The economist’s hajj from Mordor to Mecca

Comment on David Sloan Wilson on ‘Economics — still in the land of Mordor’

Blog-Reference and Blog-Reference on Feb 2

Always, when economics is in the methodological doldrums, it looks around for success stories. In the 1890s, Newtonian physics fell somewhat out of favor as an archetype, and the heterodox economist Thorstein Veblen asked: “Why is Economics Not an Evolutionary Science?” The next was Marshall, with his famous call for a new methodological hajj: “The Mecca of the economist lies in economic biology.”

Now David Sloan Wilson tells economists: “The [neoclassical] edifice is based upon a conception of human nature that is profoundly false, defying the dictates of common sense, before we even get to the more refined dictates of psychology and evolutionary theory.”

Strictly speaking, this is old hat since J. S. Mill: “The science then proceeds to investigate the laws which govern these several operations, under the supposition that man is a being who is determined, by the necessity of his nature, to prefer a greater portion of wealth to a smaller ... Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed.” (1874, V.38)

The first thing every layman recognizes is that there is something wrong with equilibrium economics in general and with constrained optimization in particular. Hence, there have been countless attempts to borrow from Darwinism, which seems to be more conversant with Human Nature than economics. Closer inspection, though, showed quickly that all suggestive resemblances between natural and economic evolution remain on the surface.

“In a recent series of publications, ‘Generalized Darwinism’ has been proposed as a new overarching research strategy that is based on the assumption of a fundamental homology between evolution in nature and the evolution of the economy. The principles of variation, selection, and retention that have been distilled from evolutionary biology by isolating abstraction are claimed to be generally valid. It is suggested to apply these abstract principles as a unifying framework for all evolutionary theories. By a brief reconstruction of the different historical forms of Darwinism, we have shown that the identification of these abstract principles with Darwinism is misleading. Moreover, on a priori grounds, other principles — non-Darwinian or even anti-Darwinian ones, like e.g., orthogenesis, saltationism, or neo-Lamarckism — could claim a similar plausibility in explaining economic evolution.

The crux with such allegedly unifying abstract principles derived by isolating abstraction from findings in other domains is that they provide but an abstract hull. In order to become a useful heuristic device, they need to arrive at domain-specific explanations which, in turn, would require adding substance by hypotheses on the disciplinary ‘details’ of actual evolutionary processes, e.g., in the economy. This is, of course, what is done in the first place in a bottom-up research strategy as it has fruitfully been practiced in the development of Darwinism in evolutionary biology." (Levit et al., 2011, p. 559)

David Sloan Wilson advertises a common-sense approach. This, of course, appeals to all economists who have not much more than that. As a matter of fact, Wilson’s approach is fundamentally flawed. The first thing is to be clear about the subject matter: economics is not about psychology, human behavior, sociology, politics, biology, evolution, etcetera. Economics is about the properties and the working of the economic system. All Human-Nature approaches are a detour.

Because of this, economics has to develop its own methodology and neither copy it from Newton nor from Darwin, nor from chaos theory, nor from complexity theory, nor from anywhere else. #1

Where Wilson is right is that neoclassical economics is unacceptable. This, though, has been known for more than 150 years.

Egmont Kakarot-Handtke


References
Levit, G. S., Hossfeld, U., and Witt, U. (2011). Can Darwinism be "Generalized" and of What Use Would This Be? Journal of Evolutionary Economics, 21(4): 545–562. DOI10.1007/s00191-011-0235-3. 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

#1 How to restart economics

Related 'The three pillars of English philosophy: Individualism, Darwinism, Political Economics'

Evolutionary economics: Just another degenerate research program

Comment on Noah Smith on ‘David Sloan Wilson’s econ critique’

Blog-Reference

Economics is a bit complicated because there is (i) political economics vs. theoretical economics, and (ii) orthodox economics vs. heterodox economics (see the 2x2 map at Graphic #1)

The situation is this: political economics (= agenda-pushing) dominates theoretical economics (= science) since the founding fathers and has not produced much, if anything, of scientific value for the last 200+ years.

Heterodoxy has always argued that something might be wrong with Orthodoxy. To be sure, Heterodoxy’s rejection of Orthodoxy is right. In 2016, no thinking being can defend orthodox economics any longer. The problem with traditional Heterodoxy is that it has not produced much, if anything, of scientific value either.

Economics is what Feynman famously called a cargo cult science because BOTH Orthodoxy and traditional Heterodoxy do NOT satisfy the scientific criteria of material and formal consistency.

Evolutionary economics is part of Heterodoxy since Thorstein Veblen asked, “Why is Economics Not an Evolutionary Science?” The next was Marshall with his famous call for a new methodology: “The Mecca of the economist lies in economic biology.” Evolutionary economics is institutionalized in different countries and communicates its research in the Journal of Evolutionary Economics.

David Sloan Wilson has had a great insight: “Nevertheless, I had faith that evolution could say something important about the regulatory systems that economists preside over, even if I did not yet know the details.” This insight has occurred many times before, and it is only new and exciting to the average dull Econ 101 student.

Evolutionary economics has been tried, and it has failed: “In a recent series of publications, ‘Generalized Darwinism’ has been proposed as a new overarching research strategy that is based on the assumption of a fundamental homology between evolution in nature and the evolution of the economy. The principles of variation, selection, and retention that have been distilled from evolutionary biology by isolating abstraction are claimed to be generally valid. It is suggested to apply these abstract principles as a unifying framework for all evolutionary theories. By a brief reconstruction of the different historical forms of Darwinism we have shown that the identification of these abstract principles with Darwinism is misleading. Moreover, on a priori grounds other principles — non-Darwinian or even anti-Darwinian ones like, e.g., orthogenesis, saltationism, or neo-Lamarckism — could claim a similar plausibility in explaining economic evolution.” (Levit et al., 2011, p. 559)

David Sloan Wilson advertises a common-sense approach. This, of course, appeals to all economists who have not much more than that. As a matter of fact, Wilson’s approach is fundamentally flawed. The first thing to be clear about is: economics is NOT about psychology, human behavior, sociology, politics, biology, anthropology, etcetera. Economics is about the properties and the working of the economic SYSTEM.

ALL Human-Nature approaches are bound to fail. The ultimate reason can be stated as a methodological impossibility theorem: NO way leads from the explanation of individual behavior to the explanation of how the economic system works.

Egmont Kakarot-Handtke


References
Levit, G. S., Hossfeld, U., and Witt, U. (2011). Can Darwinism be "Generalized" and of What Use Would This Be? Journal of Evolutionary Economics, 21(4): 545–562. DOI DOI10.1007/s00191-011-0235-3. URL

#1 Graphic AXEC83 Map of current economics

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COMMENT on Some guy on Oct 18

While you were asleep, a very smart methodologist has found out that “... economics is not a science of behaviour”. (Hudík, 2011)

So, the point is NOT “that it’s just very hard to make a general mathematical model of human behavior” but that there is NO NEED to make such a model. To speculate about constrained optimization, bounded rationality, animal spirits, or rational expectations is just as brain dead as to speculate about how many angels can dance on a pinpoint.

While you were asleep, the very definition of economics has been changed from: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins, 1935, p. 16) to “Economics is the science which studies how the monetary economy works.” (2014)

Now, go and wake up your Econ 101 teacher and tell him that he is fired.

References
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Robbins, L. (1935). An Essay on the Nature and Significance of Economic Science. London, Bombay, etc.: Macmillan, 2nd edition.

Immediately following The bigots of common sense.

Objective Principles

Comment on Lars Syll on ‘Modelling consistency and real world non-coherence in mainstream economics’

Blog-Reference

You write: “This conclusion is based on two common erroneous statements. First, Walras’ general equilibrium theory is identified with Pareto’s general equilibrium theory; ...”

Pareto has not been mentioned at all in this thread until your recent post. Hence, no conclusion has been based on Pareto.

Anyway. Let us take the opportunity and do away with Pareto. He obviously was a subjectivist: “The foundation of political economy and, in general, of every social science, is evidently psychology. A day will come when we shall be able to deduce the laws of social science from the principles of psychology ...” (Pareto, 2014, p. 20)

Subjectivists cling to the naive idea that the understanding of human behavior somehow leads to an understanding of how the economic system works. Since Pareto, Walras, Jevons, Marshall, Menger, et al., we have sufficient experience with this approach. And it is pretty obvious that it has failed completely.

Psychologism/sociologism inverts the Midas touch of science — to turn whatever it might touch into knowledge — into a curse: it turns everything it touches into garbage.

So let us paraphrase Pareto: “The foundation of theoretical economics is evidently different from every social science. A day will come when we shall be able to deduce the laws of economics from the objective principles that constitute the economic system, that is, from a handful of elementary structural axioms.”#1

Egmont Kakarot-Handtke


References
Pareto, V. (2014). Manual of Political Economy. Oxford: Oxford University Press. URL

#1 For a start, see the Curriculum of Constructive Heterodoxy aka Macrofoundations

Related 'How to get out of the Econ 101 PsySoc woods' and 'Objective Principles of Economics'.

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Graphic AXEC121i

There is no such thing as THE market

Comment on Editor on ‘There are two price levels in capitalism’

Blog-Reference

In standard economics, the market is a clear-cut thing, and it is depicted as SS-curve―DD-curve―equilibrium, or what Leijonhufvud famously called the Totem of Micro/Macro. This construct is the one-size-fits-all formal description of THE market.

It is known since the founding fathers, though, that there are at least TWO different types of markets that run on different principles. Consequently, Ricardo excluded the pricing of ‘rare statues and pictures, scarce books and coins’ from his formal theory of value and called them non-produced consumption goods (Mandler, 1999, p. 68). The labor theory of value was always meant to apply to produced consumption goods only, more specifically to non-durable consumption goods.

The subjective value theory of Jevons/Walras/Menger blurred this distinction again. The peak of absurdity was reached with the “solution” of the famous water/diamond paradox, that is, the explanation of the respective price of water (= consumption good) and diamonds (= store of value, asset) by marginal utility.

Since non-produced consumption goods have indeed been produced, albeit some time ago, their price has to be determined in the secondary market. The pricing in the secondary market is entirely different from the pricing in the primary market. Hence it is not correct to speak of THE market without qualification. As Tobin put it: “’Market’ is one of the most overworked and imprecise words in economics.” (1980, p. 796)

In actual fact, the representative economist has NO idea how interdependent markets work. It is one of the greater blunders of Orthodoxy to apply the silly supply-demand-equilibrium plaything across the board. The price determinants of the primary and the secondary market are entirely different (2011).

But the situation is in fact far worse. The markets of consumption goods and investment goods run on different principles, as Keynes made clear. Finally, the market for financial assets/liabilities also runs on different principles, as Minsky made clear. Therefore, the standard supply-demand-equilibrium tool is not applicable to these markets.

The worst thing, though, is that economists have not realized until this day that THE product and THE labor market run on different principles. As a result of this, economists have not realized that an elementary market system that consists of a consolidated product market and a consolidated labor market is unstable. This means that, as a matter of principle, there is NO such thing as an overall equilibrium in the market system. The system is NOT self-regulating; there is NO such thing as an Invisible Hand, and this has NOTHING to do with market imperfections or rigidities, or information asymmetry. This is a STRUCTURAL feature that is built into the core of the market system. #1

The orthodox market theory is provably false, but traditional Heterodoxy has not developed a valid alternative that could replace supply-demand-equilibrium as the most ridiculous construct in the history of modern science. #2

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2011). Primary and Secondary Markets. SSRN Working Paper Series, 1917012: 1–26. URL
Mandler, M. (1999). Dilemmas in Economic Theory. Oxford: Oxford University Press.
Tobin, J. (1980). Are New Classical Models Plausible Enough to Guide Policy? Journal of Money, Credit and Banking, 12(4): 788–799. URL

#1 Unemployment is high because economics is false
#2 For the correct approach Essentials of Constructive Heterodoxy: The Market

Economics is NOT a social science

Comment on Lars Syll on ‘On the persistence of science-fiction economics’

Blog-Reference and Blog-Reference on Aug 9

To explain social behavior is the task of psychology, sociology, political science, and other so-called social sciences.

Explaining how the actual economy works is the task of economics. Economists have failed at this task. To be more specific, orthodox AND heterodox economists have failed. After more than 200 years, economists have not even figured out what profit is; that is, they do not understand the foundational phenomenon of their subject matter. As a consequence, economic policy guidance has NEVER had sound scientific foundations.

The scientific incompetence of economists consists in the fact that it is beyond their means to realize that NO way leads from the understanding of Human Nature/motives/behavior/ action to the understanding of how the economic system works. What makes things worse is that there is NO scientifically valid knowledge of Human Nature/motives/behavior/ action, to begin with.

The failure of economics had been programmed by the founding fathers with the definition of the subject matter 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.” (Mill, 2006, p. 912)

• “What is now commonly understood by the term ‘Political Economy’ is not the science of speculative politics, but a branch of that science. It does not treat of the whole of man’s nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end. It predicts only such of the phenomena of the social state as take place in consequence of the pursuit of wealth.” (Mill, 1874, V.38)

• “The laws of economics are to be compared with the laws of the tides, rather than with the simple and exact law of gravitation. For the actions of men are so various and uncertain, that the best statement of tendencies, which we can make in a science of human conduct, must needs be inexact and faulty. This might be urged as a reason against making any statements at all on the subject; ...” (Marshall, 1920, I.III.10)

• “The foundation of political economy and, in general, of every social science, is evidently psychology. A day will come when we shall be able to deduce the laws of social science from the principles of psychology ...” (Pareto, 2014, p. 20)

• “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins, 1935, p. 16)

What economists do not realize is that to study human behavior ― which is essentially the second-guessing/interpretation of motives/actions of individuals/groups one knows in most cases only from hearsay ― may be interesting and revealing and satisfying but is ultimately pointless, more precisely, scientifically pointless: “Alexander Rosenberg lays great emphasis on the role of intentionality in the social sciences, for in his view this role explains the nomological failures of the social sciences and supports the view that the social sciences (in anything like their current form) can never succeed in formulating real laws of human behavior.” (Hausman, 1992, p. 326)

The social sciences cannot, for deeper methodological reasons, rise above the level of storytelling. And this is exactly what Walrasianism, Keynesianism, Marxianism, and Austrianism are. Neither approach satisfies the non-negotiable criteria of science, i.e., material and formal consistency.

Economists face this option: either to be expelled from the sciences or to restart economics as a systems science. This means, in concrete terms, to move from unacceptable behavioral microfoundations and dilettantish Keynesian macrofoundations to objective/ structural/behavior-free macrofoundations.

Economists have, to this day, not understood how science works: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle). This means that science cannot be built upon behavioral assumptions because there is no such thing as a ‘certain, true, and primary’ behavioral assumption. This is the ultimate reason for the failure of both orthodox and heterodox economics and the persistence of science-fiction economics.

Egmont Kakarot-Handtke


References
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Marshall, A. (1920). Principles of Economics. Library of Economics and Liberty. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, Vol. 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Pareto, V. (2014). Manual of Political Economy. Oxford: Oxford University Press. URL
Robbins, L. (1935). An Essay on the Nature and Significance of Economic Science. London, Bombay, etc.: Macmillan, 2nd edition.

Related 'Objective Principles' and 'Economics and the social science delusion' and 'The happy end of the social science delusion' and 'The Science-of-Man fallacy' and 'How to get rid of the silly Queen' and 'Economics as fool’s paradise' and 'Disoriented and lost in folk psychology' and 'Economics between cargo cult, farce, and fraud' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy' and 'Economics is not a science, not a religion, but proto-scientific garbage' and 'A social science is NOT a science but a sitcom' and 'Overreach: Economists have their fingers in every pie except real economics' and 'Did economics fail? No! Yes, and everybody knows it!' and 'Why is economics a total scientific failure?' and 'PsySoc — the scourge of economics' and 'Economics as storytelling and entertainment for the masses' and 'Do first your macroeconomic homework!' and 'What’s the use of economists?' and 'Beware of the moralizing economist' and 'The canonical macroeconomic model'. For details of the big picture, see cross-references Not a Science of Behavior and cross-references Failed/Fake Scientists.

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Graphic AXEC121g

MMT and the magical profit disappearance

Comment on Peter Cooper on ‘Short & Simple 15 – The Sectoral Balances Identity’

Blog-Reference

Peter Cooper summarizes: “This is the sectoral balances identity. In words: Domestic Private Balance + Government Balance + Foreign Balance = 0. The balances of the three sectors cancel each other out. … The result can be aggregated a bit more by combining the domestic-private and foreign sectors into the Non-Government Sector. The identity then becomes Non-Government Balance + Government Balance = 0. … If the non-government manages to maintain a financial surplus, then by definition the government will be running a deficit. In doing so, non-government will accumulate net financial assets over the period and increase its stock of net financial wealth.”

Let us put the accounting right.#1, #2. At first, we have only the business and the household sector. The two sectoral balances are given as follows:

Q_m≡C−Y_w   profit Q_m is the household sector’s spending C minus wages Y_w,
S_m≡Y_w−C   saving S_m is wage income Y_w minus consumption expenditures C,
-------------
Q_m≡−S_m.

The business sector’s monetary profit Q_m is equal to the household sector’s dissaving. This is the most elementary form of the macroeconomic Profit Law.

Now, the government sector GS has been added. The three sectoral balances are given as follows:

Q_m≡C+G−Y_w   profit Q_m is HS- and GS-spending C+G minus wages Y_w,
S_m≡Y_w−T−C    saving S_m is wage income Y_w minus taxes T and expenditures C,
B_m≡T−G         GS budget surplus B_m is taxes T minus government expenditures G,
-----------------
Q_m≡−S_m−B_m.

The business sector’s monetary profit Q_m is equal to the household sector’s budget deficit, a.k.a.. dissaving, plus the government sector’s budget deficit.

For three sectors, proper accounting yields three sectoral balances that add up to zero. Now MMT does not stop here but fiddles with the balances as follows: (i) Q_m+S_m+B_m=0, (ii) Q_m+S_m=−B_m=G−T, (iii) non-government balance = − government balance, respectively, private sector surplus = government deficit. Business sector profit/loss and household sector dissaving/saving are verbally lumped together to the non-government = private sector balance and thereby vanish out of sight.

Source: Twitter Deficit Owl

Why does MMT make profit disappear with this accounting shell game? Let S_m be zero, that is, the household sector’s budget is balanced, then (ii) says that the business sector’s profit is equal to the government sector’s deficit, i.e. Q_m=G−T, i.e. Public Deficit = Private Profit. While (iii) says that the non-government surplus is equal to the government sector’s deficit, which is misleading, to say the least.

Why MMT 'aggregates' the business and the household sector is at anybody’s guess. Formally, it is inadmissible, that much is clear. The destruction of valuable information is NOT the purpose of accounting, just the opposite.

Egmont Kakarot-Handtke


#1 Economists: just too stupid for counting
#2 The pure production-consumption economy is defined with the macroeconomic axiom set: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm. (A1) Y_w=WL wage income Y_w is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X. For a start, X=O.

Related 'Why is MMT so false?' and 'MMT: The joy of public deficit spending' and 'MMT: The one deadly error/fraud of Warren Mosler' and 'Down with idiocy!' and 'Is Nick Rowe stupid or corrupt or both?' and 'Proving Bill Mitchell wrong ― burying MMT for good'. For the point-by-point refutation of MMT, see cross-references MMT. For the accounting blunder, in particular, see 'Rectification of MMT macro accounting' and cross-references Accounting.

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AXEC197a

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LINK on Aug 12

Peter Copper asserts: “The accounting identities are indisputable (provided we accept the principles of accounting).”

MMT violates the principles of accounting. For details, see MMT and the magical profit disappearance.

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REPLY to Matt Franko on Aug 13 and to Dean on Aug 14

Peter Copper asserts: “The accounting identities are indisputable (provided we accept the principles of accounting).”

Fact is
• accounting is elementary mathematics,
• MMTers do not understand the underlying math of accounting,#1
• the accounting equations of MMT are provably false,#2
• these are the correct accounting identities:

Q_m≡C+G−Y_w    profit Q_m, business sector,
S_m≡Y_w−T−C     saving S_m, household sector,
B_m≡T−G          budget surplus B_m, government sector,
----------------
Q_m+S_m+B_m=0.

• for THREE sectors, proper accounting yields THREE sectoral balances which add up to zero,
• it is either mathematical incompetence or fraud that profit does not appear in the MMT accounting identities,
• Peter Cooper violates the principles of accounting.

Takeaway: As far as Peter Copper only parrots Bill Mitchell and Randall Wray the charge of scientific incompetence applies to these spokespersons of MMT.#3


#1 A tale of three accountants
#2 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#3 For the full-spectrum refutation of MMT, see cross-references MMT.

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REPLY to Dean on Aug 15

You say: “Yeah, I'm not arguing with anyone on the underlying math of accounting … all I really care about is proving to those that matter that it is not mathematically possible for everyone to be solvent …”

There are opinions and brain-dead blather. This is called politics. There are knowledge and proof. This is called science.

MMT belongs to the first category. Peter Cooper’s discussion about the sectoral balances identity demonstrates beyond any doubt that MMT is economics from suckers for suckers.

Note that you contradict yourself in one sentence. You care about proof but not about the underlying mathematics of accounting. What does your proof, then, consist of?

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Kindle, Stephanie Kelton, Deficit Myth

Where is the third bucket (household sector, business sector, government sector)?

For more about sectoral balances, see AXECquery.

At last, mathiness problem settled

Comment on NoahSmith/Lars Syll on ‘Economics — a rogue branch of applied mathematics’

Blog-Reference

Noah Smith writes: “Traditionally, economists have put the facts in a subordinate role and theory in the driver’s seat. Plausible-sounding theories are believed to be true unless proven false, while empirical facts are often dismissed if they don’t make sense in the context of leading theories. This isn’t a problem with math ...” (See intro)

Exactly so. The problem has never been math but that economists have never grasped what science is all about: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

The problem can be exactly located here: “As with any Lakatosian research program, the neo-Walrasian program is characterized by its hardcore, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.
By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program. "Taken to be true" means that the hard-core functions like axioms for a geometry, maintained for the duration of study of that geometry.” (Weintraub, 1985, p. 147)

The material refutation consists of the refutation of these behavioral axioms, that is, HC1 is vacuous and HC2 to HC5 lacks material consistency. This suffices to put an end to the traditional research program.

The formal — i.e. mathiness — refutation consists of: “Thus not all axiomatic theories need to be phrased in terms of set theory but much more conveniently and intelligibly rather in terms of some advanced mathematical structures.” (Schmiechen, 2009, p. 367)

The solution to the mathiness problem: economics has to move from Debreu's set-theoretical approach to an advanced formal structure (2014).

Genuine scientists always understood — and economists never got it — that a theory consists of two vital elements. “A scientific deductive system (“scientific theory”) is a set of propositions in which each proposition is either one of a set of initial propositions ... or a deduced proposition ... which is deduced from the set of initial propositions according to logico-mathematical principles of deduction, and in which some (or all) of the propositions of the system are propositions exclusively about observable concepts (properties or relations) and are directly testable against experience.” (Braithwaite, 1959, p. 429)

Note that the hardcore propositions HC1 to HC5 lack observable concepts. This has always been the pivotal problem, not math — or the underlying axiomatic-deductive method — per se.

Egmont Kakarot-Handtke


References
Braithwaite, R. B. (1959). Axiomatizing a Scientific System by Axioms in the Form of Identifications. In L. Henkin, P. Suppes, and A. Tarski (Eds.), The Axiomatic Method, 429–453. Amsterdam: North-Holland.
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition. URL
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

The father of modern economics and his imbecile kids

Comment on Peter Dorman on ‘The Hard Core of Neoclassical Economics’

Blog-Reference and Blog-Reference on Nov 8

“If we can single out one person as the father of modern economics, it would have to be Paul Samuelson. His Economics: An Introductory Analysis ... became the best selling textbook in history.” #1

Samuelson laid the foundations of what developed into DSGE, which represents the current mainstream. Lucas, the public face of DSGE, fondly remembered that “he was bewitched by the beauty and power of Samuelson’s Foundations of Economic Analysis.” We know by now that DSGE in all its variants is an abysmal failure. The actual state is that there is no such thing as economics that fits the scientific criteria of material and formal consistency.

The point is that Samuelson messed up economics back in 1948, but his intellectual children did not realize it to this very day, to say nothing about rectification.

Initially, things moved in the right direction: “As an undergraduate in the 1930s, Samuelson saw the economics he studied as a disparate collection of ad hoc explanations. ... What the discipline needed, he believed, was a set of unifying, fundamental principles, like those Euclid had provided for geometry and Newton for physics.” (see #1)

Samuelson realized clearly that the enormously productive and successful physics/ mathematics of the first part of the century were driven by the idea of first principles/ultimate reality/axiomatization, with Einstein and Hilbert as key figures.

“When we assemble the facts of a definite, more-or-less comprehensive field of knowledge, we soon notice that these facts are capable of being ordered. This ordering always comes about with the help of a certain framework of concepts ... The framework of concepts is nothing other than the theory of the field of knowledge. ... If we consider a particular theory more closely, we always see that a few distinguished propositions of the field of knowledge underlie the construction of the framework of concepts, and these propositions then suffice by themselves for the construction, in accordance with logical principles, of the entire framework.” (Hilbert)

No doubt, Samuelson’s basic idea was right. Economics was ripe for axiomatization and unification. But then he went off to make economics what Feynman called a cargo cult science, that is, he copied the outer form from wildly successful physics/mathematics without ever grasping the methodological essentials.

And this is what we have today. There is Orthodoxy with ― behavioral ― microfoundations, and it has been nicely defined by Krugman: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” #2

Methodologically, these premises are forever unacceptable. #3 One tends to think that some smart person would, for example, soon have realized that it is inadmissible to take equilibrium into the premises. This is what is known since antiquity as petitio principii. Yet, it did not happen.

Next, there is Keynesianism with ― structural/systemic ― macrofoundations. #4

These formal foundations are conceptually and logically defective because Keynes never came to grips with profit. Methodologically, Keynes’ hardcore premises are forever unacceptable.

In Samuelson’s synthesis, the defective Walrasian microfoundations and the defective Keynesian macrofoundations were cobbled together. Samuelson’s textbook consisted of two well-balanced halves: microeconomics and macroeconomics. Needless to emphasize that both halves did not logically fit together.

Science is committed to material and formal consistency. Samuelson’s textbook had ― with a probability close to 1 ― the lowest scientific content of all textbooks ever written. Supply-demand-equilibrium will forever stand out as the silliest model in the history of science.

The fact of the matter is: the microeconomic axioms are inconsistent, the macroeconomic axioms are inconsistent, and the synthesis of the two sets is, by consequence, also inconsistent. No hard scientific core wherever one looks.

By implication, economic policy guidance NEVER has had sound scientific foundations. Whatever economists in general or Samuelson, in particular, have argued for or against the market economy has NO scientific content at all. Whatever one hears from the right side or the left side about how the economy works is no more than unfounded political blather.

Contemporary economics, in its orthodox and heterodox variants, is the epitome of a collective aberration that started with the father of modern economics 70+ years ago and is still going on. Scientifically rather untalented, Samuelson’s professional offspring never figured out the methodological hardcore of economics. #5 To this day, economics in its actual realization as Walrasianism, Keynesianism, Marxianism, and Austrianism is a heap of proto-scientific garbage.

Egmont Kakarot-Handtke


#1 See Euclidean economics, Kelvin Rowley profiles the leading figure in postwar economics, Paul Samuelson
#2 More detailed, the starting point is given with these hardcore 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)
#3 For details and proofs, see the blog  and working papers
#4 Keynes started the macrofoundations research program in the General Theory formally as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.”
#5 The solution consists of new macrofoundations. For the correct axiomatic hardcore, see From Orthodoxy to Heterodoxy to Metadoxy.

Related 'Economists ― standing on the shoulders of dwarfs' and 'How to overcome the manifest silliness of Econ 101 and save the economy' and 'Refuting MMT’s Macroeconomics Textbook' and 'To this day, economists have produced NOT ONE textbook that satisfies scientific standards' and 'Economics textbooks ― tombstones at the Flat-Earth-Cemetery' and 'The miracle cure of economists’ micro-macro schizo' and 'MMT and the canonical macroeconomic model' and 'Wikipedia, economics, scientific knowledge, or political agenda pushing?'. For details of the big picture, see cross-references Scientific Incompetence and cross-references Failed/Fake Scientists.

For more about Samuelson, see AXECquery.

For more about textbook, see AXECquery.

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Graphic AXEC121g

Physics as obsessive windmill

Comment on Lars Syll on ‘Why the ergodic theorem is not applicable in economics’

Blog-Reference

From equilibrium to ergodicity economists have misunderstood and abused physical concepts. One should think that after more than two hundred years of consistent failure at least Heterodoxy would be out of physicalism. That much is clear from this thread, Fred Zaman is not.

One cannot by any stretch of the imagination enlist Einstein for ‘macroeconomic anthropology.’

“Like Planck, Einstein viewed the human element of any physical theory as essentially arbitrary, something that should be purged on realization of the final true theory.” (Mirowski, 2004, p. 159)

One cannot by any stretch of the imagination enlist Einstein for ‘ontological falsification.’

“On the contrary the scientists of those times were for the most part convinced that the basic concepts and laws of physics were not in a logical sense free inventions of the human mind, but rather that they were derivable by abstraction, i.e. by a logical process, from experiments. It was the general Theory of Relativity which showed in a convincing manner the incorrectness of this view. For this theory revealed that it was possible for us, using basic principles very far removed from those of Newton, to do justice to the entire range of the data of experience in a manner even more complete and satisfactory than was possible with Newton's principles. But quite apart from the question of comparative merits, the fictitious character of the principles is made quite obvious by the fact that it is possible to exhibit two essentially different bases, each of which in its consequences leads to a large measure of agreement with experience.” (Einstein, 1934, p. 166)

What Einstein lays out here is the axiomatic-deductive method which has been applied with overwhelming success by Newton.

“Could all the phaenomena of nature be deduced from only thre [sic] or four general suppositions there might be great reason to allow those suppositions to be true.” (Newton, quoted in Westfall, 2008, p. 642)

Stop physicalism, stop psychologism, stop sociologism: start at long last with economics proper. It is not science that has to be reinvented, it is economics.

Egmont Kakarot-Handtke


References
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Mirowski, P. (2004). The Effortless Economy of Science? Durnham, London: Duke University Press.
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.

The Science-of-Man Fallacy

Comment on Merijn Knibbe on ‘Don’t throw away Angus Deaton with the bathwater of the Riksbank prize — he’s good!’

Blog-Reference and Blog-Reference

What Angus Deaton is practicing is essentially sociology. Sociology belongs to the so-called social sciences. Strictly speaking, the social sciences are what Feynman called cargo cult science.

The program of the social sciences has been defined by Hume: “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 they lie under the cognizance of men, and are judged of by their powers and faculties.” (Hume, 2012, Introduction)

Hume’s program has been explicitly taken over by Pareto: “The foundation of political economy and, in general, of every social science, is evidently psychology. A day will come when we shall be able to deduce the laws of social science from the principles of psychology ...” (Pareto, 2014, p. 20)

Pareto gives us the Science-of-Man Fallacy in a nutshell. As a matter of fact, NO way leads from the understanding of human behavior or the ‘principles of psychology’ to the understanding of how the actual economy works.

The crucial point is that economics deals — in the first place — not with individual human behavior or society at large (Hudík, 2011). This is the realm of psychology, sociology, anthropology, history, political science, etcetera. Insofar as economics deals with behavioral assumptions like utility maximization, greed, power-grabbing, etcetera, it is a dilettantish variant of Psycho-Sociology or PsySoc.

What is the real subject matter of economics? As a first approximation, one can agree on the general characteristic that the economy is a complex system. However, with the term system, one usually associates a structure with components that are non-human. In order to stress the obvious fact that humans are an essential component of the economic system, the market economy should be characterized more precisely as a complex hybrid human/system entity or SysHum.

The scientific method is straightforwardly applicable to the sys-component but not to the hum-component. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons, the analysis has to start with the objective system component (2014).

Methodologically, the economic system is in the foreground. Common sense wrongly insists that the hum-component must always be in the foreground. This is the Science-of-Man Fallacy, which compares to geo-centrism. The economic system has its own logic, which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the Invisible Hand.

Economic analysis has to make the Invisible Hand visible, that is, it has first of all to uncover the systemic laws of the monetary economy.

The Science-of-Man approach has abysmally failed in economics. Heterodoxy better gets out of PsySoc before the so-called social sciences — and this is overdue — are for cogent methodological reasons expelled from the sciences.

Egmont Kakarot-Handtke


References
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
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Pareto, V. (2014). Manual of Political Economy. Oxford: Oxford University Press. URL

***

ICYMI  (comment on anne of October 15, on October 16)

Cargo cult is a well-defined description of the actual state of economics: “Suffice it to say that, in my opinion, what we presently possess by way of so-called pure economic theory is objectively indistinguishable from what the physicist Richard Feynman, in an unflattering sketch of nonsense ‘science,’ called ‘cargo cult science’.” (Clower, 1994, p. 809)

The precise meaning is: “So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they're missing something essential, ...”#1

What is missing is an understanding of what science is all about. Feynman had this understanding; the representative economist never came even close to it, see ‘The Farce That Is Economics: Richard Feynman On The Social Sciences.’ (Tavares, 2014)

As a simple rule of thumb, it holds: the student who accepts supply-demand-equilibrium as an explanation of how the market system works disqualifies himself irrevocably as a scientist. The actual state of economics is that the representative economist cannot even tell the difference between profit and income (2015). Economists have no idea of the most important phenomenon of their universe and hallucinate that economics is a science.


References
Clower, R. W. (1994). Economics as an Inductive Science. Southern Economic Journal, 60(4): 805–814.
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Tavares, E. (2014). The Farce That Is Economics: Richard Feynman On The Social Sciences. ZeroHedge blog post. URL


#1 Wikipedia Cargo Cult Science

Related 'The real problem with the economics Nobel'. For details of the big picture, see cross-references Not a Science of Behavior and cross-references Failed/Fake Scientists and cross-references Paradigm Shift.

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Graphic AXEC121i

Forget equilibrium

Comment on Lars Syll on 'Finding equilibrium'

Blog-Reference

It is a rather old problem with these savants: “These savants, as Galileo put it, first decided how the world should function in accordance with their preconceived principles. ... He openly criticized scientists and philosophers who accepted laws which conformed to their preconceived ideas as to how nature must behave.” (Kline, 1982, p. 48)

Equilibrium, or by implication disequilibrium, is a NONENTITY. However, it is a fact — not only in the realm of science — that people have a strong proclivity to occupy themselves with NONENTITIES. As J. S. Mill put it: "Mankind in all ages have had a strong propensity to conclude that wherever there is a name, there must be a distinguishable separate entity corresponding to the name; ..." (2006, p. 756)

The inexcusable methodological blunder with equilibrium is this: “... you shouldn't find the fixed equilibria first and then see if an economy converges to it; rather, the convergence process will itself constitute the equilibrium, if any exist.” (Mirowski, 1989, p. 459)

In brief, it is inadmissible to put assumptions like equilibrium, decreasing returns, perfect competition etc. into the premises (2014). This blunder is known since antiquity as petitio principii, and J. S. Mill, the founder of economic methodology, dealt with it at length in his System of Logic.

Equilibrium economists have not solved anything: “It is utopian, as a matter of economics, because in effect it simply assumes from the outset a perfect solution to the very problem that an economic system is supposed to solve.” (Nelson, 2006, p. 62)

Therefore, the title of the book is, to begin with, misleading. Economists have not found an equilibrium but simply put it into the top hat. Economic methodologists who overlook this constructive defect, and there are many, are not up to their task.

What follows from all this?

Students of economics can save a wealth of time by immediately stopping to read an article or a book as soon as the concept of equilibrium is introduced. Even better, with immediate effect, journals no longer accept papers that apply equilibrium.

Identifying NONENTITIES is one of the defining activities of science. The discussions among physicists became enormously productive just by no longer applying concepts like perpetual motion machines or epicycles because these refer to NONENTITIES. It is perfectly analogous to equilibrium.

The representative economist does not understand what Aristotle already understood: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Resume of Posterior Analytics)

Equilibrium is neither a certain, true, nor primary premise. To cling any longer to equilibrium is self-disqualifying.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Kline, M. (1982). Mathematics. The Loss of Certainty. Oxford, New York: Oxford University Press.
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, Vol. 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Mirowski, P. (1989). The Rise and Fall of the Concept of Equilibrium in Economic Analysis. Louvain Economic Review, 55(4): 447–468. URL
Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania: Pennsylvania State University Press.

For more about equilibrium, see AXECquery.

No more critique of economics, please!

Comment on 'Saving=Investment fallacy'

Blog-Reference

In its present state, economics is unsatisfactory. Most economists can agree with this. It is not surprising then that complaining and debunking have almost become a sub-discipline of economics. Not much can be said against this, except that it is a detour.

As Schumpeter already noted: “If we feel misgivings nevertheless, all we have to do is to start appropriate research. Anything else is pure filibustering.” (1994, p. 577)

Or, Blaug, in even stronger words: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (1998, p. 703)

The problem is that conventional economics has so many obvious defects that it is not at all clear where to start. Here, Keynes pointed the way: “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (1973, p. xxi)

And this leads back to the question that J. S. Mill posed at the very beginning of theoretical economics:
“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.” (2006, p. 746)

And this leads even further back to the beginning of science: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle, Analytica)

The premises of Orthodoxy are uncertain and false and this fully explains its failure. What exactly are the premises?

“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, p. 147)

Note well that these axioms have only been taken to be true and irrefutable by the adherents of Orthodoxy. They are by no means irrefutable for anybody else.

“If a professional group regards itself a having a message to deliver to others than its own members and makes any public claims in that respect, it thereby gives others the right to scrutinize the methods whereby that message was discovered, including the principles, or possibly prejudices, followed in choosing premises. They continue to do so. Cunningham in 1891 remarked that in the choice of premises ‘it is not always easy to tell when a professor of the dismal science is making a joke’ and I suspect that Cunningham meant that if the professor was not joking, then he was making a fool of himself.” (Viner, 1963, p. 12)

So, everyone who does not want to make a fool of himself has no choice but to come up with a new set of axioms (see 2014).

Egmont Kakarot-Handtke


References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
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 (1866).
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Viner, J. (1963). The Economist in History. American Economic Review, 53(2): 1–22. URL
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

A question of principle(s)

Comment on Geoff Davis on ‘Are all models wrong?’

Blog-Reference

You ask: “Who spoke truth? Newton? Einstein? Both? Neither?”

The short answer is that Einstein is more general and contains Newton as a limiting case for low speed. For economists, however, this is not the crucial point. What is much more enlightening is that both shared the same idea of truth.

Newton: “Could all the phaenomena of nature be deduced from only thre [sic] or four general suppositions there might be great reason to allow those suppositions to be true.” (quoted in Westfall, 2008, p. 642)

Einstein on generality: “For this theory [the Theory of Relativity] revealed that it was possible for us, using basic principles very far removed from those of Newton, to do justice to the entire range of the data of experience in a manner even more complete and satisfactory than was possible with Newton's principles.” (1934, p. 166)

Einstein’s fundamental methodological question: “If then it is the case that the axiomatic basis of theoretical physics cannot be an inference from experience, but must be free invention, have we any right to hope that we shall find the correct way?” (1934, p. 167)

Same answer as Newton: “In a certain sense, therefore, I hold it to be true that pure thought is competent to comprehend the real, as the ancients dreamed.” (1934, p. 167)

Same answer as J. S. Mill: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.” (2006, p. 746)

Scientists eventually establish the truth (=material and formal consistency). In economics, indeed, all models are wrong. Economists are stuck in the swamp of opinions because they messed up Mill’s opus magnum. Heterodoxy’s task is to get beyond political blather and to spell out the ‘thre or four general suppositions’ knowing from Orthodoxy’s failure already what the false answers are.

Egmont Kakarot-Handtke


References
Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Vol. 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund. URL
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.

Preceding Two steps towards truth. 

For details of the big picture see cross-references New Curriculum.

False on principle

Comment on Editor on ‘A critique of Samuelson’s and Nordhaus’s Principles of Economics’

Blog-Reference

“I often wonder whether other subjects suffer as much from textbook writers.” (Hahn, 1980, p. 127)

You say: “Econ 101 textbooks are misleading more than a million students a year in the U.S. alone because they leave the lasting impression that markets could solve all our economic problems if only they were left to themselves.” (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)

Nobody with a modicum of scientific instinct can accept the shallow explanations, the logical blunders, and the superficial formalization of Samuelson's textbook. The time that elapses before it sinks into oblivion is a straightforward metric for the stupidity of economists.

The first thing to do for Heterodoxy is to get rid of supply-demand-equilibrium and to come forward with the true theory of market interaction (2013; 2014; 2015). This is the cardinal point. What every heterodox economist should have learned by now is that critique and debunking are necessary but not sufficient.

This is the scientifically correct way and there is no shortcut and no royal road: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)

What indeed can be learned from Samuelson and the rest of the textbook writers is how not to do economics. All theories/models that take at least one of the following NONENTITIES into the premises are dead from the beginning: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/ prices, and ergodicity.

The only valid conclusion one can draw from all Foundations and Principles textbooks is that these foundations are unacceptable. Economics has not been built on methodologically sound foundations and this is why it is a failed science. “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 a set of foundational propositions that displays both formal and material consistency. This will be the day when Heterodoxy legitimately takes over Econ 101. Hurry up!

Egmont Kakarot-Handtke


References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
Hahn, F. H. (1980). General Equilibrium Theory. Public Interest. Special Issue: The Crisis in Economic Theory, 123–138.
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York: Kelley.
Kakarot-Handtke, E. (2013). How to Get Rid of Supply-Demand-Equilibrium. SSRN Working Paper Series, 2263172: 1–24. URL
Kakarot-Handtke, E. (2014). The Law of Supply and Demand: Here it is Finally. SSRN Working Paper Series, 2481840: 1–17. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: The Market. SSRN Working Paper Series, 2547098: 1–10. URL
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

The misleading nitty-gritty defense of MMT principles

Comment on Bill Mitchell on ‘Operationalising core MMT principles’

Blog-Reference

Yes, there is a lot of idiotic critique of MMT. Yes, there are tons of rubbish on the Internet about MMT from some “economics PhD student at a low-tier US university” or non-economists who either play dumb in order to derail a discussion or claim to know how to rectify economics and to save humanity and the planet.#1

This is nothing new in economics: “A sure sign of a crisis is the prevalence of cranks. It is characteristic of a crisis in theory that cranks get a hearing from the public which orthodoxy is failing to satisfy.” (Joan Robinson)

Bill Mitchell takes it upon himself to defend MMT against all types of misinterpretation and rubbish by going at great length into the details of Inflation Theory and of the practical realization of a Job Guarantee. His arguments are sound and there is not much to say against them except that they are beside the point.

By addressing a lot of nitty-gritty stuff, Bill Mitchell deflects from the fact that MMT has been refuted at the level of principles. The formal inconsistency of MMT has been proved, and the material inconsistency is testable.#2, #3, #4 The fact of the matter is that MMT is dilettante macroeconomics.

Bill Mitchell’s defense of MMT is as absurd as the answer of a bloodletter#5 who is told that his underlying theory of humors is false and that bloodletting does more harm than good: “What do you want, my handling of leeches is second to none and I have practically demonstrated this time and again.”

The fault of MMT does NOT lie at the operational level of how money can be created out of nothing and spent into the economy for all kinds of social purposes but at the level of theory.

This is the core of MMT’s scientific failure. The false MMT balances equation reads (I−S)+(G−T)+(X−M)=0, the correct equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0 and it boils down to Public Deficit = Private Profit. In other words, the MMT policy of permanent deficit-spending/money-creation amounts to a permanent free lunch for the Oligarchy. MMT policy is NOT social as claimed, just the opposite.

Because the foundational sectoral balances equation is false the whole analytical superstructure of MMT is false. Because the theory is false, the policy is counter-productive and it does not matter much whether the operational execution is perfect or not.

Bill Mitchell fills his blog with the nitty-gritty defense of MMT policy but never addresses the refutation of the theoretical foundations of this policy. Compared to the low-IQ critique of an “economics PhD student at a low-tier US university” and other trolls, Bill Mitchell’s defense is well-argued and convincing at the operational level. Unfortunately, he cannot disprove that MMT does not satisfy the scientific criteria of material and formal consistency. Bill Mitchell never addresses the argument that MMT amounts to bloodletting WeThePeople.

Egmont Kakarot-Handtke


#1 Debunking idiots does not prove that MMT is valid
#2 MMT sucks
#3 The final implosion of MMT
#4 Down with idiocy!

#5 “Bloodletting, whether by a physician or by leeches, was based on an ancient system of medicine in which blood and other bodily fluids were regarded as ‘humours’ that had to remain in proper balance to maintain health. It is claimed to have been the most common medical practice performed by surgeons from antiquity until the late 19th century, a span of almost 2,000 years.” (Wikipedia)

For more about iatrogenic economics see AXECquery.

Key Issues: Hilbert-Bourbaki-Mill and von Neumann's monster-structure

... for nothing is farther from the axiomatic method than a static conception of the science. We do not want to lead the reader to think that we claim to have traced out a definitive state of the science. (Bourbaki, 2005, p. 1274)

When we assemble the facts of a definite, more-or-less comprehensive field of knowledge, we soon notice that these facts are capable of being ordered. This ordering always comes about with the help of a certain framework of concepts [Fachwerk von Begriffen ] .... The framework of concepts is nothing other than the theory of the field of knowledge. ... If we consider a particular theory more closely, we always see that a few distinguished propositions of the field of knowledge underlie the construction of the framework of concepts, and these propositions then suffice by themselves for the construction, in accordance with logical principles, of the entire framework. ... The procedure of the axiomatic method, as it is expressed here, amounts to a deepening of the foundations of the individual domains of knowledge — a deepening that is necessary for every edifice that one wishes to expand and to build higher while preserving its stability. (Hilbert, 2005, pp. 1107-1109), original emphases

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)

Could all the phaenomena of nature be deduced from only thre [sic] or four general suppositions there might be great reason to allow those suppositions to be true. (Newton, quoted in Westfall, 2008, p. 642)

I find it quite amazing that it is possible to predict what will happen by mathematics, which is simply following rules which really have nothing to do with what is going on in the original thing. (Feynman, 1992, p. 171)

From the axiomatic point of view, mathematics appears thus as a storehouse of abstract forms — the mathematical structures; and it so happens — without our knowing why — that certain aspects of empirical reality fit themselves into these forms, as if through a kind of preadaptation. (Bourbaki, 2005, p. 1276)

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However, there also occur structures entirely without application, the so-called monster-structures (Bourbaki, 2005, p. 1275, fn. 9).

From the structural axiomatic point of view, the subjective-behavioral axioms yielded such a formalism without application. Its sole merit was "that of showing the exact bearing of each axiom, by observing what happened if one omitted or changed it."

Bourbaki cannot be made accountable for the conventional monster-structure. The same holds for Hilbert and, of course, Mill.

..., it was the von Neumann perspective that shaped general equilibrium theory ..., and thus reconstituted economic theory. (Weintraub, 2002, p. 78)

As a student of Hilbert and a proponent of axiomatization, von Neumann immediately realized that Walras's mathematics was insufficient:

The so-called "mathematical" economists in the narrower sense — Walras, Pareto, Fisher, Cassel, and hosts of other later ones — especially, have completely failed even to see the task that was before them. Professor Hicks has to be added to this list, which is regrettable because he wrote several years after decisive work had been done — in principle — by J. von Neumann and A. Wald. (Morgenstern, 1941, p. 369)

Von Neumann did not realize, though, that Walras' supply-demand-zero-profit-equilibrium was mistaken in the first place and never represented any feasible economy. It was only Walras's formalism that was eventually repaired. For von Neumann, general equilibrium was first and foremost a mathematical puzzle. To crack the nut, he advocated the fixpoint approach. With explicit disregard of economic content, the axiomatization of Walrasian economics was completed by Debreu and others. This, however, could not change the fact that equilibrium is a NONENTITY. What, in effect, had been solved was an angels-on-the-pinpoint problem. This subsequently became the core competence of standard economics. It is a curious fact that the physicists and mathematicians who came in great numbers with advanced tools to economics to help the indigenous folk (Mirowski, 1995) in effect moved the whole thing deeper into the Walrasian cul-de-sac.

It is difficult to contemplate the evolution of the economic science over the last hundred years without reaching the conclusion that its mathematization was a rather hurried job. (Georgescu-Roegen, 1979, p. 271)

Axiomatization in economics suffers from many misunderstandings (see also Crisis and Methodology: Some Heterodox Misunderstandings URL). This, clearly, is not an argument against the method but against economists.

The method of reasoning by chains of syllogisms is nothing but a transformation mechanism, applicable just as well to one set of premisses as to another; it could not serve therefore to characterize these premisses. (Bourbaki, 2005, pp. 1267-1268)

The deductive method does not prove that the premises are true. The truth of theorems and the truth of premises are entirely different questions. The deductive method guarantees that the conclusions are true if the premises are true.

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Outside pure mathematics, the usefulness of axiomatization crucially depends on the real-world domain. Not everything is axiomatizable. There is, for example, no such thing as a behavioral axiom. By borrowing from physics and mathematics, the neoclassicals got the essentials wrong from the very beginning.

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)

Jevons' rhetorical question points exactly to the source of neoclassical confusion:

Must not the same inexorable reign of law which is apparent in the motions of brute matter be extended to the subtle feelings of the human heart? (Jevons, quoted in Mirowski, 1995, p. 219 )

Jevons had, with the laws of motion, the archetype of science on his mind:

But it was a second and more important quality that struck readers of the Principia. At the head of Book I stand the famous Axioms, or the Laws of motion … For readers of that day, it was this deductive, mathematical aspect that was the great achievement. (Truesdell, quoted in Schmiechen, 2009, p. 213)

What Jevons did not understand was that the trinity of law, axiom, and behavior does not work because behavior is original, as the scientists of all ages knew well (for details, see Objective Principles of Economics URL). With far-fetched analogies and his shallow scientific understanding, Jevons placed neoclassical economics on poor foundations (for details, see The Logic of Value and the Value of Logic URL), and there it stood, with some formal improvements, until recently.

For an outside observer without prior knowledge of habitual human reactions, behavior appears at first random. This is the point to start with, not introspection. The laws of motion of the human heart are pure kitsch and remain so in the abstract form of the first derivative of a utility function. From the marginal principle follows nothing that could help to understand how the market economy works. To think of human behavior in terms of deterministic laws is an unforgivable analytical blunder. It is the structure that is deterministic (see the Period Core), not the behavior.

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... if we wish to place economic science upon a solid basis, we must make it completely independent of psychological assumptions and philosophical hypotheses (Slutzky, quoted in Mirowski, 1995, p. 362, see also Hudík, 2011).

This is the defining property of the objective/structural/systemic axiom set.


References
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
Bourbaki, N. (2005). The Architecture of Mathematics. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, Vol. II, 1265–1276. Oxford, New York: Oxford University Press.
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Georgescu-Roegen, N. (1979a). Energy and Economic Myths, chapter Measure, Quality, and Optimum Scale, 271–296. New York, Toronto: Pergamon.
Hilbert, D. (2005). Axiomatic Thought. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, Vol. II, 1107–1115. Oxford, New York: Oxford University Press.
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Vol. 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, Vol. 1. Norderstedt: Books on Demand, 2nd edition.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.

Related Euclid, Newton . For details about the Period Core, which represents a structural law, see The Synthesis of Economic Law, Evolution, and History URL.


© 2013 EKH, except original quotes

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