiom by observation or experimentation.” (Morishima)
6. Conclusion
Your comments are another instance of brain-dead blather and utter scientific incompetence.
Egmont Kakarot-Handtke
#1 For detailed arguments, proof, and references, see axecorg.blogspot.de
#2 How Keynes got macro wrong and Allais got it right
#3 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#4 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
Related 'The canonical macroeconomic model' and 'New Economic Thinking: The 10 crucial points'. For details of the big picture see cross-references Paradigm Shift.
Immediately preceding What is the fuss with New Economic Thinking all about?
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REPLY to Barkley Rosser on May 29You say: “you have added another fundamental axiom you do not mention in a bunch of the (mostly justifiably unpublished) papers by you that you cite, this A0.”
(A0) is a verbal description of what the three following equations refer to. It is NOT an axiom. (A0) invokes a picture of the pure production-consumption economy. The zero clearly indicates that it is NOT counted as an axiom.
ALL macro deals with the abstraction of one firm. National accounting, in effect, aggregates all firms to one firm by eliminating the transactions between them. Keynes’s foundational propositions, as given above, also refer to one firm=business sector.
Your argument: “It is not now and never has been ever and never will be true that the world economy operates or has operated via a single business enterprise …” is the badge of the moronic realist since science was invented by the ancient Greeks. Just like ‘triangle’ is an idea, the ‘economy’ is an idea. So-called realists do not understand until this day what Plato and Pythagoras meant with idea (see Wikipedia). #1
When Newton laid down the first axiom of motion, i.e. “… an object either remains at rest or continues to move at a constant velocity …” (see Wikipedia), the moronic realist or what J. S. Mill called the bigot of common sense exclaimed: “It is not now and never has been ever and never will be true” that bodies move at constant velocity. And this is what J. S. Mill told the Barkley Rossers' and Sandwichmen of his time: “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.” #2
You say: “All this does is make you even more in trouble with Einstein.” Not at all, I am in perfect accordance with Einstein: “The basic concepts and laws which are not logically further reducible constitute the indispensable and not rationally deducible part of the theory. It can scarcely be denied that the supreme goal of all theory is to make the irreducible basic elements as simple and as few as possible without having to surrender the adequate representation of a single datum of experience.” #3
One firm is obviously the “not logically further reducible… indispensable and not rationally deducible part of the theory.”
I am not only in perfect accordance with Einstein but, even better, with the great economist and methodologist J. S. Mill: “They [Einstein and Dirac] agreed that science was fundamentally about explaining more and more phenomena in terms of fewer and fewer theories, a view they had read in Mill’s A System of Logic.” (Farmelo)
Needless to emphasize that Barkley Rosser and the other Trump University economists have never read/understood A System of Logic.
So I am in perfect accordance with J. S. Mill by characterizing the bigots of common sense as ignorant and scientifically incompetent.
#1 “Though there never were a circle or triangle in nature, the truths demonstrated by Euclid would for ever retain their certainty and evidence.” (Hume)
#2 Economics, too, has been almost ruined by the bigots of common sense
#3 Warning: Einstein can be hazardous to heterodox methodology
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Blog capture May 30
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REPLY to Barkley Rosser on May 30You say: “There most certainly are objects in constant motion, e.g. the earth going around the sun. Granted it is slowing down very very slowly, but it is close enough to constant for all practical purposes.”
Yes, there are objects with fast and slow motion. Humanity, though, had not to wait for a failed economist like Barkley Rosser to realize this. The point at issue is that Newton (i) took a patently “unrealistic” assertion about motion as the first axiom, and (ii), that Newtonian physics was empirically successful beyond the wildest dreams. Moronic realists, or what J. S. Mill called the bigots of common sense, did not understand the crucial methodological point then, as they do not understand it now: “There is no doubt a strong tendency to revolt against abstract reasoning. Human nature has a strong ‘factish’ element in it. The reasonings of Principia are now accepted. But in the beginning they were ‘mere crotchets of Mr. Newton’s;’ Flamstead, the greatest astronomical discoverer of his day ― the man of facts, par excellence ― so called them; they have irresistibly conquered, but at first even those most conversant with the matter did not believe them.” (Bagehot)
Flamstead, then, can be taken as a perfect example of a moronic realist. The defining difference between the moronic realist and the scientist is that the latter rejects an argument because it is formally/empirically inconsistent, but NEVER as “unrealistic”. As Feynman put it: “It does not matter that moos and goos cannot appear in the guess. You can have as much junk in the guess as you like, provided that the consequences can be compared with experiment.” This means for economics that you cannot have NONENTITIES like utility in the premises because NONENTITIES have NO testable consequences. This is why Walrasianism has been dead for 150+ years.
The whole discussion about realism or unrealism, which is so characteristic of economists, is the ultimate proof of their utter scientific incompetence.
You say: “the economy is not an idea. It is a very real thing.” The economy as the subject matter of economics is a mental construct or what Plato called an idea or what may be characterized as idealization/abstraction. A good metaphor for the relationship between idea and reality is that between plan and landscape. An idea/theory must satisfy two criteria in order to be accepted to the corpus of scientific knowledge: material and formal consistency. Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing. The economy is an idea that has to be clearly defined by a set of premises, a.k.a. foundational propositions, a.k.a. axioms. Without clear premises, all conclusions are for the wastebasket, the whole argument is scientifically worthless, and policy guidance is useless at best.
The idea of the economy, which, respectively, Walrasians, Keynesians, Marxians, and Austrians have put forward, does NOT satisfy the two criteria of science. All of economics is refuted: “… suppose they [the economists] did reject all theories that were empirically falsified … Nothing would be left standing; there would be no economics.” (Hands)
This is the point to start with: economics is a failed science. Both orthodox and heterodox economics is indefensible and to criticize them is a waste of time: “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) Or: “The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy.” (Feynman)
The scientific incompetence of the representative economist consists (i) in still defending theories that have been logically/empirically refuted long ago, and (ii), in the incapacity to fully replace defunct approaches by the true theory.
The economist who does not understand that the actual state of economics is that of a failed science is a moron. The economist who does understand that Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism is proto-scientific garbage but still defends one of these approaches and claims to do science is a fraudster.
The three career paths of the economist are currently: (i) moron, (ii) fraudster, or (iii) paradigm shifter. Neither you nor Sandwichman nor the rest of your Trump University colleagues belong to group (iii), i.e. the scientific elite.
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Blog capture May 30
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Blog capture Jun 1
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REPLY to Barkley Rosser on Jun 2You say: “So, the problem is not profit theory and the failure to distinguish retained profits from distributed ones, it is capital theory and the failure to distinguish unrealized capital gains and realized ones.”
In fact, it is BOTH. Profit theory, as it has been taught for 200+ years, fails to axiomatically distinguish between (i) monetary profit and distributed profit and (ii) monetary and nonmonetary profit. Issue (ii) has been dealt with elsewhere. #1 Your wow-yippee argument proves that you are ill-informed.
Capital is NOT in the axiom set of the pure production-consumption economy, which explicitly defines the MINIMUM set. Capital has to be DERIVED from the minimum set and comes logically in a later step. Capital has been dealt with elsewhere. #1 You are simply ill-informed.
You say: “Oh, and make that second axiom be about output equals per capital output times population. That is even more general, and thus more scientific than your second axiom.”
The relationship between total labor input L and population is given with AXEC93. The differentiated individual labor time Li is formally split into the norm time U, e.g. 8 hours per day times working days per period, and an individual factor l1, l2 … li … ln, such that Li=Uli. A value of li=0 means that the person is not in the labor force, li=1 means that the i-th worker works full-time, li=0.5 means half-time, and li greater than 1 means overtime. This gives the relationship between total labor input L in the axioms and total population n. The issue has been dealt with elsewhere. #1 You are simply ill-informed.
In sum: Nice try to filibuster away the fact that economists do NOT know until this day what profit is and that Econ 101 is axiomatically false and beyond repair. #2 Filibuster, though, does not help: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley)
Whatever it is that Peter Dorman (he/him), Sandwichman, and you are doing on this blog, it is NOT economics and it is NOT science.
#1 See blog and working papers
#2 The father of modern economics and his imbecile kids and Profit and the collective failure of economists.
May 1, 2017
Economics ― a doctor worse than the disease
Comment on Barkley Rosser on ‘So, let me play a game with you’ as an intermezzo of ‘Is Authoritarian Nationalism Mostly A Rural Phenomenon?’
Blog-Reference
You propose: “So let us consider an issue much discussed here by me, Sandwichman, Peter Dorman, Brenda Rosser, and occasionally others, namely, environmental economics. Near as I can tell your discussion of profit has always been at a macro national income and product accounts level, never at the micro level.”
And you conclude: “If in fact your theory says that they do not count pollution costs in their internal financial calculations, and if you also say that they seek to maximize their profits as you define them, well, Egmont, your theory adds zero to current standard discussions and does not overturn any of it in any way.”
Blog-Reference
You propose: “So let us consider an issue much discussed here by me, Sandwichman, Peter Dorman, Brenda Rosser, and occasionally others, namely, environmental economics. Near as I can tell your discussion of profit has always been at a macro national income and product accounts level, never at the micro level.”
And you conclude: “If in fact your theory says that they do not count pollution costs in their internal financial calculations, and if you also say that they seek to maximize their profits as you define them, well, Egmont, your theory adds zero to current standard discussions and does not overturn any of it in any way.”
Let us agree on three things: (i) environmental protection is an issue since at least 3000 BC, #1 that is, an issue that is ― as a matter if principle ― independent of the current state of economics, (ii) environmental protection is multidisciplinary, that is, with a host of sciences bringing their specific knowledge to the table, (iii) in order to play a useful role economics, too, has to provide scientific knowledge.
This does not only hold for environmental protection but for economic policy IN GENERAL: “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)
The snag is that economists do NOT have the true theory, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational economic concept of profit wrong.
From this follows that economic policy guidance has NEVER had a sound scientific foundation since Adam Smith/Karl Marx. This, in turn, means that the well-meaning advice of economists more often than not WORSENS the situation. Mass unemployment is a case in point. Put bluntly, scientifically incompetent economists are a hazard to their fellow citizens and humanity.
The PRIMARY task of economists is to develop the true economic theory. Economists have failed at this task because they dabbled in all disciplines from psychology, sociology, political sciences, geopolitics, law, history, anthropology, social philosophy, biology/ evolution theory, ethics, philosophy, pedagogy, and ecology, but NEVER managed to define the core concepts of their own discipline properly. #2
The Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive.” (Desai, 2008), and this means that economics is the greatest nuisance in the history of the sciences. Before economics can contribute anything to human welfare or environmental protection, it has to rise above the current proto-scientific level.
Because the foundational concept of profit is axiomatically false, the whole theoretical superstructure is false. Standard economics is built upon microfoundations, that is, upon a set of behavioral axioms. #3
This is methodologically the wrong starting point. Economics has to be macrofounded. The macrofounded Profit Law is shown under the label Graphic. #4 Its implications for economic policy are profound.
You argue: “Non-Pareto optimal dumping of pollution occurs because profit-maximizing firms who do not count their polluting activities as a cost that subtracts from their profits do not have an incentive not to pollute as they seek to maximize their profits.”
This, of course, is trivially true from the myopic micro perspective. But microeconomics is false because it always runs straight into the Fallacy of Composition. For the economy as a whole, it holds as a general rule that total profit does NOT decrease if firms increase environmental protection. If capitalists were indeed a class instead of a bunch of micro-brained morons and think in class terms (as micro-brained Marx falsely claimed they do), they would recognize that pollution does NOT increase overall profit and environmental protection does NOT reduce overall profit. From the macro perspective, environmental protection is no economic problem at all. It is a pseudo-problem that derives ultimately from the scientific incompetence of economists.
What is true for the firm is NOT true for the economy. Microfounded economics is false. The representative economist has not gotten it since Jevons/Walras/Menger, and it is pretty obvious that you will never get this: If it isn’t macro-axiomatized, it isn’t economics.
Egmont Kakarot-Handtke
#1 Wikipedia
#2 Economists: Jacks of all trades ― except economics
#3 “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub) Every model that applies just one of the axioms is false.
#4 Graphic AXEC08 The Profit Law
Related 'Economists ― medics or barber-surgeons?' and 'Note on Barkley Rosser on political/ scientific failure' and 'From the pluralism of false models to the true economic theory' and 'Economic policy guidance NEVER had sound scientific foundations' and 'Economists and the destructive power of stupidity' and 'From false micro to true macro: the new economic paradigm'
You say: “In #3 you list four axioms that are not necessarily true, although their truth or falsity is also completely independent of accepting or rejecting your vacuous tautology of a theory of profit.”
The axioms HC1/HC5 are ― see the original paper of Weintraub ― the foundations of standard economics from Jevons/Walras/Menger to DSGE, including all textbooks. You may know it or not, but as a standard economist, you are committed to them. Krugman, for one, is very explicit about this: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
The maximization-and-equilibrium world you and all the other cargo cult scientists inhabit is a nowhere world, and every economist who takes the words maximization and equilibrium in his mouth is scientific toast.
You have argued, “optimal dumping of pollution occurs because profit-maximizing firms who do not count their polluting activities as a cost that subtracts from their profits do not have an incentive not to pollute as they seek to maximize their profits.”
Obviously, you subscribe to axiom HC2 = agents individually optimize subject to constraints. Above, you addressed me with: “you list four axioms that are not necessarily true”.
Conclusion: As a standard economist, you are by definition committed to the neo-Walrasian axioms HC1 to HC5; however, you maintain that they “are not necessarily true”. Among persons with more than one brain cell, this is called a contradiction.
The fact is that the neo-Walrasian axiom set HC1/HC5 is methodologically forever unacceptable. Every model that applies just one of the axioms is false. This holds for the ‘normal’ models like supply-demand-equilibrium as well as for models that deal with environmental issues.
Conclusion: ALL neo-classical environmental models are axiomatically false and therefore scientifically worthless.
Your statement “Non-Pareto optimal dumping of pollution occurs because profit-maximizing firms who do not count their polluting activities as a cost that subtracts from their profits …” is trivially true under the CONDITION that one accepts HC2 as a true axiom, which NO scientifically competent person ever will.
Because the microfoundations HC1/HC5 and ALL inferences that follow from them are methodologically forever unacceptable, the whole of economics has to move from false microfoundations to true macrofoundations. This is called a paradigm shift.
From the true macrofoundations follow, among others, the Profit Law and the Employment Law, which are readily testable. #1 So, the only question is: are these objective relationships materially and formally consistent, and NOT AT ALL whether the Profit Law is useful in the discussion about environmental policies. This is as idiotic as the question of whether the Law of Gravity is useful in the discussion about environmental policies.
An economist who takes part in a policy discussion without knowing the macroeconomic Profit Law #1 is a laughing stock, just like a physicist who does not know the Law of Gravity.
Your political agenda-pushing lacks sound scientific foundations.
#1 How to overcome the manifest silliness of Econ 101 and save the economy and How the Intelligent Non-Economist Can Refute Every Economist Hands Down
Imagine, Newton has just published the Law of Gravity, and a man comes to him and says: Isaac, your Law is vacuous and absolutely useless in my molehill research. #1
True, but irrelevant. Just as presenting your academic CV is irrelevant. Your whole argumentation is way off the point; it does NOT prove what you are repetitively asserting.
The salient point is that economists are supposed to explain how the (world-) economy works (= economic universe) and not how the firm works or how the consumer decides between strawberry and blueberry yogurt. These questions can be left to junior consultants and psychologists.
The salient methodological point is that NO way leads from the understanding of human behavior (= microanalysis) to the understanding of the behavior of the economy (= macroanalysis). Partial analysis is NOT generalizable.
The fact is that the subject matter of economics is misspecified: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that, in principle, the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow) #2
This commitment to methodological individualism translates into the neo-Walrasian axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)
From these microfoundations, supply-demand-equilibrium is derived, and then it goes on to General Equilibrium and ends with the welfare theorems. Because methodological individualism is false, the behavioral microfoundations HC1/HC5 are false. Because the axioms are false, General Equilibrium is false, and the welfare theorems go down the toilet.
The WHOLE of standard economics is cargo cult science, and you are part of it. ALL variants of behavioral economics have to be thrown out of economics as dilettantish and utterly useless folk psychology/sociology. Marginalism has been dead for 150+ years, but the representative economist has NOT realized it.
The failure of maximization-and-equilibrium economics means that economic policy guidance NEVER had sound scientific foundations from Adam Smith/Karl Marx, to Barkley Rosser. It’s all political blather in the bluff package of science.
Let this sink in: Molehill economists from Adam Smith/Karl Marx to Barkley Rosser cannot tell how the profit of the economy as a whole is determined. With their utter scientific incompetence, they bear the intellectual responsibility for the social devastation of mass unemployment since the Great Depression ― among others.
Napoleon realized this long ago: “Late in life, moreover, he claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust.” (Viner) #3
So, let us stop listening to Barkley Rosser and his silly molehill buddies and do real scientific work, that is, the paradigm shift.
#1 “There is no doubt a strong tendency to revolt against abstract reasoning. Human nature has a strong ‘factish’ element in it. The reasonings of Principia are now accepted. But in the beginning they were ‘mere crotchets of Mr. Newton’s’” (Bagehot)
#2 How Arrow pushed economics over the cliff
#3 Economists and the destructive power of stupidity
You say: “Regarding that set of five axioms that you got from some oddball paper by Roy Weintraub, it simply is not the set of axioms that underlie standard general equilibrium theory, although some of them are part of the set.”
In his paper, Weintraub gave a VERBAL description of the neo-Walrasian axiom set. It has been FORMALIZED in detail by Debreu, Arrow, Hahn, Mas-Colell, et al. The curious thing is that the axioms differ slightly between authors, which only tells us that neoclassical economics is NOT properly axiomatized and that the representative economist does NOT know what the formal foundations of his paradigm are. But you certainly agree that maximization-and-equilibrium is the common core of ALL neoclassical axiom sets. Because these two axioms are false, ALL variants of standard economics are false.
You say: “Pretty obviously you are uninterested in microeconomics.” This is NOT the case. The fact is that I am uninterested in your molehill-Monty-Python economics. My argument is that to start with behavioral axioms and then proceed bottom-up to macro is false. The methodologically correct way is to start with macrofoundations and then proceed top-down. This is what paradigm shift means. #1
You say: “you have airily dismissed, and I think have essentially admitted you have nothing to substantive to say about, namely environmental economics.” The PRIORITY of the economist is to say something SUBSTANTIVE about the ECONOMY. You have failed on the core task, and because of this, your environmental economics is distracting blather. An economist who cannot tell what profit is cannot contribute anything to an economics issue, much less so to any other issue.
You are an economist, but cannot tell what profit is. You are not alone in your abysmal incompetence: “Nor do the modern variants add anything whatever on this score. For Debreu, profits are simply a non-issue, while Arrow and Hahn make only passing reference to profits ― and that only as a historical introduction. Whatever may be the usefulness of these idealized theoretical constructs, they cannot be said to throw any light on the profit issue; surely, therefore, they fail to capture the essence of a capitalist market economy. (Obrinsky, 1981)
You say: “Your theory apparently might help us achieve full employment, although somehow you have never explained exactly how.” Stop blathering, learn to read, and follow the link and the references. #2 Even better, take the remote control, sit down on the couch, and watch sitcoms.
#1 How to finally hammer down the nails in the coffin of Monty Python economics and Essentials of Constructive Heterodoxy: Behavior
#2 How economists murdered the economy and got away with it
I do understand that you cannot accept a refutation, but there is really no need to publicly demonstrate that you have NO idea what axiomatization is all about.
So, just for the record.
I said: “In his paper, Weintraub gave a VERBAL description of the neo-Walrasian axiom set. It has been FORMALIZED in detail by Debreu, Arrow, Hahn, Mas-Colell, et al.”
Weintraub’s first axiom reads: “HC1 economic agents have preferences over outcomes.”
Now you say: “Here are the axioms on the preference sets 1. completeness 2. reflexivity 3. transitivity 4. continuity 5. monotonicity 6. convexity.” This set of CONDITIONS is merely the detailed SPECIFICATION of the notion of PREFERENCES in Weintraub’s axiom HC1.
Your six conditions are auxiliary, just as the specification of a production function is auxiliary to the axiom set HC1/HC5. The simple reason for the introduction of these ILLEGITIMATE auxiliary conditions is that without these specifications, the second axiom “HC2 agents individually optimize subject to constraints” does NOT work, and the WHOLE of marginalism, which hinges alone on HC2, BREAKS DOWN.
You say: “the axioms on the preference sets of agents [are] sufficient for the existence of general equilibrium.”
This is clearly NOT the case. Equilibrium is INTRODUCED with the fifth axiom: “HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” This methodological blunder is known since antiquity as petitio principii.
You say: “None of them [the axioms/conditions] have anything to do with a theory of profit, any theory of profit. Just not a part of it.” Of course not, profit cannot be put into the axioms but has to be DERIVED from them, just like the Pythagorean theorem is DERIVED from the Euclidean axioms.
The point is that the correct profit law/profit theorem #1 FOLLOWS from macrofoundations, i.e., the set of objective/behavior-free/systemic axioms, but NOT from the neo-Walrasian microfoundations. From microfoundations follows NOTHING about profit for the economy as a whole. This is why the Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive” which is the most damning verdict about standard economics. After 200+ years, economists cannot tell what profit is.
The point of axiomatization is that the WHOLE of economics follows consistently from the correct macro axiom set, just like the WHOLE of Euclidean geometry follows from the Euclidean axiom set. The whole of standard economics is false because the neo-Walrasian axioms HC1/HC5 (including all auxiliary conditions) are false. And this is why a paradigm shift is needed.
This is known at least since 1990: “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.)
After you have made a complete fool of yourself, you can now enjoy your retirement.
#1 Graphic AXEC08 The Profit Law
Related 'True macrofoundations: the reset of economics'
This does not only hold for environmental protection but for economic policy IN GENERAL: “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)
The snag is that economists do NOT have the true theory, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational economic concept of profit wrong.
From this follows that economic policy guidance has NEVER had a sound scientific foundation since Adam Smith/Karl Marx. This, in turn, means that the well-meaning advice of economists more often than not WORSENS the situation. Mass unemployment is a case in point. Put bluntly, scientifically incompetent economists are a hazard to their fellow citizens and humanity.
The PRIMARY task of economists is to develop the true economic theory. Economists have failed at this task because they dabbled in all disciplines from psychology, sociology, political sciences, geopolitics, law, history, anthropology, social philosophy, biology/ evolution theory, ethics, philosophy, pedagogy, and ecology, but NEVER managed to define the core concepts of their own discipline properly. #2
The Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive.” (Desai, 2008), and this means that economics is the greatest nuisance in the history of the sciences. Before economics can contribute anything to human welfare or environmental protection, it has to rise above the current proto-scientific level.
Because the foundational concept of profit is axiomatically false, the whole theoretical superstructure is false. Standard economics is built upon microfoundations, that is, upon a set of behavioral axioms. #3
This is methodologically the wrong starting point. Economics has to be macrofounded. The macrofounded Profit Law is shown under the label Graphic. #4 Its implications for economic policy are profound.
You argue: “Non-Pareto optimal dumping of pollution occurs because profit-maximizing firms who do not count their polluting activities as a cost that subtracts from their profits do not have an incentive not to pollute as they seek to maximize their profits.”
This, of course, is trivially true from the myopic micro perspective. But microeconomics is false because it always runs straight into the Fallacy of Composition. For the economy as a whole, it holds as a general rule that total profit does NOT decrease if firms increase environmental protection. If capitalists were indeed a class instead of a bunch of micro-brained morons and think in class terms (as micro-brained Marx falsely claimed they do), they would recognize that pollution does NOT increase overall profit and environmental protection does NOT reduce overall profit. From the macro perspective, environmental protection is no economic problem at all. It is a pseudo-problem that derives ultimately from the scientific incompetence of economists.
What is true for the firm is NOT true for the economy. Microfounded economics is false. The representative economist has not gotten it since Jevons/Walras/Menger, and it is pretty obvious that you will never get this: If it isn’t macro-axiomatized, it isn’t economics.
Egmont Kakarot-Handtke
#1 Wikipedia
#2 Economists: Jacks of all trades ― except economics
#3 “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub) Every model that applies just one of the axioms is false.
#4 Graphic AXEC08 The Profit Law
Related 'Economists ― medics or barber-surgeons?' and 'Note on Barkley Rosser on political/ scientific failure' and 'From the pluralism of false models to the true economic theory' and 'Economic policy guidance NEVER had sound scientific foundations' and 'Economists and the destructive power of stupidity' and 'From false micro to true macro: the new economic paradigm'
***
REPLY 'Game over, Barkley Rosser' on May 2You say: “In #3 you list four axioms that are not necessarily true, although their truth or falsity is also completely independent of accepting or rejecting your vacuous tautology of a theory of profit.”
The axioms HC1/HC5 are ― see the original paper of Weintraub ― the foundations of standard economics from Jevons/Walras/Menger to DSGE, including all textbooks. You may know it or not, but as a standard economist, you are committed to them. Krugman, for one, is very explicit about this: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
The maximization-and-equilibrium world you and all the other cargo cult scientists inhabit is a nowhere world, and every economist who takes the words maximization and equilibrium in his mouth is scientific toast.
You have argued, “optimal dumping of pollution occurs because profit-maximizing firms who do not count their polluting activities as a cost that subtracts from their profits do not have an incentive not to pollute as they seek to maximize their profits.”
Obviously, you subscribe to axiom HC2 = agents individually optimize subject to constraints. Above, you addressed me with: “you list four axioms that are not necessarily true”.
Conclusion: As a standard economist, you are by definition committed to the neo-Walrasian axioms HC1 to HC5; however, you maintain that they “are not necessarily true”. Among persons with more than one brain cell, this is called a contradiction.
The fact is that the neo-Walrasian axiom set HC1/HC5 is methodologically forever unacceptable. Every model that applies just one of the axioms is false. This holds for the ‘normal’ models like supply-demand-equilibrium as well as for models that deal with environmental issues.
Conclusion: ALL neo-classical environmental models are axiomatically false and therefore scientifically worthless.
Your statement “Non-Pareto optimal dumping of pollution occurs because profit-maximizing firms who do not count their polluting activities as a cost that subtracts from their profits …” is trivially true under the CONDITION that one accepts HC2 as a true axiom, which NO scientifically competent person ever will.
Because the microfoundations HC1/HC5 and ALL inferences that follow from them are methodologically forever unacceptable, the whole of economics has to move from false microfoundations to true macrofoundations. This is called a paradigm shift.
From the true macrofoundations follow, among others, the Profit Law and the Employment Law, which are readily testable. #1 So, the only question is: are these objective relationships materially and formally consistent, and NOT AT ALL whether the Profit Law is useful in the discussion about environmental policies. This is as idiotic as the question of whether the Law of Gravity is useful in the discussion about environmental policies.
An economist who takes part in a policy discussion without knowing the macroeconomic Profit Law #1 is a laughing stock, just like a physicist who does not know the Law of Gravity.
Your political agenda-pushing lacks sound scientific foundations.
#1 How to overcome the manifest silliness of Econ 101 and save the economy and How the Intelligent Non-Economist Can Refute Every Economist Hands Down
***
REPLY 'Retire before you are retired' on May 2Imagine, Newton has just published the Law of Gravity, and a man comes to him and says: Isaac, your Law is vacuous and absolutely useless in my molehill research. #1
True, but irrelevant. Just as presenting your academic CV is irrelevant. Your whole argumentation is way off the point; it does NOT prove what you are repetitively asserting.
The salient point is that economists are supposed to explain how the (world-) economy works (= economic universe) and not how the firm works or how the consumer decides between strawberry and blueberry yogurt. These questions can be left to junior consultants and psychologists.
The salient methodological point is that NO way leads from the understanding of human behavior (= microanalysis) to the understanding of the behavior of the economy (= macroanalysis). Partial analysis is NOT generalizable.
The fact is that the subject matter of economics is misspecified: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that, in principle, the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow) #2
This commitment to methodological individualism translates into the neo-Walrasian axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)
From these microfoundations, supply-demand-equilibrium is derived, and then it goes on to General Equilibrium and ends with the welfare theorems. Because methodological individualism is false, the behavioral microfoundations HC1/HC5 are false. Because the axioms are false, General Equilibrium is false, and the welfare theorems go down the toilet.
The WHOLE of standard economics is cargo cult science, and you are part of it. ALL variants of behavioral economics have to be thrown out of economics as dilettantish and utterly useless folk psychology/sociology. Marginalism has been dead for 150+ years, but the representative economist has NOT realized it.
The failure of maximization-and-equilibrium economics means that economic policy guidance NEVER had sound scientific foundations from Adam Smith/Karl Marx, to Barkley Rosser. It’s all political blather in the bluff package of science.
Let this sink in: Molehill economists from Adam Smith/Karl Marx to Barkley Rosser cannot tell how the profit of the economy as a whole is determined. With their utter scientific incompetence, they bear the intellectual responsibility for the social devastation of mass unemployment since the Great Depression ― among others.
Napoleon realized this long ago: “Late in life, moreover, he claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust.” (Viner) #3
So, let us stop listening to Barkley Rosser and his silly molehill buddies and do real scientific work, that is, the paradigm shift.
#1 “There is no doubt a strong tendency to revolt against abstract reasoning. Human nature has a strong ‘factish’ element in it. The reasonings of Principia are now accepted. But in the beginning they were ‘mere crotchets of Mr. Newton’s’” (Bagehot)
#2 How Arrow pushed economics over the cliff
#3 Economists and the destructive power of stupidity
***
REPLY 'Ciao, Barkley Rosser' on May 3You say: “Regarding that set of five axioms that you got from some oddball paper by Roy Weintraub, it simply is not the set of axioms that underlie standard general equilibrium theory, although some of them are part of the set.”
In his paper, Weintraub gave a VERBAL description of the neo-Walrasian axiom set. It has been FORMALIZED in detail by Debreu, Arrow, Hahn, Mas-Colell, et al. The curious thing is that the axioms differ slightly between authors, which only tells us that neoclassical economics is NOT properly axiomatized and that the representative economist does NOT know what the formal foundations of his paradigm are. But you certainly agree that maximization-and-equilibrium is the common core of ALL neoclassical axiom sets. Because these two axioms are false, ALL variants of standard economics are false.
You say: “Pretty obviously you are uninterested in microeconomics.” This is NOT the case. The fact is that I am uninterested in your molehill-Monty-Python economics. My argument is that to start with behavioral axioms and then proceed bottom-up to macro is false. The methodologically correct way is to start with macrofoundations and then proceed top-down. This is what paradigm shift means. #1
You say: “you have airily dismissed, and I think have essentially admitted you have nothing to substantive to say about, namely environmental economics.” The PRIORITY of the economist is to say something SUBSTANTIVE about the ECONOMY. You have failed on the core task, and because of this, your environmental economics is distracting blather. An economist who cannot tell what profit is cannot contribute anything to an economics issue, much less so to any other issue.
You are an economist, but cannot tell what profit is. You are not alone in your abysmal incompetence: “Nor do the modern variants add anything whatever on this score. For Debreu, profits are simply a non-issue, while Arrow and Hahn make only passing reference to profits ― and that only as a historical introduction. Whatever may be the usefulness of these idealized theoretical constructs, they cannot be said to throw any light on the profit issue; surely, therefore, they fail to capture the essence of a capitalist market economy. (Obrinsky, 1981)
You say: “Your theory apparently might help us achieve full employment, although somehow you have never explained exactly how.” Stop blathering, learn to read, and follow the link and the references. #2 Even better, take the remote control, sit down on the couch, and watch sitcoms.
#1 How to finally hammer down the nails in the coffin of Monty Python economics and Essentials of Constructive Heterodoxy: Behavior
#2 How economists murdered the economy and got away with it
***
REPLY 'Yes, it is hard to believe, Barkley Rosser' on May 4I do understand that you cannot accept a refutation, but there is really no need to publicly demonstrate that you have NO idea what axiomatization is all about.
So, just for the record.
I said: “In his paper, Weintraub gave a VERBAL description of the neo-Walrasian axiom set. It has been FORMALIZED in detail by Debreu, Arrow, Hahn, Mas-Colell, et al.”
Weintraub’s first axiom reads: “HC1 economic agents have preferences over outcomes.”
Now you say: “Here are the axioms on the preference sets 1. completeness 2. reflexivity 3. transitivity 4. continuity 5. monotonicity 6. convexity.” This set of CONDITIONS is merely the detailed SPECIFICATION of the notion of PREFERENCES in Weintraub’s axiom HC1.
Your six conditions are auxiliary, just as the specification of a production function is auxiliary to the axiom set HC1/HC5. The simple reason for the introduction of these ILLEGITIMATE auxiliary conditions is that without these specifications, the second axiom “HC2 agents individually optimize subject to constraints” does NOT work, and the WHOLE of marginalism, which hinges alone on HC2, BREAKS DOWN.
You say: “the axioms on the preference sets of agents [are] sufficient for the existence of general equilibrium.”
This is clearly NOT the case. Equilibrium is INTRODUCED with the fifth axiom: “HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” This methodological blunder is known since antiquity as petitio principii.
You say: “None of them [the axioms/conditions] have anything to do with a theory of profit, any theory of profit. Just not a part of it.” Of course not, profit cannot be put into the axioms but has to be DERIVED from them, just like the Pythagorean theorem is DERIVED from the Euclidean axioms.
The point is that the correct profit law/profit theorem #1 FOLLOWS from macrofoundations, i.e., the set of objective/behavior-free/systemic axioms, but NOT from the neo-Walrasian microfoundations. From microfoundations follows NOTHING about profit for the economy as a whole. This is why the Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive” which is the most damning verdict about standard economics. After 200+ years, economists cannot tell what profit is.
The point of axiomatization is that the WHOLE of economics follows consistently from the correct macro axiom set, just like the WHOLE of Euclidean geometry follows from the Euclidean axiom set. The whole of standard economics is false because the neo-Walrasian axioms HC1/HC5 (including all auxiliary conditions) are false. And this is why a paradigm shift is needed.
This is known at least since 1990: “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.)
After you have made a complete fool of yourself, you can now enjoy your retirement.
#1 Graphic AXEC08 The Profit Law
Related 'True macrofoundations: the reset of economics'
December 6, 2015
Scientific Cave men with a daunting message
Comment on Lars Syll on ‘The model of all economic models’
Blog-Reference
Let us call the fatal methodological fault of both orthodox and heterodox economists the social science delusion. The fundamental crux of the social sciences has been identified precisely by Richard Feynman.
“By having a vague theory it is possible to get either result. ... It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (1992, p. 159)
Exactly because of this, there is no such thing as a behavioral axiom. There is no elementary and almost self-evident proposition about human behavior, except that it is target-oriented. However, from this statement follows nothing as long as one cannot ascertain what the target is.
Exactly this is the embarrassment of the so-called social sciences: the vacuous speculation about other peoples’ goals/motives/intentions/hopes/wishes/expectations. For a genuine scientist like Feynman, it is obvious at first glance that this is not the way to scientific knowledge.
From this follows that every economics paper or textbook that contains the words "utility maximization", "profit maximization", "rationality", "bounded rationality", "animal spirits", or "expectation" can be treated in the same way as any yellow-press gossip.
The vacuousness of the constrained optimization axiom, clearly, is not the fault of the axiomatic-deductive method. The success of this method depends on the choice of axioms. The content of every theory resides in the axioms, deduction neither increases or decreases content.
The correct conclusion for a heterodox economist who is worth his scientific salt is therefore that no behavioral proposition whatever can be part of the foundational propositions, aka axioms, of economics. Just because of this, the neoclassical axiom set is forever inadmissible. This crashes uno actu the whole theoretical superstructure from employment to distribution theory (which has always been the worst scientific junk).
The fault of the economist-as-social-scientist, i.e. the sorta-kinda maximization-and-equilibrium guy, is that he subscribes to a research program that has an unsurpassed track record of failure: “... 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)
Certain knowledge about human behavior is impossible, but certain knowledge about the economic system is possible. This, clearly, presupposes a change of the axiomatic foundations of economics. There is no other way to ‘throw over’ Orthodoxy. As Keynes famously put it “Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (1973, p. 16)
As long as the social science delusion prevails economics will be caught in Plato’s proto-scientific Cave with both orthodox and heterodox economists waffling about economic policy without a sound theoretical foundation aka scientific knowledge.
In more than 200 years, economists have not produced scientific knowledge. How can this be? It is because economists are not the most enthusiastic missionaries of knowledge — rather the opposite. “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” (Hayek)
Egmont Kakarot-Handtke
References
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.
Related ‘The Ur-Blunder of economics and its rectification’ and here and 'Austrian idiocy ― the case of Hayek'
Whatever one’s ontology is, as an economist at some point one starts to make statements about how one thinks the economy works, how certain phenomena are related, and what the actual state of the economy is. These statements have to be (i) logically coherent and (ii) in principle directly or indirectly comparable with facts. This is the general characteristic of science as opposed to storytelling.
People never had any difficulty telling stories about the various aspects of reality and how the phenomena fit together and, lo and behold, this has been the easiest thing in the world as all myths and religions testify, and, best of all, this has been quite satisfactory for 99,9 percent of mankind 99,9 percent of historical time.
Non-scientific explanations have the same basic structure: there is an entity beyond normal perception which can do everything and this entity produces the observable phenomena. In economics, this entity is called the Invisible Hand. This type of statement is not logically false if one accepts the premises, but empirically irrefutable. A perfectly rational debate about angels-on-a-pinpoint is possible if one accepts the premise that angels exist. The same holds for the Invisible Hand.
Between science and non-science, there is a large zone of statements that could be true but are neither sufficiently corroborated nor clearly refuted. This is the realm of everyday commonsensical communication.
To say that economics cannot — in principle — satisfy the conditions of logical and material consistency is to say that economics cannot be a science and never rise above storytelling. As a practical consequence, this implies that economics is relabeled as showbiz/ entertainment/politics and that economics professors give back their venia legendi and become talk show hosts or journalists or politicians.
An academic who tells the world that his discipline cannot be a science states a logical paradox like Epimenides’s Cretian Liar. More, a single academic can only speak for himself and by no stretch of the imagination ‘know’ whether his colleagues can produce now or in the future a theory that satisfies the scientific criteria of material and formal consistency. The assertion that economics cannot apply the axiomatic-deductive method because the economy is an open system is, in any case, methodological nonsense. It falls into the same category of logical fallacies as “human beings cannot fly because they are heavier than air.”
G. B. Shaw nicely put it thus: “People who say it cannot be done should not interrupt those who are doing it.”
Addendum (Dec 9)
I would like to complete the statement “The assertion that economics cannot apply the axiomatic-deductive method because the economy is an open system is, in any case, methodological nonsense.” as follows.
The economy is indeed an open system and from this follows that the concept of equilibrium is inapplicable. This concept, though, is one proposition of the neoclassical axiom set (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”).
Therefore: because the economy is an open system, the equilibrium axiom is forever inadmissible and from this follows that the neoclassical axiom set as a whole is inadmissible and this explodes the whole theoretical superstructure of Orthodoxy. And from this follows in turn that all of what Krugman and the other sorta-kinda maximization-and-equilibrium wannabe scientists have ever peer-reviewed published is scientific junk.
The application of the axiomatic-deductive method is the very precondition for the refutation of Orthodoxy. From the fact that the economy is an open system follows that the equilibrium axiom is false and not that the axiomatic-deductive method is inapplicable in economics. That is the methodological nonsense many heterodox economists are still stuck with.
Immediately following Neither impressive nor hopeful
Blog-Reference
Let us call the fatal methodological fault of both orthodox and heterodox economists the social science delusion. The fundamental crux of the social sciences has been identified precisely by Richard Feynman.
“By having a vague theory it is possible to get either result. ... It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (1992, p. 159)
Exactly because of this, there is no such thing as a behavioral axiom. There is no elementary and almost self-evident proposition about human behavior, except that it is target-oriented. However, from this statement follows nothing as long as one cannot ascertain what the target is.
Exactly this is the embarrassment of the so-called social sciences: the vacuous speculation about other peoples’ goals/motives/intentions/hopes/wishes/expectations. For a genuine scientist like Feynman, it is obvious at first glance that this is not the way to scientific knowledge.
From this follows that every economics paper or textbook that contains the words "utility maximization", "profit maximization", "rationality", "bounded rationality", "animal spirits", or "expectation" can be treated in the same way as any yellow-press gossip.
The vacuousness of the constrained optimization axiom, clearly, is not the fault of the axiomatic-deductive method. The success of this method depends on the choice of axioms. The content of every theory resides in the axioms, deduction neither increases or decreases content.
The correct conclusion for a heterodox economist who is worth his scientific salt is therefore that no behavioral proposition whatever can be part of the foundational propositions, aka axioms, of economics. Just because of this, the neoclassical axiom set is forever inadmissible. This crashes uno actu the whole theoretical superstructure from employment to distribution theory (which has always been the worst scientific junk).
The fault of the economist-as-social-scientist, i.e. the sorta-kinda maximization-and-equilibrium guy, is that he subscribes to a research program that has an unsurpassed track record of failure: “... 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)
Certain knowledge about human behavior is impossible, but certain knowledge about the economic system is possible. This, clearly, presupposes a change of the axiomatic foundations of economics. There is no other way to ‘throw over’ Orthodoxy. As Keynes famously put it “Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (1973, p. 16)
As long as the social science delusion prevails economics will be caught in Plato’s proto-scientific Cave with both orthodox and heterodox economists waffling about economic policy without a sound theoretical foundation aka scientific knowledge.
In more than 200 years, economists have not produced scientific knowledge. How can this be? It is because economists are not the most enthusiastic missionaries of knowledge — rather the opposite. “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” (Hayek)
Egmont Kakarot-Handtke
References
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.
Related ‘The Ur-Blunder of economics and its rectification’ and here and 'Austrian idiocy ― the case of Hayek'
***
ICYMI (Dec 8)Whatever one’s ontology is, as an economist at some point one starts to make statements about how one thinks the economy works, how certain phenomena are related, and what the actual state of the economy is. These statements have to be (i) logically coherent and (ii) in principle directly or indirectly comparable with facts. This is the general characteristic of science as opposed to storytelling.
People never had any difficulty telling stories about the various aspects of reality and how the phenomena fit together and, lo and behold, this has been the easiest thing in the world as all myths and religions testify, and, best of all, this has been quite satisfactory for 99,9 percent of mankind 99,9 percent of historical time.
Non-scientific explanations have the same basic structure: there is an entity beyond normal perception which can do everything and this entity produces the observable phenomena. In economics, this entity is called the Invisible Hand. This type of statement is not logically false if one accepts the premises, but empirically irrefutable. A perfectly rational debate about angels-on-a-pinpoint is possible if one accepts the premise that angels exist. The same holds for the Invisible Hand.
Between science and non-science, there is a large zone of statements that could be true but are neither sufficiently corroborated nor clearly refuted. This is the realm of everyday commonsensical communication.
To say that economics cannot — in principle — satisfy the conditions of logical and material consistency is to say that economics cannot be a science and never rise above storytelling. As a practical consequence, this implies that economics is relabeled as showbiz/ entertainment/politics and that economics professors give back their venia legendi and become talk show hosts or journalists or politicians.
An academic who tells the world that his discipline cannot be a science states a logical paradox like Epimenides’s Cretian Liar. More, a single academic can only speak for himself and by no stretch of the imagination ‘know’ whether his colleagues can produce now or in the future a theory that satisfies the scientific criteria of material and formal consistency. The assertion that economics cannot apply the axiomatic-deductive method because the economy is an open system is, in any case, methodological nonsense. It falls into the same category of logical fallacies as “human beings cannot fly because they are heavier than air.”
G. B. Shaw nicely put it thus: “People who say it cannot be done should not interrupt those who are doing it.”
***
Addendum (Dec 9)
I would like to complete the statement “The assertion that economics cannot apply the axiomatic-deductive method because the economy is an open system is, in any case, methodological nonsense.” as follows.
The economy is indeed an open system and from this follows that the concept of equilibrium is inapplicable. This concept, though, is one proposition of the neoclassical axiom set (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”).
Therefore: because the economy is an open system, the equilibrium axiom is forever inadmissible and from this follows that the neoclassical axiom set as a whole is inadmissible and this explodes the whole theoretical superstructure of Orthodoxy. And from this follows in turn that all of what Krugman and the other sorta-kinda maximization-and-equilibrium wannabe scientists have ever peer-reviewed published is scientific junk.
The application of the axiomatic-deductive method is the very precondition for the refutation of Orthodoxy. From the fact that the economy is an open system follows that the equilibrium axiom is false and not that the axiomatic-deductive method is inapplicable in economics. That is the methodological nonsense many heterodox economists are still stuck with.
Immediately following Neither impressive nor hopeful
December 30, 2014
Still in the woods
Comment Lars Syll on 'Proper use of math in economics'
Blog-Reference
In my post of Dec 22, I introduced the Prophets of Preemptive Vanitization. More often than not, these prophets populate the social sciences, and from all theorems that have ever been developed in mathematics or physics, the impossibility theorems are closest to their hearts because they are equally good for both inhibition and excuse.
So, one cannot mention the word axiom in the social sciences without the Pavlovian reflex: Oh, you know, Gödel has proved that a complete and consistent set of axioms is impossible (see Wikipedia). Yes, and now? Is Newtonian physics wrong because the Euclidean axioms are incomplete? And, by the way, one can always expand a set of axioms if necessary, so Gödel is not of practical concern at all outside mathematics.
For a snail, it is irrelevant that it cannot, in principle, surpass the speed of light. By the same token, are the impossibility theorems from cutting-edge physics and logic irrelevant to economic methodology? By no stretch of the imagination can Gödel's proof be used to argue against axiomatization. Heterodox economists could know this from one of the great heterodox economists.
“Lest this position is misinterpreted again by some casual reader, let me repeat that my point is not that arithmetization [= axiomatization] of science is undesirable. Whenever arithmetization can be worked out, its merits are above all words of praise. My point is that wholesale arithmetization is impossible, that there is valid knowledge even without arithmetization, and that mock arithmetization is dangerous if peddled as genuine.” (Georgescu-Roegen, 1971, p. 15)
We can easily agree on this. Thus, to argue against axiomatization amounts for all practical purposes to the conservation of manifest logical and conceptual defects in the theoretical edifice of economics. And there are many of them. Economists are known as sloppy thinkers.
“The truth is, most persons, not excepting professional economists, are satisfied with very hazy notions.” (Fisher, quoted in Mirowski, 1995, p. 86)
This goes some way in explaining the secular stagnation of economics. “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)
The arguments of the Prophets of Preemptive Vanitization against axiomatization have always been far off the mark. Axiomatization is a very effective tool, and the fact that it is not exactly 100 percent effective is no argument against it. How effective is the Verstehen of the so-called social sciences?
This said, my key argument is not so much methodological but indeed very practical. In order to replace the neoclassical approach, which is axiomatized, Heterodoxy must replace the axiomatic foundations of neoclassical theory. Hence, there is no urgent need to discuss axiomatization in the abstract. According to well-established scientific practice, there is no other 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)
And each theory is built upon some clearly stated premises. It is as straightforward as this.
“When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Resume of Aristotle's Analytica).
It has often been argued that scientists do not proceed axiomatically in their research. This, of course, is well-known in the history of science. But clearly, the moment they apply some piece of mathematics, they do so indirectly. And in the end, the whole theoretical edifice must be logically coherent. This goes without saying.
“I am of the opinion that, certainly, for the purposes of research it is always necessary to combine the intuition with the axioms.” (Felix Klein, quoted in Weintraub, 2002, p. 25), see also (2013, Sec. 6).
From the fact that physics is not completely axiomatized at the moment does not logically follow that economics cannot or should not be axiomatized.
“Some day, when physics is complete and we know all the laws, we may be able to start with some axioms, and no doubt somebody will figure out a particular way of doing it so that everything else can be deduced.” (Feynman, 1992, p. 50)
Asad Zaman correctly remarks that all methodology, in the end, boils down to empirical testing: “For example, Egmont keeps arguing that his axiomatization is better than others, and that others are wrong while his is correct. To me, it seems that this requires demonstration on practical grounds ...”
This, indeed, is the all-decisive argument.
As it happens, this argument has already been answered on this blog and elsewhere. For example, see my comment 'Going beyond error and distortion' of Dec 12.
In this comment, I have refuted the Keynesian I=S and presented the correct formula, which is testable. See also my refutation of Keen's profit theory (2013). The fact of the matter is that all logical implications of the structural axiom set are testable because the axioms contain only measurable variables. And this is why structural axioms are methodologically superior to the behavioral axioms of Orthodoxy.
To answer Asad Zaman's key argument, there are as many testable propositions available as one could wish. See the working papers on SSRN.
See also the comment of Dec 21 above: “If anybody thinks that the structural axiom set is false, he is invited to refute one proposition that follows deductively from it.”
From the structural axioms follows the Profit Law. And this makes it possible to empirically refute other approaches, e.g., (2011).
My claim is that the objective-structural axiom set is superior to the familiar formal starting points of economic analysis. This claim is open to scrutiny according to the criteria of formal and material consistency. One is not obligated to apply the structural axiom set provided one already possesses the correct formal foundations, which is improbable given the unacceptable state of orthodox and heterodox economics.
Axiomatization means clarity. As self-defined social scientists, economists traditionally prefer the twilight zone where “.. nothing is clear and everything is possible.” (Keynes, 1973, p. 292). And after they have muddled everything up to the point of inconclusiveness, they invariably excuse the mess with the complexity of the subject matter. This has already gone on for a while. Here we have Duhem-Quine:
“Knight accuses the positivists of overlooking the complexity and uncertainty of testing in all sciences and argues at length that positivist views of science are particularly inappropriate to economics, which, like all sciences of human action, must concern itself with reasons, motives, values, and errors, not just causes and regularities.” (Hausman, 1989, p. 118)
Concerning methodology, Asad Zaman stands firmly in the neoclassical tradition.
“Post-Kuhnian understanding of science and axiomatics is rather complex, with no obvious and simple theory of knowledge attached.”
After Kuhn's schematic account of a paradigm shift, the Prophets of Preemptive Vanitization tried hard to get back into their natural habitat, the twilight zone of human all too human messiness. However, nobody needs a theory of knowledge to convince themselves that BOTH Orthodoxy and Heterodoxy do not satisfy scientific standards.
It is not a big issue when Asad Zaman does not understand the merits and chances of axiomatization. It is, though, of utmost importance that he refrains from silly statements like: “The failure of economics is due to the use of the axiomatic method,” or, even worse: “Thus, any axiomatization can only make a LIMITED set of claims. For example, Egmont’s axioms may provide an explanation for the role of money, but have nothing to say about the global financial crisis. Indeed, since so far the best explanation come from behavioral finance, while Egmont’s axioms bypass behavior, it would seem that his axiom CANNOT say anything about this crisis.”
This looks pretty much like an impossibility assertion out of thin air. It is obvious that Asad Zaman prefers to stay in the woods of psychology and sociology. This personal decision has to be accepted. But it cannot be accepted that he ignores facts. These are:
(i) From the fact that behavioral assumptions (like utility maximization) are denied the status of an axiom does not logically follow that no behavioral assumptions can be applied. Just the contrary: structural axiomatization is compatible with ANY behavioral assumption, that is, it is fully compatible with behavioral finance.
(ii) From the structural axiom set, indeed, follows quite a lot about financial crises. For those who can read and think, it is all on SSRN.
Asad Zaman is right, axiomatization makes only limited claims ― grandiose vacuousness is left to the so-called social sciences ― yet these claims are as certain as can be. The first important result of structural axiomatization is:
Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionalists, nor Monetary Economists, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor Econophysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Hence, they fail to capture the essence of a capitalist market economy.
In its present state, Heterodoxy is unacceptable according to scientific criteria. The options are: move on or move out.
Egmont Kakarot-Handtke
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. (1971). The Entropy Law and the Economic Process. Cambridge: Cambridge University Press.
Hausman, D. M. (1989). Economic Methodology in a Nutshell. Journal of Economic Perspectives, 3(2): 115–127. URL
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–15. URL
Kakarot-Handtke, E. (2013a). Crisis and Methodology: Some Heterodox Misunderstandings. SSRN Working Paper Series, 2083519: 1–25. URL
Kakarot-Handtke, E. (2013b). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. 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.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
Blog-Reference
In my post of Dec 22, I introduced the Prophets of Preemptive Vanitization. More often than not, these prophets populate the social sciences, and from all theorems that have ever been developed in mathematics or physics, the impossibility theorems are closest to their hearts because they are equally good for both inhibition and excuse.
So, one cannot mention the word axiom in the social sciences without the Pavlovian reflex: Oh, you know, Gödel has proved that a complete and consistent set of axioms is impossible (see Wikipedia). Yes, and now? Is Newtonian physics wrong because the Euclidean axioms are incomplete? And, by the way, one can always expand a set of axioms if necessary, so Gödel is not of practical concern at all outside mathematics.
For a snail, it is irrelevant that it cannot, in principle, surpass the speed of light. By the same token, are the impossibility theorems from cutting-edge physics and logic irrelevant to economic methodology? By no stretch of the imagination can Gödel's proof be used to argue against axiomatization. Heterodox economists could know this from one of the great heterodox economists.
“Lest this position is misinterpreted again by some casual reader, let me repeat that my point is not that arithmetization [= axiomatization] of science is undesirable. Whenever arithmetization can be worked out, its merits are above all words of praise. My point is that wholesale arithmetization is impossible, that there is valid knowledge even without arithmetization, and that mock arithmetization is dangerous if peddled as genuine.” (Georgescu-Roegen, 1971, p. 15)
We can easily agree on this. Thus, to argue against axiomatization amounts for all practical purposes to the conservation of manifest logical and conceptual defects in the theoretical edifice of economics. And there are many of them. Economists are known as sloppy thinkers.
“The truth is, most persons, not excepting professional economists, are satisfied with very hazy notions.” (Fisher, quoted in Mirowski, 1995, p. 86)
This goes some way in explaining the secular stagnation of economics. “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)
The arguments of the Prophets of Preemptive Vanitization against axiomatization have always been far off the mark. Axiomatization is a very effective tool, and the fact that it is not exactly 100 percent effective is no argument against it. How effective is the Verstehen of the so-called social sciences?
This said, my key argument is not so much methodological but indeed very practical. In order to replace the neoclassical approach, which is axiomatized, Heterodoxy must replace the axiomatic foundations of neoclassical theory. Hence, there is no urgent need to discuss axiomatization in the abstract. According to well-established scientific practice, there is no other 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)
And each theory is built upon some clearly stated premises. It is as straightforward as this.
“When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Resume of Aristotle's Analytica).
It has often been argued that scientists do not proceed axiomatically in their research. This, of course, is well-known in the history of science. But clearly, the moment they apply some piece of mathematics, they do so indirectly. And in the end, the whole theoretical edifice must be logically coherent. This goes without saying.
“I am of the opinion that, certainly, for the purposes of research it is always necessary to combine the intuition with the axioms.” (Felix Klein, quoted in Weintraub, 2002, p. 25), see also (2013, Sec. 6).
From the fact that physics is not completely axiomatized at the moment does not logically follow that economics cannot or should not be axiomatized.
“Some day, when physics is complete and we know all the laws, we may be able to start with some axioms, and no doubt somebody will figure out a particular way of doing it so that everything else can be deduced.” (Feynman, 1992, p. 50)
Asad Zaman correctly remarks that all methodology, in the end, boils down to empirical testing: “For example, Egmont keeps arguing that his axiomatization is better than others, and that others are wrong while his is correct. To me, it seems that this requires demonstration on practical grounds ...”
This, indeed, is the all-decisive argument.
As it happens, this argument has already been answered on this blog and elsewhere. For example, see my comment 'Going beyond error and distortion' of Dec 12.
In this comment, I have refuted the Keynesian I=S and presented the correct formula, which is testable. See also my refutation of Keen's profit theory (2013). The fact of the matter is that all logical implications of the structural axiom set are testable because the axioms contain only measurable variables. And this is why structural axioms are methodologically superior to the behavioral axioms of Orthodoxy.
To answer Asad Zaman's key argument, there are as many testable propositions available as one could wish. See the working papers on SSRN.
See also the comment of Dec 21 above: “If anybody thinks that the structural axiom set is false, he is invited to refute one proposition that follows deductively from it.”
From the structural axioms follows the Profit Law. And this makes it possible to empirically refute other approaches, e.g., (2011).
My claim is that the objective-structural axiom set is superior to the familiar formal starting points of economic analysis. This claim is open to scrutiny according to the criteria of formal and material consistency. One is not obligated to apply the structural axiom set provided one already possesses the correct formal foundations, which is improbable given the unacceptable state of orthodox and heterodox economics.
Axiomatization means clarity. As self-defined social scientists, economists traditionally prefer the twilight zone where “.. nothing is clear and everything is possible.” (Keynes, 1973, p. 292). And after they have muddled everything up to the point of inconclusiveness, they invariably excuse the mess with the complexity of the subject matter. This has already gone on for a while. Here we have Duhem-Quine:
“Knight accuses the positivists of overlooking the complexity and uncertainty of testing in all sciences and argues at length that positivist views of science are particularly inappropriate to economics, which, like all sciences of human action, must concern itself with reasons, motives, values, and errors, not just causes and regularities.” (Hausman, 1989, p. 118)
Concerning methodology, Asad Zaman stands firmly in the neoclassical tradition.
“Post-Kuhnian understanding of science and axiomatics is rather complex, with no obvious and simple theory of knowledge attached.”
After Kuhn's schematic account of a paradigm shift, the Prophets of Preemptive Vanitization tried hard to get back into their natural habitat, the twilight zone of human all too human messiness. However, nobody needs a theory of knowledge to convince themselves that BOTH Orthodoxy and Heterodoxy do not satisfy scientific standards.
It is not a big issue when Asad Zaman does not understand the merits and chances of axiomatization. It is, though, of utmost importance that he refrains from silly statements like: “The failure of economics is due to the use of the axiomatic method,” or, even worse: “Thus, any axiomatization can only make a LIMITED set of claims. For example, Egmont’s axioms may provide an explanation for the role of money, but have nothing to say about the global financial crisis. Indeed, since so far the best explanation come from behavioral finance, while Egmont’s axioms bypass behavior, it would seem that his axiom CANNOT say anything about this crisis.”
This looks pretty much like an impossibility assertion out of thin air. It is obvious that Asad Zaman prefers to stay in the woods of psychology and sociology. This personal decision has to be accepted. But it cannot be accepted that he ignores facts. These are:
(i) From the fact that behavioral assumptions (like utility maximization) are denied the status of an axiom does not logically follow that no behavioral assumptions can be applied. Just the contrary: structural axiomatization is compatible with ANY behavioral assumption, that is, it is fully compatible with behavioral finance.
(ii) From the structural axiom set, indeed, follows quite a lot about financial crises. For those who can read and think, it is all on SSRN.
Asad Zaman is right, axiomatization makes only limited claims ― grandiose vacuousness is left to the so-called social sciences ― yet these claims are as certain as can be. The first important result of structural axiomatization is:
Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionalists, nor Monetary Economists, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor Econophysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Hence, they fail to capture the essence of a capitalist market economy.
In its present state, Heterodoxy is unacceptable according to scientific criteria. The options are: move on or move out.
Egmont Kakarot-Handtke
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. (1971). The Entropy Law and the Economic Process. Cambridge: Cambridge University Press.
Hausman, D. M. (1989). Economic Methodology in a Nutshell. Journal of Economic Perspectives, 3(2): 115–127. URL
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–15. URL
Kakarot-Handtke, E. (2013a). Crisis and Methodology: Some Heterodox Misunderstandings. SSRN Working Paper Series, 2083519: 1–25. URL
Kakarot-Handtke, E. (2013b). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. 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.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
***
Twitter/X May 7, 2026 Why Gödel is irrelevant for economics
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