Showing posts sorted by relevance for query label:Behavior. Sort by date Show all posts
Showing posts sorted by relevance for query label:Behavior. Sort by date Show all posts
April 3, 2010
November 29, 2025
Occasional X: Clueless economists / Equilibrium (I)
#Economics#AllYouNeedToKnow
— AXEC (@EgmontHandtke) November 29, 2025
“A guide for students of economics: Ten statements that demonstrate that someone does not understand modern economics or what an equilibrium is, and that you can safely ignore everything else they say.” (Jesús Fernández-Villaverde)
Modern economics… pic.twitter.com/pPEth72wCc
For more about equilibrium, see AXECquery.
September 30, 2021
Occasional Tweets: High time to finally bury von Mises
von Mises: “In the imaginary construction of a stationary economy the total sum of all entrepreneurs’ profit equals the total sum of all entrepreneurs’ losses.”
— E.K-H (@AXECorg) September 30, 2021
This is provably false. von Mises never understood #Profit. That's lethal for an #Economist.⇒https://t.co/9OOvd2cAqJ
For more about von Mises, see AXECquery.
October 4, 2023
Occasional Xs: Clueless economists / Science (II)
#Econ#FailedFakeScience#Economics is about how the #Economy works. It is a #SystemsScience & NOT a #SocialScience i.e. NOT AT ALL about #HumanNature / #Motives / #Behavior / #Choice / #Incentives / #Expectations / #Rationality etc. Cross-ref ⇒https://t.co/qp0nGQdvVh
— E.K-H (@AXECorg) October 4, 2023
March 8, 2016
Economics and the social science delusion
Comment on Maria Alejandra Madi on ‘The formal and the substantive meanings of “economics”’
Blog-Reference
Economics is a failed science. This means more specifically: Orthodoxy has failed to produce anything of real scientific value and Heterodoxy has failed to develop a superior alternative.
Quite naturally, there are many ideas about causes and cures “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)
Let us face reality: economists have proven their scientific incompetence over more than 200 years and have no clue about how to proceed. Until this day, the representative economist cannot tell what profit is and what the essential difference between profit and income is and what this means for growth/boom/bust.
Since Adam Smith, economics claims to be a science. It started as a mixture of sociology and political science: “The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, ...” (Mill, 1874, V.39)
Right from the beginning, economists saw themselves as agenda pushers for some greater good and science as a means to that end. The idea of pure science, i.e. the free and independent pursuit of knowledge, never occurred to these storytellers and propagandists.
With the Marginalists, the focus shifted to methodological individualism and economics became a mixture of dilettantish psychology, sociology, and political science.
The red thread of the history of economic thought is that both orthodox and heterodox economists regarded economics as a social science. This is why they both failed.
Economics is NOT a science of individual/social/political behavior — this is the social science delusion — but of the behavior of the monetary economy. All Human-Nature issues are the subject matter of other disciplines (psychology, sociology, anthropology, biology/ Darwinism, political science, social philosophy, history, etcetera) and are taken in from these by way of multi-disciplinary cooperation.
The contributions of sociologists/historians/etc are valuable for economics but social scientists are, strictly speaking, out of economics. Economists have to answer the question of how the monetary economy works. Until now they cannot even answer the question of what profit is (2015). And, of course, Karl Polanyi cannot answer it either.
Egmont Kakarot-Handtke
References
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
Kakarot-Handtke, E. (2015). How the Intelligent Non-Economist Can Refute Every Economist Hands Down. SSRN Working Paper Series, 2705395: 1–6. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL
Related 'Economists’ three-layered scientific incompetence' and 'The happy end of the social science delusion' and 'The Science-of-Man fallacy' and 'Why economists have not been effective in economics' and 'The irrelevance of populism for economics' and 'Fact of life: your econ prof is scientifically incompetent'. For details of the big picture see cross-references Not a Science of Behavior.
Blog-Reference
Economics is a failed science. This means more specifically: Orthodoxy has failed to produce anything of real scientific value and Heterodoxy has failed to develop a superior alternative.
Quite naturally, there are many ideas about causes and cures “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)
Let us face reality: economists have proven their scientific incompetence over more than 200 years and have no clue about how to proceed. Until this day, the representative economist cannot tell what profit is and what the essential difference between profit and income is and what this means for growth/boom/bust.
Since Adam Smith, economics claims to be a science. It started as a mixture of sociology and political science: “The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, ...” (Mill, 1874, V.39)
Right from the beginning, economists saw themselves as agenda pushers for some greater good and science as a means to that end. The idea of pure science, i.e. the free and independent pursuit of knowledge, never occurred to these storytellers and propagandists.
With the Marginalists, the focus shifted to methodological individualism and economics became a mixture of dilettantish psychology, sociology, and political science.
The red thread of the history of economic thought is that both orthodox and heterodox economists regarded economics as a social science. This is why they both failed.
Economics is NOT a science of individual/social/political behavior — this is the social science delusion — but of the behavior of the monetary economy. All Human-Nature issues are the subject matter of other disciplines (psychology, sociology, anthropology, biology/ Darwinism, political science, social philosophy, history, etcetera) and are taken in from these by way of multi-disciplinary cooperation.
The contributions of sociologists/historians/etc are valuable for economics but social scientists are, strictly speaking, out of economics. Economists have to answer the question of how the monetary economy works. Until now they cannot even answer the question of what profit is (2015). And, of course, Karl Polanyi cannot answer it either.
Egmont Kakarot-Handtke
References
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
Kakarot-Handtke, E. (2015). How the Intelligent Non-Economist Can Refute Every Economist Hands Down. SSRN Working Paper Series, 2705395: 1–6. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL
Related 'Economists’ three-layered scientific incompetence' and 'The happy end of the social science delusion' and 'The Science-of-Man fallacy' and 'Why economists have not been effective in economics' and 'The irrelevance of populism for economics' and 'Fact of life: your econ prof is scientifically incompetent'. For details of the big picture see cross-references Not a Science of Behavior.
September 18, 2015
How to start off on the right foot
Comment on Bill Mitchell on ‘When one false starting premise leads to progressive confusion’
Blog-Reference
You say “... a current article ... shows that if one starts from a wrong premise the conclusions will lead one astray no matter how noble the intentions are. Progressives have to get the basics of macroeconomics correct before they launch into critiques of this and that.” (See intro)
This, indeed, is the crucial point of all of theoretical economics and, in turn, becomes the precondition of economic policy: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)
Successful economic policy critically depends on the correct economic theory and the whole theoretical superstructure ultimately hinges on a handful of foundational premises. As you say, wrong premises lead straight away to utter confusion (see also 2013).
In order to avoid the Garbage-in-Garbage-out Fallacy, the most important task of the economist is to see to it that his premises are true. And this is what the great methodologist and economist J. S. Mill has told his utterly disoriented fellows.
“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)
Standard economics has been built upon wrong premises and it is pretty obvious by now that it is a failed approach. Every economic analysis must start with the definition of the objective structure of the monetary economy because it is this structure, a.k.a. reality, that determines the outcome of individual and collective human action (2014). The monetary economy is the meta-context of every partial analysis.
Standard economics starts with the behavioral assumption of constrained optimization and this means getting off on the wrong foot. MMT starts with the objective structure of the monetary economy. This, clearly, is the right foot. However, what is still missing is an explicit and formally consistent definition of the set of foundational propositions that constitutes the new approach.
This task is of overriding importance. As you say: “You can see that if you start off with a false premise ... how quickly one descends into a flawed analysis.” Or, as J. S. Mill and the methodologists of all times have said: mind your axioms. The representative economist never got this crucial point.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
Related 'Modern Moronomic Theory'
For details of the big picture see cross-references Axiomatization
Blog-Reference
You say “... a current article ... shows that if one starts from a wrong premise the conclusions will lead one astray no matter how noble the intentions are. Progressives have to get the basics of macroeconomics correct before they launch into critiques of this and that.” (See intro)
This, indeed, is the crucial point of all of theoretical economics and, in turn, becomes the precondition of economic policy: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)
Successful economic policy critically depends on the correct economic theory and the whole theoretical superstructure ultimately hinges on a handful of foundational premises. As you say, wrong premises lead straight away to utter confusion (see also 2013).
In order to avoid the Garbage-in-Garbage-out Fallacy, the most important task of the economist is to see to it that his premises are true. And this is what the great methodologist and economist J. S. Mill has told his utterly disoriented fellows.
“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)
Standard economics has been built upon wrong premises and it is pretty obvious by now that it is a failed approach. Every economic analysis must start with the definition of the objective structure of the monetary economy because it is this structure, a.k.a. reality, that determines the outcome of individual and collective human action (2014). The monetary economy is the meta-context of every partial analysis.
Standard economics starts with the behavioral assumption of constrained optimization and this means getting off on the wrong foot. MMT starts with the objective structure of the monetary economy. This, clearly, is the right foot. However, what is still missing is an explicit and formally consistent definition of the set of foundational propositions that constitutes the new approach.
This task is of overriding importance. As you say: “You can see that if you start off with a false premise ... how quickly one descends into a flawed analysis.” Or, as J. S. Mill and the methodologists of all times have said: mind your axioms. The representative economist never got this crucial point.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
Related 'Modern Moronomic Theory'
For details of the big picture see cross-references Axiomatization
March 3, 2015
Complexity, scientific incompetence, and the art of asking the right questions
Comment on Peter Radford on ‘Economic Ignorance?’
Blog-Reference
Peter Radford arrived at the following insight: “Economies are devilishly complicated things. They are full of obstreperous and notoriously difficult subject matter. Notably people. And people, as we all know, do the darnedest things. They, for instance, change their minds and sometimes even contradict themselves — with a straight face too. This makes plotting and explaining their activity very hard.” (see intro)
Since Newton's and Adam Smith's days, when economists ask themselves why they have failed in both relative and absolute terms, one invariably hears the same complexity-uncertainty-hard-stuff refrain.
“There is a property common to almost all the moral sciences, and by which they are distinguished from many of the physical; this is, that it is seldom in our power to make experiments in them. ... We therefore study nature under circumstances of great disadvantage in these sciences; being confined to the limited number of experiments which take place (if we may so speak) of their own accord, without any preparation or management of ours; in circumstances, moreover, of great complexity, and never perfectly known to us; and with the far greater part of the processes concealed from our observation.” (J. S. Mill, 1874, V.51)
Or: “Years ago I heard Mr. Cobden say at a League Meeting that ‘Political Economy was the highest study of the human mind, for that the physical sciences required by no means so hard an effort.’” (Bagehot, 1885, PE. 13)
Or: “The motives and conditions are so numerous and complicated, that the resulting actions have the appearance of caprice, and are beyond the analytic powers of science.” (Jevons, 1911, p. 15)
Or: “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)
Or: “Economics is a strange sort of discipline. ... 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, pp. x-xi)
We know from the history of science that Ptolemy's theory of planetary motion was very complex — in the end, he dealt with more than 20 epicycles — and that the complexity vanished completely when the vantage point changed. Could it be that complexity is not in the subject matter but in the observer's mind? Could it be that economists observe and argue, like Ptolemy, from the wrong vantage point?
“Others, the inexperienced students, make guesses that are very complicated, and it sort of looks as if it is all right, but I know it is not true because the truth always turns out to be simpler than you thought.” (Feynman, 1992, p. 171)
Could complexity simply be an indicator of dilettantism or confusion?
Imagine for a moment an aircraft flying from, say, New York to Paris. Now we can ask why. One way to answer the question is to speculate about the motives and reasons of the passengers, the pilot, the crew, the flight controllers, and the greedy managers and stockholders of the airline. The other way to look at flight is to think about the laws of aerodynamics, thermodynamics, and so forth.
We could know in advance that there is no such thing as ‘laws’ of human behavior that could explain flying, not to speak of a particular flight. Real scientists have always been well aware of this.
“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)
Hume and Adam Smith, though, missed this crucial methodological point and subscribed to the primacy of what was called the Science of Man.
“It is evident, that all the sciences have a relation, greater or less, to human nature: and that however wide any of them may seem to run from it, they still return back by one passage or another. Even. Mathematics, Natural Philosophy, and Natural Religion, are in some measure dependent on the science of MAN; since the lie under the cognizance of men, and are judged of by their powers and faculties.” (Hume, 2012, Introduction), original upper-case
By anchoring economics firmly in the social sciences, Hume and Smith set the discipline on the wrong track and programmed failure: “...there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman, 1992, p. 320), see also (Rosenberg, 1980, pp. 2-3)
Ergo: economics is not a science of behavior (Hudík, 2011); economists have to change their vantage point; economics has to be redefined. Note well that all this has nothing to do with the manifest misapplication of mathematics in standard economics.
Old definition, subjective-behavioral: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
New definition, objective-structural: “Economics is the science that studies how the monetary economy works.”
In non-technical terms, this is what a Paradigm Shift, a.k.a. new economic thinking, is all about.
Egmont Kakarot-Handtke
References
Bagehot, W. (1885). The Postulates of English Political Economy. Library of Economics and Liberty. URL
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hausman, D. M. (1989). Economic Methodology in a Nutshell. Journal of Economic Perspectives, 3(2): 115–127. URL
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Hume, D. (2012). A Treatise of Human Nature. Project Gutenberg EBook. URL
Jevons, W. S. (1911). The Theory of Political Economy. London, Bombay, etc.: Macmillan, 4th edition. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL
Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.
Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The Academic Scribblers. Princeton: Princeton University Press, 3rd edition.
Blog-Reference
Peter Radford arrived at the following insight: “Economies are devilishly complicated things. They are full of obstreperous and notoriously difficult subject matter. Notably people. And people, as we all know, do the darnedest things. They, for instance, change their minds and sometimes even contradict themselves — with a straight face too. This makes plotting and explaining their activity very hard.” (see intro)
Since Newton's and Adam Smith's days, when economists ask themselves why they have failed in both relative and absolute terms, one invariably hears the same complexity-uncertainty-hard-stuff refrain.
“There is a property common to almost all the moral sciences, and by which they are distinguished from many of the physical; this is, that it is seldom in our power to make experiments in them. ... We therefore study nature under circumstances of great disadvantage in these sciences; being confined to the limited number of experiments which take place (if we may so speak) of their own accord, without any preparation or management of ours; in circumstances, moreover, of great complexity, and never perfectly known to us; and with the far greater part of the processes concealed from our observation.” (J. S. Mill, 1874, V.51)
Or: “Years ago I heard Mr. Cobden say at a League Meeting that ‘Political Economy was the highest study of the human mind, for that the physical sciences required by no means so hard an effort.’” (Bagehot, 1885, PE. 13)
Or: “The motives and conditions are so numerous and complicated, that the resulting actions have the appearance of caprice, and are beyond the analytic powers of science.” (Jevons, 1911, p. 15)
Or: “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)
Or: “Economics is a strange sort of discipline. ... 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, pp. x-xi)
We know from the history of science that Ptolemy's theory of planetary motion was very complex — in the end, he dealt with more than 20 epicycles — and that the complexity vanished completely when the vantage point changed. Could it be that complexity is not in the subject matter but in the observer's mind? Could it be that economists observe and argue, like Ptolemy, from the wrong vantage point?
“Others, the inexperienced students, make guesses that are very complicated, and it sort of looks as if it is all right, but I know it is not true because the truth always turns out to be simpler than you thought.” (Feynman, 1992, p. 171)
Could complexity simply be an indicator of dilettantism or confusion?
Imagine for a moment an aircraft flying from, say, New York to Paris. Now we can ask why. One way to answer the question is to speculate about the motives and reasons of the passengers, the pilot, the crew, the flight controllers, and the greedy managers and stockholders of the airline. The other way to look at flight is to think about the laws of aerodynamics, thermodynamics, and so forth.
We could know in advance that there is no such thing as ‘laws’ of human behavior that could explain flying, not to speak of a particular flight. Real scientists have always been well aware of this.
“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)
Hume and Adam Smith, though, missed this crucial methodological point and subscribed to the primacy of what was called the Science of Man.
“It is evident, that all the sciences have a relation, greater or less, to human nature: and that however wide any of them may seem to run from it, they still return back by one passage or another. Even. Mathematics, Natural Philosophy, and Natural Religion, are in some measure dependent on the science of MAN; since the lie under the cognizance of men, and are judged of by their powers and faculties.” (Hume, 2012, Introduction), original upper-case
By anchoring economics firmly in the social sciences, Hume and Smith set the discipline on the wrong track and programmed failure: “...there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman, 1992, p. 320), see also (Rosenberg, 1980, pp. 2-3)
Ergo: economics is not a science of behavior (Hudík, 2011); economists have to change their vantage point; economics has to be redefined. Note well that all this has nothing to do with the manifest misapplication of mathematics in standard economics.
Old definition, subjective-behavioral: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
New definition, objective-structural: “Economics is the science that studies how the monetary economy works.”
In non-technical terms, this is what a Paradigm Shift, a.k.a. new economic thinking, is all about.
Egmont Kakarot-Handtke
References
Bagehot, W. (1885). The Postulates of English Political Economy. Library of Economics and Liberty. URL
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hausman, D. M. (1989). Economic Methodology in a Nutshell. Journal of Economic Perspectives, 3(2): 115–127. URL
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Hume, D. (2012). A Treatise of Human Nature. Project Gutenberg EBook. URL
Jevons, W. S. (1911). The Theory of Political Economy. London, Bombay, etc.: Macmillan, 4th edition. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL
Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.
Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The Academic Scribblers. Princeton: Princeton University Press, 3rd edition.
***
Twitter/X May 12, 2026
August 21, 2015
No foundations
Comment on Lars Syll on ‘Lucas’ caricature of economic science’
Blog-Reference
You cite: “As Lucas himself wrote ... he was bewitched by the beauty and power of Samuelson’s Foundations of Economic Analysis ...” (See intro)
The first thing every economics student encountered in Samuelson's textbook was the ‘totem of the micro’, that is, supply-demand-equilibrium. And nothing has changed since then. “Supply and demand are at the heart of how market economies work.” (Mankiw, 1998, p. 519)
Then and now, this first encounter is the all-deciding moment. From a student who accepts supply-demand-equilibrium as an explanation for the functioning of the market system, nothing of scientific value can be expected in the future.
“There is little or nothing in existing micro- or macroeconomics texts that is of value for understanding real markets. Economists have not understood how to model markets mathematically in an empirically correct way.” (McCauley, 2006, p. 16) #1
Nobody with a modicum of scientific instinct can accept the shallow explanations and the superficial formalization of Samuelson's textbook.
On the next higher level, nobody with his logical apparatus intact can accept the following behavioral assumptions as foundations of economic research. “As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states. By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program.” (Weintraub, 1985, p. 147)
What should be almost self-evident is that HC1 is vacuous and that HC2 to HC5 are simply green cheese assumptions. This holds independently from and prior to any formalization.
The only conclusion one can draw from Samuelson's Foundations of Economic Analysis and the neo-Walrasian hardcore propositions is that these foundations are unacceptable. If the foundations are unsound, then in the course of time nothing remains standing. This is what Heterodoxy can learn from Lucas' epic failure.
“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.” (Hutchison, 1960, p. 5)
Eventually, Heterodoxy has to come up with the correct set of foundational propositions.
Egmont Kakarot-Handtke
References
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York: Kelley.
Mankiw, N. G. (1998). Teaching the Principles of Economics. Eastern Economic Journal, 24(4): 519–524. URL
McCauley, J. L. (2006). Response to "Worrying Trends in EconoPhysics". EconoPhysics Forum, 0601001: 1–26. URL
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
#1 For the correct way see Essentials of Constructive Heterodoxy: The Market and How to Get Rid of Supply-Demand-Equilibrium.
Blog-Reference
You cite: “As Lucas himself wrote ... he was bewitched by the beauty and power of Samuelson’s Foundations of Economic Analysis ...” (See intro)
The first thing every economics student encountered in Samuelson's textbook was the ‘totem of the micro’, that is, supply-demand-equilibrium. And nothing has changed since then. “Supply and demand are at the heart of how market economies work.” (Mankiw, 1998, p. 519)
Then and now, this first encounter is the all-deciding moment. From a student who accepts supply-demand-equilibrium as an explanation for the functioning of the market system, nothing of scientific value can be expected in the future.
“There is little or nothing in existing micro- or macroeconomics texts that is of value for understanding real markets. Economists have not understood how to model markets mathematically in an empirically correct way.” (McCauley, 2006, p. 16) #1
Nobody with a modicum of scientific instinct can accept the shallow explanations and the superficial formalization of Samuelson's textbook.
On the next higher level, nobody with his logical apparatus intact can accept the following behavioral assumptions as foundations of economic research. “As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states. By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program.” (Weintraub, 1985, p. 147)
What should be almost self-evident is that HC1 is vacuous and that HC2 to HC5 are simply green cheese assumptions. This holds independently from and prior to any formalization.
The only conclusion one can draw from Samuelson's Foundations of Economic Analysis and the neo-Walrasian hardcore propositions is that these foundations are unacceptable. If the foundations are unsound, then in the course of time nothing remains standing. This is what Heterodoxy can learn from Lucas' epic failure.
“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.” (Hutchison, 1960, p. 5)
Eventually, Heterodoxy has to come up with the correct set of foundational propositions.
Egmont Kakarot-Handtke
References
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York: Kelley.
Mankiw, N. G. (1998). Teaching the Principles of Economics. Eastern Economic Journal, 24(4): 519–524. URL
McCauley, J. L. (2006). Response to "Worrying Trends in EconoPhysics". EconoPhysics Forum, 0601001: 1–26. URL
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
#1 For the correct way see Essentials of Constructive Heterodoxy: The Market and How to Get Rid of Supply-Demand-Equilibrium.
March 16, 2022
Occasional Tweets: The futile attempt to recycle behavioral economics (I)
Economics is NOT a social sciencehttps://t.co/zJHeQboYGH
— E.K-H (@AXECorg) March 16, 2022
and NOT about human behaviorhttps://t.co/MzGiF9gpXa#Economics is about how the economic #System works. That, #Economists have still NOT figured out because they are too stupid for #Science. pic.twitter.com/v9SlZ51K0x
For details of the big picture see cross-references Not a Science of Behavior
October 6, 2023
Occasional Xs: Clueless economists / Science (V)
#Econ#FailedFakeScience#Economics is about how the #Economy behaves. It is a #SystemsScience & NOT a #SocialScience i.e. NOT about #HumanNature / #Motives / #Behavior / #Choice / #Actions / #Incentives / #Happiness.
— E.K-H (@AXECorg) October 6, 2023
Economics is NOT a social sciencehttps://t.co/ENmXGsCklb
July 26, 2021
Occasional Tweets: Behavioral Economics has always been cargo cult science
#Economics#FailedScience#FakeSciences#Economists#StupidOrCorruptOrBoth#Reset
— E.K-H (@AXECorg) July 26, 2021
Get it econ suckers: behavioral microfoundations ⇒ false, systemic macrofoundations ⇒ truehttps://t.co/VufeQMFV1v pic.twitter.com/GFFxxTdmGj
For more about cargo cult science see AXECquery.
June 14, 2015
The art of start
Comment on Bruce Edmonds on ‘The Context-Dependency of Human (Economic) Behaviour’
Blog-Reference
“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), see also (2013)
Therefore, it is of utmost importance to consequently stick to sharp definitions and to stay clear of ambiguity and vagueness.
ad (i) First you quote me correctly asserting ‘the task of theoretical economics is to explain how the monetary economy works’ and then you ask ‘does this exclude barter systems.’ The answer is evidently yes. Then you go on asking ‘does it exclude the sharing of value within families and communities?' Again, the answer is evidently yes. The focus is on the economy we happen to live in and not on issues that belong to the domains of psychology and sociology. Apart from this, excluding some real-world phenomena at the start means only that they are to be included at a later stage. So nothing of importance is lost.
The economist's task is to incorporate valid results of PsySoc into his models but not to make ‘a fool of himself’ (Viner, 1963, p. 12) with utility maximization, rationality, bounded rationality, rational expectations, situational analysis, and all the rest. Economists have no correct theory of human behavior, neither do they have a correct theory of how the monetary economy works, and it is for the latter defect that economics is a failed science. As long as Heterodoxy is preoccupied with PsySoc it will share the cheerless fate of Orthodoxy.
ad (ii) You say: “There is a way from the understanding of individual human behavior to the understanding of the behavior of the economic system – it is called agent-based simulation.”
Generally speaking, a simulation is a proper tool for economic analysis and this has already been said in my paper on behavior (2015). However, a simulation presupposes the definition of the structural properties of the monetary economy. Hence, not any simulation will do. Here is the correct version.#1
“A simulation as defined by the four structural axioms and the probability distributions is a well-defined mathematical object just like a system of equations. While they are formally on the same footing, both mathematical objects yield different kinds of outputs: the system of equations yields a solution vector, a simulation yields a bundle of paths. This bundle has a counterpart in reality.” (2015, p. 5).
In sum: every economic analysis must start with the definition of the objective structure of the monetary economy because it is this structure, a.k.a. reality, that determines the outcome of individual and collective human action. The monetary economy is the meta-context of every partial analysis. To start with a specific behavioral assumption means to get off on the wrong foot and end up eventually in the scientific wood. Orthodox economics is a cautionary tale. Heterodoxy is expected to do much better. Constructive Heterodoxy does.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Behavior. SSRN Working Paper Series, 2600523: 1–17. URL
Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.
Viner, J. (1963). The Economist in History. American Economic Review, 53(2): 1–22. URL
#1 For the details of the big picture see cross-references New Curriculum.
Blog-Reference
“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), see also (2013)
Therefore, it is of utmost importance to consequently stick to sharp definitions and to stay clear of ambiguity and vagueness.
ad (i) First you quote me correctly asserting ‘the task of theoretical economics is to explain how the monetary economy works’ and then you ask ‘does this exclude barter systems.’ The answer is evidently yes. Then you go on asking ‘does it exclude the sharing of value within families and communities?' Again, the answer is evidently yes. The focus is on the economy we happen to live in and not on issues that belong to the domains of psychology and sociology. Apart from this, excluding some real-world phenomena at the start means only that they are to be included at a later stage. So nothing of importance is lost.
The economist's task is to incorporate valid results of PsySoc into his models but not to make ‘a fool of himself’ (Viner, 1963, p. 12) with utility maximization, rationality, bounded rationality, rational expectations, situational analysis, and all the rest. Economists have no correct theory of human behavior, neither do they have a correct theory of how the monetary economy works, and it is for the latter defect that economics is a failed science. As long as Heterodoxy is preoccupied with PsySoc it will share the cheerless fate of Orthodoxy.
ad (ii) You say: “There is a way from the understanding of individual human behavior to the understanding of the behavior of the economic system – it is called agent-based simulation.”
Generally speaking, a simulation is a proper tool for economic analysis and this has already been said in my paper on behavior (2015). However, a simulation presupposes the definition of the structural properties of the monetary economy. Hence, not any simulation will do. Here is the correct version.#1
“A simulation as defined by the four structural axioms and the probability distributions is a well-defined mathematical object just like a system of equations. While they are formally on the same footing, both mathematical objects yield different kinds of outputs: the system of equations yields a solution vector, a simulation yields a bundle of paths. This bundle has a counterpart in reality.” (2015, p. 5).
In sum: every economic analysis must start with the definition of the objective structure of the monetary economy because it is this structure, a.k.a. reality, that determines the outcome of individual and collective human action. The monetary economy is the meta-context of every partial analysis. To start with a specific behavioral assumption means to get off on the wrong foot and end up eventually in the scientific wood. Orthodox economics is a cautionary tale. Heterodoxy is expected to do much better. Constructive Heterodoxy does.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Behavior. SSRN Working Paper Series, 2600523: 1–17. URL
Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.
Viner, J. (1963). The Economist in History. American Economic Review, 53(2): 1–22. URL
#1 For the details of the big picture see cross-references New Curriculum.
July 3, 2026
Occasional X: Clueless economists / Science (CCCL)
“But there's a problem with economics, even first-year economics. Economics isn't settled. That's not all bad, or a disgraceful scandal in the science. Obviously, for one thing, economics involves issues of ethics about which humans disagree. For another, the disagreeing,… pic.twitter.com/I4MBm49Aky
— AXEC (@EgmontHandtke) July 3, 2026
April 27, 2026
Occasional X: The futile attempt to recycle behavioral economics (XVI)
“all these people saying they’d risk their lives for the social good yet not even 10k could give this guy a heart for providing the discussion for two days” (Robert Murphy)
— AXEC (@EgmontHandtke) April 27, 2026
The basic behavioral assumptions are a matter of methodological indifference because, to begin with,… pic.twitter.com/2mXvccoqc0
July 6, 2017
Just another cargo cultic exercise
Comment on the BoE conference on ‘Applications of Behavioural Economics, and Multiple Equilibrium Models to Macroeconomic Policy’
Blog-Reference
(i) Economics is NOT about Human Nature/behavior but about the nature/behavior of the economic system. Behavioral economics is the wrong approach because NO way leads from the understanding of human behavior to the understanding of how the actual economy works.#1
(ii) Equilibrium is a NONENTITY. All equilibrium models are a priori false.#2
(iii) Currently, macroeconomic policy is based on microfounded theory. This approach is provable false.#3
“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)
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 profit wrong.#4
With the pluralism of provable false theories economics fits Feynman’s description of a cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”
Economists lack the true theory.#5
Egmont Kakarot-Handtke
#1 See ‘Redefining economics’
#2 See ‘Equilibrium and the violation of a fundamental principle of science’
#3 See ‘First Lecture in New Economic Thinking’
#4 See ‘Profit theory in less than 5 minutes’
#5 See ‘The end of political economics’
Blog-Reference
(i) Economics is NOT about Human Nature/behavior but about the nature/behavior of the economic system. Behavioral economics is the wrong approach because NO way leads from the understanding of human behavior to the understanding of how the actual economy works.#1
(ii) Equilibrium is a NONENTITY. All equilibrium models are a priori false.#2
(iii) Currently, macroeconomic policy is based on microfounded theory. This approach is provable false.#3
“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)
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 profit wrong.#4
With the pluralism of provable false theories economics fits Feynman’s description of a cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”
Economists lack the true theory.#5
Egmont Kakarot-Handtke
#1 See ‘Redefining economics’
#2 See ‘Equilibrium and the violation of a fundamental principle of science’
#3 See ‘First Lecture in New Economic Thinking’
#4 See ‘Profit theory in less than 5 minutes’
#5 See ‘The end of political economics’
December 13, 2015
History and the identity problem of economics
Comment on Peter Radford on ‘History and Economics’
Blog-Reference
Peter Radford summarizes, “Sorting all that out is what historians do well. Rediscovering the past is hard work. It is a lot more difficult than developing rational choice theory for instance. The one has to deal with ambiguities or uncertainties and tease them apart. The other simply assume them away.
Richer economics has room for both. It is after all about the behavior of human beings.”
Economics is not at all about the behavior of human beings. Psychology and Sociology are about the behavior of human beings. #1 Economics is about the behavior of the economy.
Economics is not a social science like sociology nor a natural science like physics, but a systems science.
Neither orthodox nor heterodox economists got this point. Rational choice theory, for example, is not economics at all; it is a scary example of amateur psychology.
The blatant methodological blunder of Orthodoxy consists of taking the green cheese behavioral assumption of constrained optimization into the set of foundational propositions, aka axioms. Because of this, the whole neoclassical axiom set is untenable, and this explodes the whole theoretical superstructure. #2
Because economics is not a social science, no behavioral assumption must appear in the foundational propositions of economics (Hudík, 2011). The explanation for the manifest lack of success of Heterodoxy in replacing Orthodoxy is that it suffers from the social science delusion, just like Orthodoxy.
The second delusion is that history deals with plain facts while theory takes place in some Platonic parallel universe. Suffice it to remind oneself that historians could not establish beyond a reasonable doubt in more than 2300 years whether Jesus existed or not. As a matter of fact, history consists largely of pointless speculation about NONENTITIES and NONEVENTS. Not to forget that historians have devoted and still devote a considerable part of their ingenuity and energy to the production of ‘historical facts’.
If Peter Radford means by “A richer economics has room for both” that waffling about utility maximization and storytelling about the Medicis and medieval banking can coexist, then he is in full accordance with experience. If he means by richness more scientific knowledge about the actual economy, then he is certainly mistaken.
It is a historical fact that, taken as a whole, historical reality as uncovered/produced by historians is less real than theoretical reality as uncovered/produced by scientists.
The role of history is to gather the facts and the data that are necessary for testing economic theories. To lecture about economic methodology is not the historian's job.
Egmont Kakarot-Handtke
References
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
#1 PsySoc— the scourge of economics and The Science-of-Man fallacy and From PsySoc to SysHum
#2 How economists became the scientific laughing stock
Blog-Reference
Peter Radford summarizes, “Sorting all that out is what historians do well. Rediscovering the past is hard work. It is a lot more difficult than developing rational choice theory for instance. The one has to deal with ambiguities or uncertainties and tease them apart. The other simply assume them away.
Richer economics has room for both. It is after all about the behavior of human beings.”
Economics is not at all about the behavior of human beings. Psychology and Sociology are about the behavior of human beings. #1 Economics is about the behavior of the economy.
Economics is not a social science like sociology nor a natural science like physics, but a systems science.
Neither orthodox nor heterodox economists got this point. Rational choice theory, for example, is not economics at all; it is a scary example of amateur psychology.
The blatant methodological blunder of Orthodoxy consists of taking the green cheese behavioral assumption of constrained optimization into the set of foundational propositions, aka axioms. Because of this, the whole neoclassical axiom set is untenable, and this explodes the whole theoretical superstructure. #2
Because economics is not a social science, no behavioral assumption must appear in the foundational propositions of economics (Hudík, 2011). The explanation for the manifest lack of success of Heterodoxy in replacing Orthodoxy is that it suffers from the social science delusion, just like Orthodoxy.
The second delusion is that history deals with plain facts while theory takes place in some Platonic parallel universe. Suffice it to remind oneself that historians could not establish beyond a reasonable doubt in more than 2300 years whether Jesus existed or not. As a matter of fact, history consists largely of pointless speculation about NONENTITIES and NONEVENTS. Not to forget that historians have devoted and still devote a considerable part of their ingenuity and energy to the production of ‘historical facts’.
If Peter Radford means by “A richer economics has room for both” that waffling about utility maximization and storytelling about the Medicis and medieval banking can coexist, then he is in full accordance with experience. If he means by richness more scientific knowledge about the actual economy, then he is certainly mistaken.
It is a historical fact that, taken as a whole, historical reality as uncovered/produced by historians is less real than theoretical reality as uncovered/produced by scientists.
The role of history is to gather the facts and the data that are necessary for testing economic theories. To lecture about economic methodology is not the historian's job.
Egmont Kakarot-Handtke
References
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
#1 PsySoc— the scourge of economics and The Science-of-Man fallacy and From PsySoc to SysHum
#2 How economists became the scientific laughing stock
July 9, 2018
The Theory of Value and the worthlessness of economics
Comment on Peter Dorman on ‘The Value of Life and the Metaphor of Choice’
Blog-Reference
Peter Dorman summarizes what economics is all about: “Here’s what I think it comes down to: the metaphor of choice. This metaphor is so deeply ingrained in economic analysis most economists can’t think beyond it, but the moment it is invoked the very notion of what it means to be alive rather than dead is rendered irrelevant.”
The curious thing, to begin with, is that choice is NOT AT ALL an issue for economics but for psychology and sociology. To build economics on behavioral concepts like utility/choice/optimization was the foundational blunder of Orthodoxy. Economists, though, either have not realized it to this day or have not found the way out of the proto-scientific PsySoc swamp. Human behavior is NOT the subject matter of economics ― the behavior of the economic system is.
Methodologically, economics is a systems science, but economists wasted 200+ years second-guessing Human Nature/motives/behavior/action.
To this day, economists have been unable to give a consistent description of how the monetary economy works. Economists do not even know what profit is. Because Profit Theory is false, Value Theory is false. This is like medieval physics before the concept of energy was consistently defined and fully understood. Economic policy guidance has NO sound scientific foundations since Adam Smith/Karl Marx.
For this compelling methodological reason, a paradigm shift is necessary, which means practically that Walrasianism, Keynesianism, Marxianism, and Austrianism have to be buried at the Flat-Earth-Cemetery.
These are the correct systemic foundations of economics. #1, #2 The elementary production-consumption economy is, for a start, defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw), and two definitions (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C). From this follows Qm≡−Sm, that is, macroeconomic profit comes in the most elementary case from the growth of household sector debt. #3 Macroeconomic profit has NOTHING to do with exploitation or innovation or value creation or optimization or the choice between strawberry and raspberry yogurt. #4
Capitalists don’t know this. Workers don’t know this. Orthodox economists don’t know this. Heterodox economists don’t know this. And Peter Dorman, too, does NOT know the most elementary fact about the economic system.
Egmont Kakarot-Handtke
#1 Do first your macroeconomic homework!
#2 Graphic AXEC137 New Foundations of Economics
#3 Graphic AXEC143 Profit Law and Balances Equation
#4 For details of the big picture, see cross-references Profit
REPLY to Barkley Rosser on Jul 11
You say: “Egmont dismisses studying optimization.”
Not exactly. Egmont dismisses microfoundations and advances in a genuine paradigm shift to macrofoundations (see preceding post).
The microfoundations approach has been methodologically defined as follows: “As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states. By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program. ‘Taken to be true’ means that the hard-core functions like axioms for a geometry, maintained for the duration of study of that geometry.” (Weintraub, 1985, Joan Robinson’s Critique of Equilibrium: An Appraisal, p. 147)
In order to be applicable, HC2 requires a lot of auxiliary assumptions, most prominently a well-behaved/differentiable production function.
HC2 introduces marginalism, which is the all-pervasive principle of Orthodoxy. HC2, though, and HC4 and HC5 are plain NONENTITIES, that is, they have not more reality content than the Easter Bunny, dancing angels on a pinpoint, the Tooth Fairy, or Pegasus.
The methodological fact of the matter is that ALL models that take just one NONENTITY into the premises are a priori false. And methodology tells us that if the premises are false, the whole analytical superstructure is false. Therefore, the standard microfoundations approach with all its variants and derivatives from Jevons/Walras/Menger up to DSGE is methodologically false.
To put NONENTITIES into the premises is the defining characteristic of fairy tales, science fiction, theology, Hollywood movies, politics, journalism, PR, propaganda, cargo cult science, and microfounded economics.
Not only constrained optimization, i.e., HC2, has to be dismissed, but the whole set of behavioral axioms. Microfoundations have to be fully replaced by objective-systemic macrofoundations. #1, #2, #3
Studying behavioral optimization, just like studying epicycles, is a thing of the proto-scientific past.
#1 If it isn’t macro-axiomatized, it isn’t economics
#2 How to restart economics
#3 New Economic Thinking: The 10 crucial points
REPLY to Barkley Rosser on Jul 11
You say: “It [behavioral economics] studies how people behave and does not assume people optimize or are rational. It is clear that regarding many things they are not, and there are well known ways in some matters how they tend to deviate in actual behavior.”
Oh dear, this was already known 150+ years ago when Jevons/Walras/Menger started blathering about rational choice/constrained optimization.
Note that there is NO way that leads from the understanding of Human Nature/motives/ behavior/action to the understanding of the behavior of the economic system. All human-centered approaches invariably crash against the methodological wall of the Fallacy of Composition.
So, microfoundations are the lethal methodological blunder, and it does NOT help to replace constrained optimization by behavioral economics. These dead-pig cosmetics do not alter the fact that economics is a failed/fake science.
The microfoundations approach in ALL conceivable variants is bound to fail. Methodologically, it holds: If it isn’t macro-axiomatized, it isn’t economics.
By the way, while you are occupied with folk psychology/sociology, your academic colleagues from the MMT camp are pulling off a political fraud by pushing deficit spending/money creation and hiding the macroeconomic fact that Public Deficit = Private Profit. #1
Too bad for the American worker that you are of no help because, as a micro-behavior guy, cheerleader of cargo-cult economics, and political storyteller, you never had any idea what profit is and how the profit-mechanism works.
#1 The Kelton-Fraud
REPLY to Barkley Rosser on Jul 16
With regard to the Theory of Value, you complain: “But you are uninterested in such matters, only your vacuous macro tautology based on your idiosyncratic definition of profit.”
The fact is that I rectified the ridiculous behavioral Paradox of Value long ago. See The Value of Water and Diamonds: Back to Square One.
Time for you to do some scientific homework.
REPLY to Barkley Rosser on Jul 18
This is the behavioral theory of value: “In other words, how is it that water, which is essential to life, has little value, while diamonds, which are generally used for conspicuous consumption, command an exalted price? Although it troubled Adam Smith 200 years ago, we can resolve this paradox as follows: ‘The supply and demand curves for water intersect at a very low price, while supply and demand for diamonds are such that their equilibrium price is very high.’” (Samuelson et al., 1998, p. 90)
Note that a consumption good, which vanishes in the act of consumption, is juxtaposed to a durable=not-to-be-consumed store of value. This is imbecilic, to begin with, and the rest of the pseudo-explanation consists of vacuous supply-demand-equilibrium blather.
The axiomatically correct objective-systemic Circuit Theory of Value for produced consumption goods with equal wages reads P1/P2=R2/R1. #1 Relative prices are inversely proportional to productivities. This compares to: "In classical economics, the labor theory of value asserts that the economic value of a commodity is determined by the total amount of socially necessary labor required to produce it." (Wikipedia)
Because you do not understand anything, there is no need to elaborate on this fundamental economic relationship in any detail here.
#1 Graphic AXEC89d Relative Prices, Circuit Law of Value, labor time L plays no role
Blog-Reference
Peter Dorman summarizes what economics is all about: “Here’s what I think it comes down to: the metaphor of choice. This metaphor is so deeply ingrained in economic analysis most economists can’t think beyond it, but the moment it is invoked the very notion of what it means to be alive rather than dead is rendered irrelevant.”
The curious thing, to begin with, is that choice is NOT AT ALL an issue for economics but for psychology and sociology. To build economics on behavioral concepts like utility/choice/optimization was the foundational blunder of Orthodoxy. Economists, though, either have not realized it to this day or have not found the way out of the proto-scientific PsySoc swamp. Human behavior is NOT the subject matter of economics ― the behavior of the economic system is.
Methodologically, economics is a systems science, but economists wasted 200+ years second-guessing Human Nature/motives/behavior/action.
To this day, economists have been unable to give a consistent description of how the monetary economy works. Economists do not even know what profit is. Because Profit Theory is false, Value Theory is false. This is like medieval physics before the concept of energy was consistently defined and fully understood. Economic policy guidance has NO sound scientific foundations since Adam Smith/Karl Marx.
For this compelling methodological reason, a paradigm shift is necessary, which means practically that Walrasianism, Keynesianism, Marxianism, and Austrianism have to be buried at the Flat-Earth-Cemetery.
These are the correct systemic foundations of economics. #1, #2 The elementary production-consumption economy is, for a start, defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw), and two definitions (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C). From this follows Qm≡−Sm, that is, macroeconomic profit comes in the most elementary case from the growth of household sector debt. #3 Macroeconomic profit has NOTHING to do with exploitation or innovation or value creation or optimization or the choice between strawberry and raspberry yogurt. #4
Capitalists don’t know this. Workers don’t know this. Orthodox economists don’t know this. Heterodox economists don’t know this. And Peter Dorman, too, does NOT know the most elementary fact about the economic system.
Egmont Kakarot-Handtke
#1 Do first your macroeconomic homework!
#2 Graphic AXEC137 New Foundations of Economics
#3 Graphic AXEC143 Profit Law and Balances Equation
#4 For details of the big picture, see cross-references Profit
***
REPLY to Barkley Rosser on Jul 11
You say: “Egmont dismisses studying optimization.”
Not exactly. Egmont dismisses microfoundations and advances in a genuine paradigm shift to macrofoundations (see preceding post).
The microfoundations approach has been methodologically defined as follows: “As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states. By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program. ‘Taken to be true’ means that the hard-core functions like axioms for a geometry, maintained for the duration of study of that geometry.” (Weintraub, 1985, Joan Robinson’s Critique of Equilibrium: An Appraisal, p. 147)
In order to be applicable, HC2 requires a lot of auxiliary assumptions, most prominently a well-behaved/differentiable production function.
HC2 introduces marginalism, which is the all-pervasive principle of Orthodoxy. HC2, though, and HC4 and HC5 are plain NONENTITIES, that is, they have not more reality content than the Easter Bunny, dancing angels on a pinpoint, the Tooth Fairy, or Pegasus.
The methodological fact of the matter is that ALL models that take just one NONENTITY into the premises are a priori false. And methodology tells us that if the premises are false, the whole analytical superstructure is false. Therefore, the standard microfoundations approach with all its variants and derivatives from Jevons/Walras/Menger up to DSGE is methodologically false.
To put NONENTITIES into the premises is the defining characteristic of fairy tales, science fiction, theology, Hollywood movies, politics, journalism, PR, propaganda, cargo cult science, and microfounded economics.
Not only constrained optimization, i.e., HC2, has to be dismissed, but the whole set of behavioral axioms. Microfoundations have to be fully replaced by objective-systemic macrofoundations. #1, #2, #3
Studying behavioral optimization, just like studying epicycles, is a thing of the proto-scientific past.
#1 If it isn’t macro-axiomatized, it isn’t economics
#2 How to restart economics
#3 New Economic Thinking: The 10 crucial points
***
REPLY to Barkley Rosser on Jul 11
You say: “It [behavioral economics] studies how people behave and does not assume people optimize or are rational. It is clear that regarding many things they are not, and there are well known ways in some matters how they tend to deviate in actual behavior.”
Oh dear, this was already known 150+ years ago when Jevons/Walras/Menger started blathering about rational choice/constrained optimization.
Note that there is NO way that leads from the understanding of Human Nature/motives/ behavior/action to the understanding of the behavior of the economic system. All human-centered approaches invariably crash against the methodological wall of the Fallacy of Composition.
So, microfoundations are the lethal methodological blunder, and it does NOT help to replace constrained optimization by behavioral economics. These dead-pig cosmetics do not alter the fact that economics is a failed/fake science.
The microfoundations approach in ALL conceivable variants is bound to fail. Methodologically, it holds: If it isn’t macro-axiomatized, it isn’t economics.
By the way, while you are occupied with folk psychology/sociology, your academic colleagues from the MMT camp are pulling off a political fraud by pushing deficit spending/money creation and hiding the macroeconomic fact that Public Deficit = Private Profit. #1
Too bad for the American worker that you are of no help because, as a micro-behavior guy, cheerleader of cargo-cult economics, and political storyteller, you never had any idea what profit is and how the profit-mechanism works.
#1 The Kelton-Fraud
***
REPLY to Barkley Rosser on Jul 16
With regard to the Theory of Value, you complain: “But you are uninterested in such matters, only your vacuous macro tautology based on your idiosyncratic definition of profit.”
The fact is that I rectified the ridiculous behavioral Paradox of Value long ago. See The Value of Water and Diamonds: Back to Square One.
Time for you to do some scientific homework.
***
REPLY to Barkley Rosser on Jul 18
This is the behavioral theory of value: “In other words, how is it that water, which is essential to life, has little value, while diamonds, which are generally used for conspicuous consumption, command an exalted price? Although it troubled Adam Smith 200 years ago, we can resolve this paradox as follows: ‘The supply and demand curves for water intersect at a very low price, while supply and demand for diamonds are such that their equilibrium price is very high.’” (Samuelson et al., 1998, p. 90)
Note that a consumption good, which vanishes in the act of consumption, is juxtaposed to a durable=not-to-be-consumed store of value. This is imbecilic, to begin with, and the rest of the pseudo-explanation consists of vacuous supply-demand-equilibrium blather.
The axiomatically correct objective-systemic Circuit Theory of Value for produced consumption goods with equal wages reads P1/P2=R2/R1. #1 Relative prices are inversely proportional to productivities. This compares to: "In classical economics, the labor theory of value asserts that the economic value of a commodity is determined by the total amount of socially necessary labor required to produce it." (Wikipedia)
Because you do not understand anything, there is no need to elaborate on this fundamental economic relationship in any detail here.
#1 Graphic AXEC89d Relative Prices, Circuit Law of Value, labor time L plays no role
April 29, 2019
Econ 101: Supply-Demand-Equilibrium is dead for 150+ years
Comment on Dirk Ehnts on ‘The problem with the supply curve’
Blog-Reference and Blog-Reference
Dirk Ehnts reports: “Steve Keen uses a 1952 paper to make a very important point about neoclassical economics: There is a problem with the supply curve.” and concludes: “Microeconomics, the behavior of firms and households, is very important. Starting the subject by repeating theories that should have long been discarded blocks more relevant approaches from being taught. These new approaches could provide proper foundations of the behavior of firms and households if they are not based on ‘economic laws’ that are refuted by reality.”
All this is true, of course, but ultimately not very helpful: “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)
Because traditional Heterodoxy consistently failed at this methodological barrier, economics students are still taught the ‘Totem of the Micro’, i.e. supply-demand-equilibrium. #1
The lethal blunder of microeconomics, though, does not start with the supply curve but with the neo-Walrasian axiom set: “HC1 There exist economic agents. HC2 Agents have preferences over outcomes. HC3 Agents independently optimize subject to constraints. HC4 Choices are made in interrelated markets. HC5 Agents have full relevant knowledge. HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub, 1985)
The pivotal propositions are HC3 and HC6. Methodologically, they are NONENTITIES like the Easter Bunny and Spiderman. The behavioral axiom HC3 makes economics marginalistic. #2, #3 In order to make constrained optimization work, a well-behaved production function is required. The production function is NOT the result of real-world observations but is implied by HC3. #4, #5, #6 The supply curve, in turn, follows from the assumed production function. So HC3 is the ultimate reason why there “is a problem with the supply curve”.
From this follows that the microfoundations HC1/HC6 have to be discarded. And this is the end of Econ 101 as we know it. Economics textbooks have been worthless since Samuelson’s first edition in 1948. #7
The end of proto-scientific economics, though, is the beginning of scientific economics, which is no longer based on false microfoundations but on true macrofoundations. #8, #9, #10
From the devastating critique of supply-demand-equilibrium follows the necessity of a Paradigm Shift. Traditional Heterodoxy never performed the Paradigm Shift but was content with the endless repetition of how “unrealistic” Orthodoxy is.
Because of this, both Orthodoxy and traditional Heterodoxy go down the scientific drain.
Egmont Kakarot-Handtke
#1 Where advanced Heterodoxy — represented by Steve Keen — took the wrong turn
#2 The solemn burial of marginalism
#3 Marginalism is the landmark of scientific incompetence
#4 Putting the production function back on its feet
#5 Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?
#6 Mathiness and the Ur-Blunder
#7 The father of modern economics and his imbecile kids
#8 Essentials of Constructive Heterodoxy: The Market
#9 How to Get Rid of Supply-Demand-Equilibrium
#10 The Law of Supply and Demand: Here It Is Finally
Related 'There is NO such thing as supply-demand-equilibrium' and 'How the Intelligent Non-Economist Can Refute Every Economist Hands Down' and 'Why you should NEVER use supply-demand-equilibrium' and 'The monstrous utility-supply-demand-equilibrium failure'. For details of the big picture, see cross-references Econ 101/Old Curriculum/New Curriculum and cross-references Paradigm Shift and the textbook Sovereign Economics. The macroeconomic Law of Supply and Demand is shown under the label of Graphic AXEC64
Blog-Reference and Blog-Reference
Dirk Ehnts reports: “Steve Keen uses a 1952 paper to make a very important point about neoclassical economics: There is a problem with the supply curve.” and concludes: “Microeconomics, the behavior of firms and households, is very important. Starting the subject by repeating theories that should have long been discarded blocks more relevant approaches from being taught. These new approaches could provide proper foundations of the behavior of firms and households if they are not based on ‘economic laws’ that are refuted by reality.”
All this is true, of course, but ultimately not very helpful: “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)
Because traditional Heterodoxy consistently failed at this methodological barrier, economics students are still taught the ‘Totem of the Micro’, i.e. supply-demand-equilibrium. #1
The lethal blunder of microeconomics, though, does not start with the supply curve but with the neo-Walrasian axiom set: “HC1 There exist economic agents. HC2 Agents have preferences over outcomes. HC3 Agents independently optimize subject to constraints. HC4 Choices are made in interrelated markets. HC5 Agents have full relevant knowledge. HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub, 1985)
The pivotal propositions are HC3 and HC6. Methodologically, they are NONENTITIES like the Easter Bunny and Spiderman. The behavioral axiom HC3 makes economics marginalistic. #2, #3 In order to make constrained optimization work, a well-behaved production function is required. The production function is NOT the result of real-world observations but is implied by HC3. #4, #5, #6 The supply curve, in turn, follows from the assumed production function. So HC3 is the ultimate reason why there “is a problem with the supply curve”.
From this follows that the microfoundations HC1/HC6 have to be discarded. And this is the end of Econ 101 as we know it. Economics textbooks have been worthless since Samuelson’s first edition in 1948. #7
The end of proto-scientific economics, though, is the beginning of scientific economics, which is no longer based on false microfoundations but on true macrofoundations. #8, #9, #10
From the devastating critique of supply-demand-equilibrium follows the necessity of a Paradigm Shift. Traditional Heterodoxy never performed the Paradigm Shift but was content with the endless repetition of how “unrealistic” Orthodoxy is.
Because of this, both Orthodoxy and traditional Heterodoxy go down the scientific drain.
Egmont Kakarot-Handtke
#1 Where advanced Heterodoxy — represented by Steve Keen — took the wrong turn
#2 The solemn burial of marginalism
#3 Marginalism is the landmark of scientific incompetence
#4 Putting the production function back on its feet
#5 Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?
#6 Mathiness and the Ur-Blunder
#7 The father of modern economics and his imbecile kids
#8 Essentials of Constructive Heterodoxy: The Market
#9 How to Get Rid of Supply-Demand-Equilibrium
#10 The Law of Supply and Demand: Here It Is Finally
Related 'There is NO such thing as supply-demand-equilibrium' and 'How the Intelligent Non-Economist Can Refute Every Economist Hands Down' and 'Why you should NEVER use supply-demand-equilibrium' and 'The monstrous utility-supply-demand-equilibrium failure'. For details of the big picture, see cross-references Econ 101/Old Curriculum/New Curriculum and cross-references Paradigm Shift and the textbook Sovereign Economics. The macroeconomic Law of Supply and Demand is shown under the label of Graphic AXEC64
For more about supply-demand-equilibrium see AXECquery.
***
Graphic AXEC121i
June 5, 2017
Hijackers, agenda pushers, PsySocs and other morons
Comment on Oleg Komlik on ‘Theodor Adorno on the division between economics and sociology’
Blog-References
Oleg Komlik quotes Adorno: “My thesis is quite simply that the strict division between economics and sociology, the consequence of which is unquestionably to dismiss the Marxian theory ante portas, causes the decisive social interests of both disciplines to disappear; and that precisely through this separation they both fail to assert their real interests, what really matters in them.”
All confusion about economics derives from the fact that there are TWO economixes: political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
In the beginning, there was Political Economy. J. S. Mill defined it clearly as a social science: “The fundamental problem, therefore, of the social science, is to find the laws according to which any state of society produces the state which succeeds it and takes its place.” Or, a bit more specific with regard to economics: “The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.”
Economics started as a hodgepodge of sociology, history, folk psychology, and folk philosophy, which came under the heading of utilitarianism.
Classical Political Economy was carried one step further with methodological individualism: “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)
Methodological individualism is clearly defined by this set of behavioral axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)
Axiomatization is not only laudable but methodologically indispensable: “We should also like to underline Debreu’s effective reference to Bacon when he says that ‘citius emergit veritas ex errore quam ex confusione.’ It would be a mistake to lower the level of analysis and clarification. The only way possible is a thorough reexamination of the theory’s basic hypotheses, i.e., a true paradigmatic revolution.” (Ingrao et al.)
Orthodox economics remains firmly rooted in the social sciences because it is defined by behavioral axioms. Yet, orthodox economics is widely considered a scientific failure. To replace Orthodoxy requires the replacement of HC1-HC5 with an entirely new set of axioms. This is what a true paradigmatic revolution is all about.
What is true for Walrasianism holds for the rest of economics. The current state is this: the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept of profit wrong. How could this happen? Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. As a result of the utter scientific incompetence of political economists, economics is a failed science.
There is no way around this: economists need the one true theory and not the pluralism of false theories: “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)
Everybody knows: the so-called social sciences in general and political economics in particular NEVER got anything off the ground. Feynman called them cargo cult sciences: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”#1
What is needed is a strict separation between the so-called social sciences and economics.#2 Separation of the subject matter, of course, does NOT exclude cooperation and the exchange of knowledge. Economics has to be clearly redefined as systems science:
Adorno never understood what profit is#4, whether his understanding of sociology was much better is doubtful.
Egmont Kakarot-Handtke
#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 Economics is NOT about Human Nature but the economic system
#3 For the axiomatically true theory see True macrofoundations: the reset of economics
#4 Profit for Marxists
Blog-References
Oleg Komlik quotes Adorno: “My thesis is quite simply that the strict division between economics and sociology, the consequence of which is unquestionably to dismiss the Marxian theory ante portas, causes the decisive social interests of both disciplines to disappear; and that precisely through this separation they both fail to assert their real interests, what really matters in them.”
All confusion about economics derives from the fact that there are TWO economixes: political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
In the beginning, there was Political Economy. J. S. Mill defined it clearly as a social science: “The fundamental problem, therefore, of the social science, is to find the laws according to which any state of society produces the state which succeeds it and takes its place.” Or, a bit more specific with regard to economics: “The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.”
Economics started as a hodgepodge of sociology, history, folk psychology, and folk philosophy, which came under the heading of utilitarianism.
Classical Political Economy was carried one step further with methodological individualism: “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)
Methodological individualism is clearly defined by this set of behavioral axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)
Axiomatization is not only laudable but methodologically indispensable: “We should also like to underline Debreu’s effective reference to Bacon when he says that ‘citius emergit veritas ex errore quam ex confusione.’ It would be a mistake to lower the level of analysis and clarification. The only way possible is a thorough reexamination of the theory’s basic hypotheses, i.e., a true paradigmatic revolution.” (Ingrao et al.)
Orthodox economics remains firmly rooted in the social sciences because it is defined by behavioral axioms. Yet, orthodox economics is widely considered a scientific failure. To replace Orthodoxy requires the replacement of HC1-HC5 with an entirely new set of axioms. This is what a true paradigmatic revolution is all about.
What is true for Walrasianism holds for the rest of economics. The current state is this: the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept of profit wrong. How could this happen? Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. As a result of the utter scientific incompetence of political economists, economics is a failed science.
There is no way around this: economists need the one true theory and not the pluralism of false theories: “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)
Everybody knows: the so-called social sciences in general and political economics in particular NEVER got anything off the ground. Feynman called them cargo cult sciences: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”#1
What is needed is a strict separation between the so-called social sciences and economics.#2 Separation of the subject matter, of course, does NOT exclude cooperation and the exchange of knowledge. Economics has to be clearly redefined as systems science:
- Old definition, subjective-behavioral: Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.
- New definition, objective-systemic: Economics is the science which studies how the monetary economy works.
Adorno never understood what profit is#4, whether his understanding of sociology was much better is doubtful.
Egmont Kakarot-Handtke
#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 Economics is NOT about Human Nature but the economic system
#3 For the axiomatically true theory see True macrofoundations: the reset of economics
#4 Profit for Marxists
January 16, 2017
Strange noise in the graveyard of economics
Comment on Noah Smith on ‘Cracks in the anti-behavioral dam?’
Blog-Reference
Economics is a failed science. More precisely, standard/orthodox economics from Jevons/ Walras/Menger to DSGE/RBC/New Keynesianism is scientific garbage or what Feynman called cargo cult science.
Standard economics is built upon this set of foundational propositions, a.k.a. axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub, 1985)
Methodologically, these premises are forever unacceptable: (i) The ultimate reason can be stated as an impossibility theorem: NO way leads from the explanation of individual behavior to the explanation of how the economic system works. Because of this, the microfoundations approach has already been dead in the cradle. (ii) The standard/ orthodox/Walrasian axiom set contains three NONENTITIES: (a) constrained optimization (HC2), (b) rational expectations (HC4), (c) equilibrium (HC5). Every theory/model that contains a nonentity is a priori false. So, standard/orthodox economics is axiomatically false ― it is as simple as that.
The microfoundations speak about human behavior. As a matter of principle, human behavior is the subject matter of psychology, sociology, anthropology etcetera, and NOT of economics (Hudik, 2011). The error/mistake/idiocy of half-witted critics, though, has always been in the belief that it suffices to make behavioral assumptions ‘more realistic’. The classical case is the idea to replace the assumption of perfect rationality with bounded rationality.
What instead has to be done is to FULLY REPLACE the standard/orthodox microfoundations with methodologically correct macrofoundations, that is, to change the very definition of economics.
OLD behavioral definitions: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow, 1994) “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins, 1935)
NEW objective-systemic definition: “Economics is the science which studies how the monetary economy works.”
The move from the old behavioral definition to the new systemic=behavior-free definition of economics is called a Paradigm Shift. Nothing less will do to get economics out of its proto-scientific deadlock.
Noah Smith has spotted a new trend: “I’m seeing macro people taking behavioral ideas more seriously. ... in macro, most models use Rational Expectations, so let’s think of ‘behavioral’ as just meaning ‘non-RE’.”
To see hope or even progress in this pathetic putting-lipstick-on-a-dead-pig is as self-debunking as it can get. Standard economics is scientifically dead for 150+ years and it will NOT come to life by replacing RE with non-RE.
Egmont Kakarot-Handtke
Blog-Reference
Economics is a failed science. More precisely, standard/orthodox economics from Jevons/ Walras/Menger to DSGE/RBC/New Keynesianism is scientific garbage or what Feynman called cargo cult science.
Standard economics is built upon this set of foundational propositions, a.k.a. axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub, 1985)
Methodologically, these premises are forever unacceptable: (i) The ultimate reason can be stated as an impossibility theorem: NO way leads from the explanation of individual behavior to the explanation of how the economic system works. Because of this, the microfoundations approach has already been dead in the cradle. (ii) The standard/ orthodox/Walrasian axiom set contains three NONENTITIES: (a) constrained optimization (HC2), (b) rational expectations (HC4), (c) equilibrium (HC5). Every theory/model that contains a nonentity is a priori false. So, standard/orthodox economics is axiomatically false ― it is as simple as that.
The microfoundations speak about human behavior. As a matter of principle, human behavior is the subject matter of psychology, sociology, anthropology etcetera, and NOT of economics (Hudik, 2011). The error/mistake/idiocy of half-witted critics, though, has always been in the belief that it suffices to make behavioral assumptions ‘more realistic’. The classical case is the idea to replace the assumption of perfect rationality with bounded rationality.
What instead has to be done is to FULLY REPLACE the standard/orthodox microfoundations with methodologically correct macrofoundations, that is, to change the very definition of economics.
OLD behavioral definitions: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow, 1994) “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins, 1935)
NEW objective-systemic definition: “Economics is the science which studies how the monetary economy works.”
The move from the old behavioral definition to the new systemic=behavior-free definition of economics is called a Paradigm Shift. Nothing less will do to get economics out of its proto-scientific deadlock.
Noah Smith has spotted a new trend: “I’m seeing macro people taking behavioral ideas more seriously. ... in macro, most models use Rational Expectations, so let’s think of ‘behavioral’ as just meaning ‘non-RE’.”
To see hope or even progress in this pathetic putting-lipstick-on-a-dead-pig is as self-debunking as it can get. Standard economics is scientifically dead for 150+ years and it will NOT come to life by replacing RE with non-RE.
Egmont Kakarot-Handtke
Subscribe to:
Posts (Atom)