The Palgrave Dictionary ― a comprehensive collection of false-hero memorials

Comment on Barkley Rosser on ‘Learning The Origin Of “Duality”’

Blog-Reference

Barkley Rosser reports: “Yesterday I learned that the person who first used the term ‘duality’ in connection with linear programming, indeed with anything in economics, was John von Neumann in a private conversation with George Dantzig in 1947, the ‘father of linear programming.’ That was the year Dantzig published his paper showing the simplex method for solving linear programming problems, bot their primals and their duals. … It is not really surprising that it would be von Neumann as there are deep links between oprimizing programming and game theory.”

Yes, indeed, and the deep link is in the Walrasians axioms. The hardcore propositions of microeconomics are given with: “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)

This axiom set contains a lot of NONENTITIES, a fact that did not escape the mathematicians: “Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter)

The next mathematician to realize that Walrasian mathematics was not up to standards was von Neumann: “You know, Oskar, if those books are unearthed sometime a few hundred years hence, people will not believe they were written in our time. Rather, they will think that they are about contemporary with Newton, so primitive is their mathematics. Economics is simply still a million miles away from the state in which an advanced science is, such as physics.”

The two central issues the mathematicians addressed were HC2, i.e., constrained optimization, and HC5, i.e., equilibrium. The end result was General Equilibrium Theory, which is known today to be a failure. #1 The mathematicians fixed the economists’ mathematical blunders #2, #3, but von Neumann uncritically bought into the silly behavioral assumptions of mainstream economics. #4 So, the project of the proper formalization of economics had one fatal drawback: von Neumann left the foundational assumptions untouched: “But this [establishing the analytic mother-structure] required one very crucial maneuver that was nowhere stated explicitly: namely, that the model of Walrasian general equilibrium was the root structure from which all further work in economics would eventuate.” (Weintraub)

Because of this, the NONENTITIES HC2 and HC5 are still with us from choice theory to Game Theory. Strictly speaking, von Neumann messed up the Paradigm Shift, and this is where things stand to this day: “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.)

Barkley Rosser does not fail to mention that economists have developed the habit to award themselves faux Nobels for their scientific failure and that “it has long been viewed by many as being one of the greatest mistakes and wrongs that when the Nobel Prize was given for linear programming, Dantzig was not one of the recipients, …” Indeed, False-Hero Memorials are the real problem of the cargo cult science economics.

Egmont Kakarot-Handtke


#1 “At long last, it can be said that the history of general theory from Walras to Arrow-Debreu has been a journey down a blind alley, and it is historians of economic thought who seem to have finally hammered down the nails in this coffin. It has been a dead alley because the most rigorous solution of the existence problem by Arrow and Debreu turns general theory into a mathematical puzzle applied to a virtual economy that can be imagined but could not possibly exist, while the extremely relevant ‘stability problem’ has never been solved either rigorously or sloppily. General theory is simply a research program that has run into the sands.” (Blaug)

#2 “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)

#3 “Consequently, it was the von Neumann perspective that shaped general equilibrium theory and game theory, and thus reconstituted economic theory. Thus, David Hilbert was the spiritual grandfather of this new economics. (Weintraub) Interestingly, both von Neumann and Einstein got/took their advanced math from Hilbert and the Göttingen School.

#4 “In any event, it seems that Morgenstern finally convinced von Neumann that they must proceed tactically by means of the conciliatory move of phrasing the payoffs in terms of an entity called ‘utility’, but one that von Neumann would demonstrate was cardinal ― in other words, for all practical purposes indistinguishable from money . . .” (Mirowski)

***

REPLY to Barkley Rosser on Jun 26

When the classical economists for a moment stopped writing their silly propaganda pamphlets and watched what was going on in the triumphant sciences they could not fail to notice that calculus was a core element of analysis: “Already Maupertuis considered his minimum principle as proof that the world, where among many virtual movements the one leading to maximum effect with minimum effort is realized, is the ‘best of all worlds’ and work of a purposeful creator. Euler made a similar remark: ‘Since the construction of the whole world is the most eminent and since it originated from the wisest creator, nothing is found in the world which would not show a maximum or minimum characteristic.’ ...” (von Bertalanffy)

Economists had the presence of mind to adopt optimization as a foundational principle, and eventually it became HC2 of the Walrasian axiom set. This is how economics became marginalistic and remained so to this day: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...” (Krugman)

Constrained optimization is simple if the assumption of a well-behaved production function is added. In the course of time, mathematicians found solutions for more complicated problems of production, transport, warfare, and the like. This is where Dantzig and Kantorovich came in.

However, while mathematicians developed solutions for real-world problems, economists applied constrained optimization to human behavior. This is the foundational idiotism of microfoundations: “Throughout its history, the idea of some ‘Fundamental Assumption’, some basic ‘Economic Principle’ about human conduct, from which much or most of economics can ultimately be deduced, has been deeply rooted in the procedure of economic theory. Some such notion is still, in many quarters, dominant at the present time. For example, it has recently been stated that the task of economics is ‘to display the structure and working of the economic cosmos as an outgrowth of the maximum principle’.” (Hutchison)

The point is: no way leads from a behavioral assumption (optimization or otherwise) to the understanding of how the economy works. Standard economics is based on behavioral axioms, and this is not a solid enough foundation: “… if we wish to place economic science upon a solid basis, we must make it completely independent of psychological assumptions and philosophical hypotheses.” (Slutsky)

So, mathematicians have done a fine job of solving all kinds of complex optimization problems. This, though, does not alter the fact that microfoundations HC1 to HC5 are proto-scientific garbage and have to be replaced by macrofoundations. This is called a Paradigm Shift, which, as everyone knows by now, has been messed up by the waffling economist Keynes. Economists are simply too stupid for the elementary mathematics that underlies macroeconomics. #1, #2

Economists claim, since Adam Smith, that the free market economy is self-regulating and self-optimizing if left to itself. In reality, it is just the opposite: the real part of the economy is kept on life support by the government, and the monetary/financial part is kept on life support by the Central Bank. #3

Economics is a failed science, and the Bank of Sweden's fake Nobel is the most fraudulent of all False-Hero Memorials. #3


#1 Are economics professors really that incompetent? Yes!
#2 Econ 101: Economists flunk the intelligence test at the first hurdle
#3 The Levy/Kalecki Profit Equation is false

***

REPLY to Barkley Rosser on Jun 27

You say: “Sorry, but a lot of the people you label as ‘economists’ were or are really mathematicians, e.g., von Neumann, Nash, Kantorovich.”

No. My point is that it was mathematicians and not economists who cleared up the mathematical mess of economists and did all the heavy lifting that resulted in General Equilibrium Theory. See Mirowski’s More Heat Than Light for the finer points, especially how mathematically trained engineers who dabbled in economics desperately tried to make economists aware that they applied calculus incorrectly. To no avail, of course.

It is mathematicians who deserve most or all of the credit for solving the tricky optimization problems that were implicit in the (verbalized, i.e., not yet formalized) Walrasian axiom HC2. Solving optimization problems is mathematics and, strictly speaking, not economics. Economics is about how the economic system works. The simple fact of the matter is that General Equilibrium Theory, which is based on HC2, i.e., constrained optimization, and HC5, i.e., equilibrium, does NOT explain how the economy works. This showpiece of the mathematicians’ ingenuity has NO economic content at all. GET belongs to the “... crop of monster-structures, entirely without application.” (Bourbaki)

To award an economics “Nobel” to a mathematical achievement has to be seen as an attempt to give the cargo cult science economics the appearance of genuine science.

Von Neumann’s contribution has to be seen in the context of the ideological/physical war capitalism/USA vs communism/Russia, and the involvement of mathematicians/physicists in the development of the atom bomb. Von Neumann recommended himself to the US military with his famous statement: “If you say why not bomb them tomorrow, I say why not today? If you say today at five o’clock, I say why not one o’clock?” (Wikiquote)

The US military needed the most advanced mathematics available on the planet, so von Neumann was sent to Göttingen: “In 1926 von Neumann went to Göttingen on a Rockefeller fellowship to work as Hilbert’s assistant. Göttingen was not only one of the centers of mathematics, but it also was a mecca of theoretical physics; thus in Göttingen von Neumann could familiarize himself with the latest developments concerning quantum mechanics. Hilbert himself gave lectures on the mathematical foundations of quantum mechanics in the academic year 1926-1927. Von Neumann attended these lectures, and working out the lecture notes taken during those lectures led to a joint publication and eventually to von Neumann’s three ground breaking papers on the mathematical foundations of quantum mechanics that served as the basis of his book.” #1

Not to forget, Game Theory is not so much about parlor games or the problems of incarcerated mobsters or strategic economic behavior as about war games.

What von Neumann learned from Hilbert was the crucial importance of axiomatization: “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. ... 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)

Note that the Theory of Games and Economic Behavior is axiomatized.

You say: “To the extent what they [the mathematicians] did id not good because of a failure to allow for a macrofoundatiions and that amounts to recognizing your silly profit accounting, your comments are just irrelevant and silly, Egmont.”

What I actually say is that ECONOMISTS are too stupid for the elementary mathematics that underlies macroeconomics. This is a provable fact.

Since Keynes, neither Post-Keynesians nor New Keynesians nor Anti-Keynesians have realized that I=S is false and has to be replaced by Q≡I−S, with Q representing macroeconomic profit. What Hilbert called “the framework of concepts” is false in economics to this day.

Needless to emphasize that you neither understand the problem of the proper axiomatization of economics nor the macroeconomic Profit Law. So, you are the ideal person to work on a new edition of the Palgrave collection of False-Hero-Memorials of the cargo cult science economics.

Economics is a failed/fake science, and the Palgrave Dictionary, and you are part of it. Economics needs a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.


#1 PDFs.semanticscholar Miklós Rédei, John von Neumann 1903-1957

***

REPLY to Barkley Rosser on Jun 28

Let’s return to the main point: “According to George Dantzig, the duality theorem for linear optimization was conjectured by John von Neumann immediately after Dantzig presented the linear programming problem. Von Neumann noted that he was using information from his game theory, and conjectured that two person zero sum matrix game was equivalent to linear programming.” #1

Von Neumann identified the Walrasian approach as given with the verbalized axioms HC1 to HC5 as petitio principii (TOG p. 15), that is, as methodologically unacceptable. #2 So, he introduced a new set of axioms: “An exact and exhaustive elaboration of these ideas requires the use of the axiomatic method.” (TOG p. 19) The formulation of a new set (TOG p. 24 f..) amounts to a Paradigm Shift.

Note, in particular, von Neumann’s general remark on axiomatization: “The axioms should not be too numerous, their system is to be as simple and transparent as possible, and each axiom should have an immediate intuitive meaning by which its appropriateness may be judged directly.” (TOG p. 25)

Generally speaking, von Neumann’s approach is (i) behavioral and (ii) bottom-up. In this, it resembles the Walrasian approach. Both may be put together under the label microfoundations. Now, the correct approach to economics is (i) structural and (ii) top-down. For good methodological reasons, economics has to be macrofounded.

Game Theory is predicated on von Neumann’s specification of utility (TOG p. 15) and this leads to the concept of zero-sum games: “In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which each participant’s gain or loss of utility is exactly balanced by the losses or gains of the utility of the other participants.” #3 Note that there is a quite subtle transition from utility (ordinal) to profit (cardinal): “In 1944, John von Neumann and Oskar Morgenstern proved that any non-zero-sum game for n players is equivalent to a zero-sum game with n+1 players; the (n+1)th player representing the global profit or loss.” #3

And exactly here is the lethal blunder: global profit or loss cannot be determined within the framework of Game Theory.

Here is the axiomatically correct proof. The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The economy consists of the household and the business sector, which, in turn, consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

Note that this set satisfies von Neumann’s general criteria of proper axiomatization as quoted above.

Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price as the dependent variable is given by P=W/R. This is the macroeconomic Law of Supply and Demand.

The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e., it holds X=O. The condition of budget balancing, i.e., C=Yw, is now skipped. The monetary saving/dissaving of the household sector is defined as S≡Yw−C. The monetary profit/loss of the business sector is defined as Q≡C−Yw. Ergo Q≡−S.

The balances add up to zero. The mirror image of household sector saving S is the business sector loss (-Q). The mirror image of household sector dissaving (-S) is business sector profit Q. Q≡−S is the elementary version of the macroeconomic Profit Law.

From Q+S=0, one could conclude that economics is a zero-sum game between the business sector and the household sector. However, this is only the first half of the truth. From the fact that profit comes from dissaving, it follows that the household sector accumulates debt (overdrafts at the central bank) while the business sector accumulates money (deposits at the central bank). Now, debt has to be eventually repaid, and this inverts the whole game: profit Q in period t is exactly annihilated by loss (-Q) in period t+1. The mirror image is dissaving (-S) in t and saving S in t+1. The result of these interlocked zero-sum games is zero profit over all periods.

The monetary economy is an intertemporal zero-sum game, and the n+1th player is the future. This is the reason why capitalism will eventually break down and NOT Marx’s phony Revolution of the Proletariat. The intertemporal zero-sum theorem fully replaces folk psychology/ sociology. Note that the intertemporal zero-sum theorem holds for a monetary economy that is for capitalism AND communism, AND anything in between. Which in turn proves that political economics has NEVER been anything other than proto-scientific garbage of the worst sort.


#1 Wikipedia Duality (optimization)
#2 Petitio principii — economists’ biggest methodological mistake
#3 Wikipedia Zero-sum game
#4 The Levy/Kalecki Profit Equation is false

Economists: at the end of the wrong track

Comment on Barkley Rosser on ‘July 24 Society For Chaos Theory In Psychology And Life Sciences Conference’

Blog-Reference

As usual, Barkley Rosser promotes cargo cult stuff. Cargo cult was the name that Feynman gave the ‘social sciences’, in order to clearly distinguish them from genuine science. Here are some programmatic highlights from the ongoing aberration:

• "Applications of prisoner's dilemma modeling in search of a more socially just dominant strategy: Overcoming anxiety associated with group oppression: Lessons from a single case study"
• "Stability swtiching in Cournot duopoly games with three delays"
• "Covid-19 and the nonlinear dynamics of everyday life"

All this fits perfectly with Feynman's definition: “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.”

The essential insight that economists are missing is that they are for 200+ years now on the wrong track, i.e., in the wrong Paradigm. Economics is not a 'social science' but a systems science.#1, #2

For Barkley Rosser, it is too late, but for those who are fed up with 200+ years of proto-scientific garbage and want to know what the Paradigm Shift looks like, there is now the first scientifically valid economics textbook available.#3

Egmont Kakarot-Handtke


#1 Wikipedia, economics, scientific knowledge, or political agenda pushing?
#2 Your economics is refuted on all counts: here is the real thing
#3 Sovereign Economics

Related 'Dilettantes at the end of the coal-pit' and 'Modern macro moronism' and 'Economics: 200+ years of scientific incompetence and fraud'.

***

REPLY to Fred C. Dobbs on Jul 5

You say, “Kanye West tweets he’s running for president this year.”

That’s a nice try to distract from the fact that Barkley Rosser is promoting the agenda of the Society for Chaos Theory in Psychology And Life Sciences. The title reminds one immediately of a $30 bill.

Note that economists do not know to this very day what profit is. They are simply too stupid for the elementary algebra that underlies macroeconomics. Just check the proof. #1 What do you think one can learn from failed economists about psychology or any other topic?

Nothing. Right.

By the way, if Caligula made his horse a Roman consul, Kanye West can be made president. What goes on in contemporary politics is old hat in academia. After all, Barkley Rosser has been made an economics professor. And he is not as smart as a horse.

#1 Wikipedia, economics, scientific knowledge, or political agenda pushing?
Section Provably false

***

REPLY to Barkley Rosser on Jul 6

Name-dropping again ... the world's leading blablahblah ... cited many tens of thousands of times ... Princeton ... RAND ... John von Neumann ... And almost all are best buddies of the academic busybody Barkley Rosser.

Yes, Barkley Rosser, you know a lot of people from the academic entertainment industry, too bad that you have no idea how the economy works.

You say, “It is true that economists have used game theory a lot, but they did not invent it, and people from many other disciplines have used it.” Did it ever occur to you that game theory is zero-sum and that the market economy is not zero-sum? For 200+ years now, macroeconomic profit is obviously greater than zero. So, to begin with, game theory does NOT apply to economics. Von Neumann’s Theory of Games and Economic Behavior is plain methodological BS because it gets the pivotal economic concept of profit wrong.

And you hang around in academia and all these pointless conferences and have not realized that something is deeply wrong with economics. Guess what, it has nothing to do with animal behavior or the nonlinear dynamics of armed groups in Yemen and Pakistan.

Learn economics, Barkley Rosser. The canonical textbook Sovereign Economics#1 is your last chance.


#1 Amazon or BoD

***

REPLY to Barkley Rosser on Jul 7

You say, “Wow, I have not seen you fall so spectacularly on your face practically ever. I do not know where you went to econ grad school, but apparently they did not teach you even the most elementary game theory.” and “Sorry, Egmont, but no, it is not in general zero sum. Indeed, the classic example of it not being zero sum is that most famous of cases you poked at: the prisoner's dilemma.”

Take notice first, Barkley Rosser, that the term game theory covers TWO different approaches, that of von Neumann and that of Nash. The prisoner's dilemma belongs to Nash. Von Neumann had only utter contempt for the Nash approach (see Mirowski, who has extensively dealt with the issue).

Here is the summary: “Finally, algorithmic rationality infected game theory itself, changing von Neumann’s original project considerably. The Nash Equilibrium, for Mirowski the paradigm case of the ‘rationality of the paranoid’ (p. 343), stands for him in marked contrast to von Neumann and Morgenstern’s earlier work. Mirowski points to various sources that report von Neumann’s rejection of the equilibrium concept; further, he finds in Nash’s work all of the ingredients that had beset the Cowles Commission: ‘hyper-individualism, non-accessible utility functions, constrained maximization, and cognition as a species of statistical inference’ (p. 348). The Nash equilibrium, Mirowski concludes, is to be seen as a ‘logical extension of the Walrasian general equilibrium tradition into the Cold War context’ (p. 339), but not as a continuation of von Neumann’s project.”#1

Obviously, it is you who is not familiar with the most elementary facts about game theory. No surprises here.

The term zero-sum game relates to the von Neumann approach and has nothing to do with the prisoner's dilemma.

Von Neumann was well aware that there are non-zero-sum n-person games, but he transformed them into zero-sum games with the introduction of the n+1th player.

Take notice, second, that von Neumann had no idea of what macroeconomic profit is. There are three references to profit in the index and they tell you that von Neumann did not understand the essence of economics. He simply redefined utility as profit for the entrepreneur, see footnote 2 on p. 33 ToG.

No way leads from game theory in any version to macroeconomic profit.#2 Game theory is essentially a new version of the old angels-on-a-pinpoint blather that is so beloved in scientifically incompetent academic circles, of which you are a card-carrying member.

Economics is a fake science, and you are living proof.


#1 Economica Till Gruene
#2 Wikipedia, economics, scientific knowledge, or political agenda pushing?

***

REPLY to Barkley Rosser on Jul 8

The lethal defect of game theory is that neither von Neumann nor Nash got the foundational economic concept of profit right. This defect they share with the representative economist to this very day.

So, this whole set-theoretical fireworks with Brower's and Kakutani's fixpoint theorems is scientifically beside the point and serves only to train mentally retarded economists to dance around false-hero memorials.

Von Neumann got his math from Hilbert in Göttingen. There, he was one of many talented mathematicians. He learned soon that he could sell his talent at a premium in the United States. In an environment that runs on the principles of show business, he hyped himself or was hyped to the status of mathematical demi-good (Mirowski, Machine Dreams).

Von Neumann was on the payroll of the military and he died as an alcoholic in the Institute for Advanced Salaries as he himself called it. In sum, von Neumann was instrumental in weaponizing mathematics and swapping the principles of science for the dictates of show business. In the history of science, von Neumann will feature as one of the corruptors of mathematics.

The sickest joke in the sick story of game theory is that the foundational blunder of economics lies on the level of elementary algebra.#1 So much for the achievements of mathematical economics. It is proto-scientific garbage, just like the rest of economics.

Here is the three-step program for the New Paradigm
1. Defund economics.
2. Fire economists.
3. Scrap the lot and start again. (J. Robinson)


#1 Your economics is refuted on all counts: here is the real thing

***

REPLY to Barkley Rosser on Jul 8

You say: “What? Joan Robinson accepted your wacko profit theory, Egmont? I never knew.”

Of course, you know nothing because you are not only stupid but also lazy. Go to the library and get Robinson, J. (1956). The Accumulation of Capital. London: Macmillan. See pp. 400-402.

“… an excess of investment over saving is an undistributed profit to the firm, …” (p. 402), and this corresponds formally to equation (32) in my 2011 working paper Keynes’s Missing Axioms.

Do you need more proof of your utter scientific incompetence, wacko Barkley?

***

REPLY to Barkley Rosser on Jul 9

You say, “I have never said that your theory is wrong, but rather that it is a vcuous tautology. Everybody knows about retained earnings, and it is a matter of no importance except slightly in determining investment.”

No, you did not say that my profit theory is wrong, you said that it is wacko.

You try to suggest that for me “… thinking about retained earnings is the most important thing in economics, …”.

No, the most important thing in economics is to get the foundational concept of profit right. And the fact of the matter is that economics is provably false on this all-decisive score for 200+ years.#1

Economics is NOT a science, economists are NOT scientists but clowns and useful idiots in the political Circus Maximus. The representative economist is stupid or corrupt or both. The economics Nobel is a fraud.


#1 Your economics is refuted on all counts: here is the real thing

***

REPLY to Barkley Rosser on Jul 10

You say, “The wacko part is that you think it is important. It is utterly trivial. It is rather like somebody deciding that the fundamental key to understanding all of mathematics is to realize that 7 + 2 = 9. This is certainly true, and it is also something that anybody who knows even basic arithmetic knows.”

By trying to trivialize the absolutely devastating proof that economists got profit wrong for 200+ years, you shoot yourself in the head.

Ultimately, the Profit Law for the investment economy, i.e., Q_m≡I−S_m, is indeed trivial. It is elementary algebra. The point is that economists are too stupid for elementary algebra.#1 And because of this, they get profit for the elementary production-consumption economy, i.e. Q_m≡−S_m, wrong, and then the more complex investment economy with profit distribution, i.e. Q_m≡Y_d+I−S_m, and so on. By consequence: because economists are too stupid for the elementary algebra of macroeconomic profit determination, the whole analytical superstructure of economics is provably false. As a consequence, economic policy guidance has never had sound scientific foundations.

This proven scientific incompetence does not only apply to Barkley Rosser, it applies also to his faculty. More, it applies to ALL economics faculties in the United States, and it applies to the American Economic Association and the peer-reviewers of its journals. ALL these folks get the trivial algebra of profit wrong.


#1 See section ‘Provably false’ in Wikipedia, economics, scientific knowledge, or political agenda pushing?

***

REPLY to Barkley Rosser on Jul 11

You say “Weil, Egmont, my evolutionary game theorist friend, Bill Sandhlm may have just blown his brains out, at least he did himself in somehow or other. Perhaps he read your recent writings and took them too cloaely to heart. Heck, he might even have come to believe that 2=7=10. ”

The University of Wisconsin–Madison says “Colleagues knew Bill as “a genuine scientist; detail-oriented, open-minded, and uncompromising in the pursuit of truth,” “a humble scholar with an enormous love for research,” “an exceptional human being, generous with his time,” “kind and supportive to all, and a cherished mentor.” and “After years of struggling with depression, Bill ended his life earlier this week.”

Economics, math, pluralism, and corruption

Comment on Barkley Rosser on ‘Computable economics’

Blog-Reference and Blog-Reference

Barkley Rosser summarizes: “Regarding the Horgan piece on pluralistic math, he is not up on the deeper aspects of this, which have been around for a long time, ….” and “This actually has spilled over into economics with the group calling themselves ‘computable economists’ …, whose leader has long been Kumaraswamy Vela Velupillai. He and his followers think basic economic theorems should be proven using constructivist methods, …” and “This is certainly very esoteric theoretical stuff without obvious direct implications for current policy disputes. It is also true that even within the world of pure economic theory, it may well be that this constructivist computable program may simply lead to the theory being harder to do or prove.”

The simple fact of the matter is that science is about true/false, but about 99 percent of any population are not scientists but live in the swamp between true/false, where “nothing is clear and everything is possible.” (Keynes) This applies, in particular, to economists. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL got the foundational concept of the subject matter ― profit ― wrong. What we actually have is the pluralism of provably false theories.

This, of course, is absolutely at odds with the very essence of science: “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 to this day. Because of this, the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is plain fraud.

Economists, of course, do not admit that they are stupid or corrupt or both but simply try to redefine science: “The first distinction you draw is that the old paradigm (OPE) is anti-pluralist (as in classical physics), while the new paradigm (NPE) is pluralist (as in modern physics).” (Fullbrook) #1, #2, #3

To cover their scientific failure and to justify swampiness, economists love to cite stuff they do not understand, like Heisenberg’s Uncertainty Principle, Gödel’s Incompleteness Theorems, or the alleged pluralism of mathematics. #4

The point to grasp is that pluralism is a political principle that can be traced back to the Peace of Westphalia, which ended the European wars of religion in 1648. The guiding idea since then has been the peaceful coexistence of incompatible religious beliefs and the end of attempts to prove hallucinatory religious truths by victory in battle.

This laudable political principle, though, does not carry over to science, where truth comes in the singular and NOT as pluralism of provably false theories. The very characteristic of science is to replace the pluralism of opinions with certain knowledge. #5 Scientific truth is well-defined: “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)

According to this criterion, economics is a failed science. Economists, of course, try to evade this conclusion. Since Adam Smith/Karl Marx, they insist on doing science. What they have been doing, though, is political agenda-pushing in the cloak of science.

The dismal scientific fact of the “dismal science” is that economists are too stupid for the elementary algebra that underlies macroeconomics. Logical consistency, as it is embodied in the corpus of mathematics, has always been the weak point of economics.

This weakness did not escape mathematicians: “Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter)

Later on, von Neumann started in earnest to rectify the formalism of Walrasian economics: “You know, Oskar, if those books are unearthed sometime a few hundred years hence, people will not believe they were written in our time. Rather, they will think that they are about contemporary with Newton, so primitive is their mathematics. Economics is simply still a million miles away from the state in which an advanced science is, such as physics.” (quoted in Ingrao et al.) The final result of von Neumann’s intervention was General Equilibrium Theory. Von Neumann and others rectified the mathematical formalism; however, they retained the Walrasian axioms (methodological individualism, constrained optimization, equilibrium, etc.).#6
 
Moreover, GE has been established by an existence proof. The fixpoint theorem, though, does not tell the coordinates of the equilibrium nor whether and how it can be reached. This is where the critique of Kumaraswamy Velupillai and the concept of computable economics kicks in. However, as the ToC of Computable Economics shows (e.g., Computable Rationality, Adaptive Behavior, Learning in a Computable Setting, etc.), Velupillai sticks to the old Walrasian behavioral concepts. What Velupillai does NOT realize is that economics cannot be based on behavioral microfoundations.

Standard economics is false because it is based on false microeconomic axioms. Keynesian economics is false because it is based on false macroeconomic axioms. Velupillai’s shift from set theory to recursion theory is pointless because he makes the same mistake as von Neumann, i.e., he does not realize that economics is axiomatically defective. A computable equilibrium is pointless, to begin with, because equilibrium is a petitio principii since Jevons/Walras/Menger.

What is straightforwardly computable in economics is, for example, profit. Curiously, the promoter of computable economics has never computed the key variable macroeconomic profit. Worse, he has not even realized that Keynesian macroeconomics is utter algebraic garbage.

Proof: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (Keynes, GT, p. 63) is false. Instead of I=S, Q≡I−S holds in the most elementary case with Q as macroeconomic profit. #7, #8

The balance of the business sector, i.e., macroeconomic profit, is computable; however, the champion of computable economics has failed to this day to compute the pivotal variable of all of economics. The mathematical incompetence of economists is the ultimate reason why economics is nothing more than the forever unacceptable pluralism of false theories. This, in turn, means that economic policy guidance NEVER had sound scientific foundations. #9 Computable economics has NOT rectified this lethal defect and, given scientifically incompetent promoters like Kumaraswamy Velupillai, never will.

Egmont Kakarot-Handtke


#1 How Heterodoxy became the venue for science’s scum
#2 Failed economics: The losers’ long list of lame excuses
#3 A political stench is in the air
#4 Scientific American, Is Mathematics, like Science, Pluralistic? Mathematicians disagree over whether their fundamental assumptions, or axioms, are true
#5 “There are always many different opinions and conventions concerning any one problem or subject-matter... This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides ... was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion (hearsay, plausible myth) on the other ...” (Popper)
#6 “But this [establishing the analytic mother-structure] required one very crucial maneuver that was nowhere stated explicitly: namely, that the model of Walrasian general equilibrium was the root structure from which all further work in economics would eventuate.” (Weintraub)
#7 How Keynes got macro wrong and Allais got it right
#8 Knowledge is attainable ― even in economics
#9 For details, see cross-references Methodology

Related 'How economists shoot themselves non-stop in the methodological foot'

***

REPLY to Barkley Rosser, anne on Oct 1

Since Sonnenschein/Mantel/Debreu, it is generally known that General Equilibrium Theory = mainstream economics is a failed approach. This means (i) that economic policy guidance has NO valid scientific foundations, (ii) that economics needs a Paradigm Shift: “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)

Obviously, there is to this very day ‘no indication of what it might mean’ to perform the indispensable Paradigm Shift.

In his formal rectification of Walrasian economics, von Neumann applied set theory. This was state-of-the-art concerning mathematics, but was not such a good idea concerning economics: “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)

Therefore, Velupillai’s shift from set theory to recursion theory is certainly a promising move to get out of von Neumann’s set-theoretical dead end. The irony is that economists fail to this day at the simple algebra of macroeconomic accounting. #1

The remark: “At the end of his life von Neumann eseentially sided with Velupillai in pointing to greater use of computers, …” shows that you are still deep in the woods. Computable economics is a methodological issue for economists, the greater use of computers is a practical issue for all walks of life.

Right policy depends on true theory. Because economic theory is axiomatically false, economic policy can only make matters worse.


#1 For details of the big picture, see cross-references Accounting

***

REPLY to Barkley Rosser, anne on Oct 2

Brouwer, Gödel, et al., and all the questions about the foundations of mathematics are irrelevant for economics. Economics needs only elementary algebra for a start. And neither Brouwer nor Gödel contested the validity of algebra. The fact of the matter is that the representative economist is too stupid for algebra.

Von Neumann’s lethal blunder was to adopt the concept of utility/preferences from Neoclassics (see The Notion of Utility, ToG, p. 15ff). For deeper methodological reasons, which have been given elsewhere, economics cannot be built upon the behavioral assumption of (cardinal/ordinal) utility maximization.

Von Neumann axiomatized game theory, which is absolutely irrelevant to economics. Game theory deals with zero-sum games and “payouts” and it should be obvious to every economist that the economy is NOT a zero-sum game and that profit is NOT a “payout”. Macroeconomic profit is for 200+ years now greater than zero, which tells one that von Neumann had NO idea what profit ― the foundational magnitude of economics ― is.

Neither has the applause-troll Barkley Rosser ― whose main business is the self-congratulation of failed economics, the erection of false-hero memorials, the bestowal of fake Nobels, and the deception of the general public about the proto-scientific state of economics ― nor the rest of scientifically incompetent economists. Fact is: the Profit Theory is false from Adam Smith to von Neumann to Barkley Rosser, and this has NOTHING to do with constructive or intuitionist math.

***

REPLY to Barkley Rosser, anne on Oct 3

Barkley Rosser claims “… but these days one cannot even get into a grad econ program without having a near perfect score on the quant GRE, at least in the US. Pretty much everybody going through econ grad school has a reasonably decent knowledge of algebra.”

EK-H claims: The representative economist is too stupid for the elementary algebra that underlies macroeconomics.

Proof: Keynes was a trained mathematician. He stated in his General Theory: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63) This is provably false. The mathematically correct relationship reads Q≡I−S with Q as macroeconomic profit.

After-Keynesians who have allegedly “a reasonably decent knowledge of algebra” have NOT spotted Keynes’s blunder to this day. For example, Paul Krugman still applies IS-LM.

Conclusion: Mathematically trained economists are too stupid for the elementary algebra that underlies macroeconomics. Their utter scientific incompetence notwithstanding, they are awarded “Nobels”.

Political implication: Economics is mathematically flawed to this day. Economic policy guidance has NEVER had valid scientific foundations. Economists (left-center-right does NOT matter) are either stupid or corrupt or both, and a hazard to their fellow citizens.

***

REPLY to Barkley Rosser, anne on Oct 4

Barkley Rosser re-frames the point at issue: “Most of what he [Mark Thoma] links to are things with policy implications. But occasionally, he posts oddball stuff that he thinks has some intellectual interest that is not directly policy-related. This was one of those links, about ‘pluralistic math,’ something not many people know anything about.”

Nothing could be further from the truth. Mathematics, like economics long before, is now also politically weaponized. To recall, Walrasian General Equilibrium Theory claims that the market economy is a spontaneous, self-optimizing, stable system. Walras knew quite well that in the Age of Science, he had to prove this claim. He failed, and the mathematicians von Neumann/Wald kicked off the formal rectification, which ended with Arrow/Debreu/ McKenzie/Nash’s existence theorem. This theorem amounts politically to the scientific legitimization of Capitalism. Arrow/Debreu et al. were on the payroll of the Cowles Commission, which is named after its founder and funder, the “businessman and economist Alfred Cowles” (Wikipedia).

As it became increasingly clear that GET is proto-scientific garbage and the existence proof had been a contract job on behalf of the Oligarchy, Walrasian economics had to give up its claim to scientific truth. Strictly speaking, it had to bury itself at the Flat-Earth-Cemetery #1, but instead, it remained firmly in academic place and merely performed an orderly withdrawal. This move comes under the euphemism of Pluralism or Anything-Goes. People love Pluralism because it gives them the license to choose their subjective truth and to ignore the taxing demand for material/formal consistency that has defined science for 2300+ years. Pluralism/Anything-Goes is anti-scientific but has some political merits. Economists busily produce many “truths”, and the Oligarchy picks the one that fits the actual circumstances best. Thus, academic economists add some scientific legitimacy to economic policy. For their valuable propaganda services, economists are rewarded with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. Pluralism is nothing but the methodological smoke screen of richly rewarded useful political idiots.

Remains one problem. Mathematics is binary true/false. Political creatures, though, thrive in the swampy zone of the excluded middle between true/false, where “nothing is clear and everything is possible” (Keynes). Political agenda pushers try to keep everything open to interpretation and negotiation. #2 In the eyes of political agenda pushers, science/ mathematics, with its insistence on consistency and proof, is just a nuisance.

What Mark Thoma tells his fellow economists is NOT some oddball stuff about some remote “intellectual frisson” but that mathematics, too, is in the process of Pluralization. This is good news for all fake scientists and, contrary to the assertions of Barkley Rosser, it has enormous policy implications.

To replace the idea of scientific/mathematical truth with Pluralism is nothing else than the ultimate political corruption of science.


#1 “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern)
#2 And the answer is NCND ― economics after 200+ years of Glomarization

***

Graphic AXEC121i

***

Enlightening external link to Miles Mathis’ Gödel’s Incompleteness Theorems. Among others: “I am not concerned that Russell was against the bomb or the war or anything else. Just as I am not concerned that Einstein was against the bomb or the war. I am concerned that mathematicians and physicists cannot do algebra.”

Mathiness is NOT the problem — scientific incompetence is

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Egmont Kakarot-Handtke


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

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

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

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

***

Graphic AXEC121f

***

REPLY to Brian Romanchuk on May 4, 2017

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

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

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

The problem with economists is (i) that they do not know what the NATURAL math of a given economic phenomenon is, (ii) that they grab a piece of math from the math department, and apply it without a deeper understanding. A familiar example is the application of calculus to utility maximization, which is downright idiotic because utility is a NONENTITY. And here you have it in a nutshell: “Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude.” (Porter)

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

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

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

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

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

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

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

***

REPLY to Brian Romanchuk on May 4, 2017

So, we agree on these concrete results:

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

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

***

REPLY to Brian Romanchuk on May 5, 2015

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

Making the economy the focus of the economists’ dialogue

Comment on Robert Locke on ‘Making firm governance part of the economists’ dialogue’

Blog-Reference

One way to explain the actual state of the world is the historico-genetic (K. Mannheim) approach. And this is how Robert Locke explains the differences between firm governance in different countries (the US, Germany, Japan). I have no problem with this account except that it is not economics.

Let us make a thought experiment and imagine we have a country with direct democracy. So, the question of who rules is already solved. Now comes the very practical question of how to organize the economy. Clearly, it is in the POLITICAL sphere where this question has to be addressed and decided. In the given framework of direct democracy, one can expect that the majority decides that the firms should organize themselves. So, the dominant legal form of the firm would probably be something like a cooperative.

The crucial point is that the question of who rules the firm is ultimately a political question and not an economic question. The two spheres should be strictly kept apart. Of course, everybody knows that in real life they are intimately entangled. Real life is muddle, confusion, and compromise. The history of economic thought shows that economists have never properly separated the political and the economic sphere, neither in theory nor in practice.

Economics started as Political Economy. Political Economy is agenda pushing, and economists from Smith, Ricardo, Marx, Keynes, Hayek, Friedman, to the present were agenda pushers first and scientists second. As a matter of fact, they were lousy scientists because they never figured out how the actual monetary economy works. How do we know this? We know this for sure because the profit theory is provably false, and without the correct profit theory, the economist cannot rise above the level of proto-scientific storytelling.

Their scientific incompetence, though, could not stop economists from giving economic policy advice and telling people how to organize the economy and how to organize firms. The history of who pushed which agenda with what arguments is nicely summarized in Robert Locke’s intro.

As a matter of principle, though, political questions have to be answered in the political sphere and are the subject matter of political science and sociology. The economist has a voice in the political sphere like every other voter. But he is not allowed to bring his political preferences into economics and to make it the guiding principle of his scientific work. Science neither serves the one-percenters nor the ninety-nine-percenters. Science is strictly committed to true/false and NOTHING else. The primary task of the economist as a scientist is to figure out how the monetary economy works. It is not his task to dabble in politics. J. S. Mill was very clear about this.

“A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (2006, p. 950)

It is the mixture of politics and science that is the root cause of the manifest scientific failure of economics. Political economics has not produced much, if anything, of scientific value in more than 200 years. What is first of all needed is a strict separation of politics and science. This means that economists have to leave all questions about who rules whom to political science/sociology for analysis and to the legitimate sovereign for decision.

Heterodoxy has criticized Friedman that his theory of the firm is politically biased. Asad Zaman would call it a 1%er economic theory. Now, to put a 99%er theory of the firm against Friedman is a natural reaction, but to correct one political bias with the opposite political bias is still politics. It is definitely not science. Science asks: Is the mental construct called economic theory true or false, and NOT does it fit the agenda of the one-percenters or the ninety-nine-percenters?

Science tells us that the conflicting theories of the firm are based on a false premise. Since Ricardo and Marx, both orthodox and heterodox economists believe that there is a fundamental antagonism between the firm’s owners (= capitalists) and the employees/workers. Accordingly, firms should be regarded as battlefields of class war.

The idea that antagonism between classes is built into the economic system, though, rests on an optical illusion. And this optical illusion ultimately derives from the theory of the firm. It is obviously true that an individual firm can increase profit by lowering the wage rate. But this is NOT true for the (world-) economy as a whole. To generalize what is true for an isolated part of a system is known as the Fallacy of Composition.

In the most elementary case, the interdependencies of the economic system have the unintended effect that if firm A makes a profit by lowering the wage rate, firm B (= the rest of the economy) makes a loss under the initial macroeconomic condition that total consumption expenditure is equal to total wage income (2014; 2015). And, by the same token, the real wage of the workers of firm A decreases and that of the workers of firm B increases. So, what happens is that a redistribution of profit between firms and a redistribution of output between households takes place. In political terms, this means that there are no classes with a common interest. Put differently, what appears as exploitation of the workers of firm A is only part of the complete picture of a REDISTRIBUTION of profits WITHIN the business sector and a REDISTRIBUTION of output WITHIN the household sector. In political terms, the exploitation of workers in firm A benefits the workers in firm B. And the profit increase of firm A’s capitalists comes from firm B’s capitalists. Taking all capitalists together, their profit does not change. Taking all workers together, their real share of output does not change.

Economists are supposed to be experts on the economy. So it is quite natural to think that they know how the profit mechanism works; after all, this is the pivotal phenomenon of their subject matter. Yet, this is definitely not the case. So economists have nothing to contribute to the discussion about how the economy or about how firms should be organized. This holds for Walrasians, Keynesians, Marxians, and Austrians.

The theory of the firm presupposes the correct macroeconomic theory. Heterodox economists are supposed to develop this objectively true theory and to replace false and scientifically worthless orthodox economics with true heterodox economics. This is a scientific task and has nothing in common with incompetent political agenda pushing.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). Profit for Marxists. SSRN Working Paper Series, 2414301: 1–25. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Profit. SSRN Working Paper Series, 2575110: 1–18. 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.

***

REPLY to robert locke on Jul 21

You ask: “Whoever said economics is a science?”

Economics is even multiple sciences and it is in the news every year: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

***

REPLY  to robert locke on Jul 21

You say: “... everybody knows that this prize is not a Nobel Prize.” That is not the point. The keyword is NOT Nobel but science(s). And this claim has ALWAYS been a constitutive element of the definition of 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.” (Mill, 1874, V.39)

“That Political Economy is a science which teaches, or professes to teach, in what manner a nation may be made rich. This notion of what constitutes the science, is in some degree countenanced by the title and arrangement which Adam Smith gave to his invaluable work. A systematic treatise on Political Economy, he chose to call an Inquiry into the Nature and Causes of the Wealth of Nations; and the topics are introduced in an order suitable to that view of the purpose of his book.” (J. S. Mill, 1874, V.7)

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

Needless to add that the psycho-social-behavioral definition of economics has been false from the very beginning because economics is a systems science.

Like all so-called social scientists, you are far, far behind the curve.

References
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
Robbins, L. (1935). An Essay on the Nature and Significance of Economic Science. London, Bombay, etc.: Macmillan, 2nd edition.

***

REPLY to robert locke on Jul 22

You say: “I could cite many critics of economics that say it is not a science, ...” and then you quote von Neumann.

I agree with the quote, but not with your conclusion. Note what conclusion von Neumann drew from his diagnosis: “... von Neumann developed the conviction over time that economics stood badly in need of revision and reconceptualization; what changed over the course of his writings was the intended shape and contours of this revision.” (Mirowski, 2002, p. 97)

von Neumann urged what is called a paradigm shift. He saw clearly that the fundamental concepts of economics were hopelessly muddled and inadequate: “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.” (quoted in Mirowski, 2002, p. 146 fn. 49)

But note also that von Neumann accepted the claim that economics is a science. What he diagnosed was that economics was still at the proto-scientific level: “Economics is simply still a million miles away from the state in which an advanced science is, such as physics.” (quoted in Ingrao et al. 1990, p. 197)

So, von Neumann and I are on the same page: (i) economics is incoherent gibberish because its fundamental concepts (= axiomatic foundations) are defective (2013), (ii) economics does not live up to its claim to be a science (2011), (iii) economics is in need of a paradigm shift (2014).

From this follows, firstly, that the word ‘sciences’ has to be eliminated from the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. The general public has to be informed that the 200-year-old claim and the actual state of economics still do not match. It follows, secondly, that incompetent scientists have to be thrown out of economics regardless of their affiliation to either Walrasianism, Keynesianism, Marxianism, Austrianism, or any other failed approach. It follows, thirdly, that it is the very task of Heterodoxy to carry out the paradigm shift and to make economics a science.

What economics needs least is the skepticism of historians, the realism of engineers, the toolism of physicists, the Verstehen of psychologists, the anything-goes of methodologists, the nothing-goes of intellectual sclerotics, the machinations of agenda pushers, and the quick-and-dirty fixes of commonsensers and practical men. From all this, economics has had more than enough in the last 200 years.


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. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
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
Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.

***

REPLY to robert locke on Jul 23

With regard to von Neumann, there are two things to be kept apart: diagnosis and therapy. His diagnosis was correct. The project of the proper formalization of economics, though, had one fatal drawback: von Neumann left the underlying theory untouched: “But this [establishing the analytic mother-structure] required one very crucial maneuver that was nowhere stated explicitly: namely, that the model of Walrasian general equilibrium was the root structure from which all further work in economics would eventuate.” (Weintraub, 2002)

This is the REAL mathiness problem. Formalization does not help if the conceptual root structure, a.k.a. axiom set, is defective.

***

REPLY to Skiadas Stefanos on Jul 23

To say “the sun goes up” is a simple and immediately convincing statement. To explain this optical illusion with the heliocentric theory is a bit complicated and abstract. Because of this, common sense beats science in a normal discussion hands down. Science is always counterintuitive.

Likewise, the commonsensical theory of exploitation is simple and convincing, and it is as old as Ricardo. What IN FACT happens is cross-over exploitation, and this is a bit more involved than the seemingly obvious wage-profit antagonism that comes to mind immediately. Cross-over exploitation explodes the sociological/political concept of class.

The commonsensical profit and distribution theory is false. First of all, because the concepts profit, distributed profit, and income have been permanently confused. The conceptual confusion of economists with regard to the foundational concepts of their subject matter is unique in the history of scientific thought, and it disqualifies economists from Adam Smith onward. #1

In my post, I have dealt with the most elementary case. For the complete distribution theory, see the working papers (2015; 2014b; 2014a; 2012). In a counter-intuitive and common-sense-defying soundbite: total monetary profit does not affect the workers’ share of total output.

References
Kakarot-Handtke, E. (2012). Income Distribution, Profit, and Real Shares. SSRN Working Paper Series, 2012793: 1–13. URL
Kakarot-Handtke, E. (2014a). Profit for Marxists. SSRN Working Paper Series, 2414301: 1–25. URL
Kakarot-Handtke, E. (2014b). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Profit. SSRN Working Paper Series, 2575110: 1–18. URL

#1 How the intelligent non-economist can refute every economist hands down.

***

REPLY to robert locke on Jul 26

You ask me: “... how can you have a systems science that leaves morality out of the system?”

The Is/Ought difference is reasonably clear since Hume, beginning with Adam Smith, it has been mostly ignored by economists. It is important to realize that Smith wrote The Theory of Moral Sentiments before The Wealth of Nations.

Science voluntarily restricts itself to the Is and leaves the Ought to philosophers/priests/ mythologists/ politicians/storytellers. Why? Because Is-questions have a general objective answer (= true/false) while Ought-questions are in the last instance arbitrarily/politically/ historically decided within a space/time-restricted society. Good/bad were very different things in Athens and Sparta.

The voluntary self-restriction of science is not something to be criticized as a deficiency and juxtaposed against the richness of philosophical/mythical/religious/historical storytelling. The tight focus on questions that have an answer that satisfies the conditions of formal/material consistency is the very prerequisite of the growth of knowledge.

You say: “Any economic system that thrives must be rooted in some moral order. Conservative thinkers, great religious teachers, and philosophic thinkers recognize this when they talk about sustaining economic communities.” Yes, the great teachers have taught awesome things to their stupid pupils. On closer inspection, the greatness of the teachings consists of enormously inflated social trivialities (do not kill, steal, lie), vacuous talk about an almost infinite multitude of nonentities (= Pantheon), emotionally charged and neuroticizing dietary/behavioral rules, ridiculous claims of a truth monopoly, threat in the form of prophecy, and of the explanation of the principle of positive/negative feedback, that is, of self-caused reward/punishment in this and the other world.

Yes, indeed, every society has a moral order. This order, though, is NOT the subject matter of economics. The moral order is the subject matter of sociology and other so-called social sciences.

The trouble with the Founding Fathers is that they started off on the wrong foot. The subject matter of Political Economy has been society, not the economy. As an enlightened moralist, Adam Smith began to replace the religion-based regulation of society with the principle of enlightened self-interest (which is NOT the same thing as greed or egoism) and mutually beneficial exchange. With Smith, the moral carrot/stick morphed into profit/loss.

The drawback of Smith’s approach is obvious by hindsight: he was so occupied with moral sentiment that he never figured out how the economy works. And neither did his successors until this day. Economics is a failed science, but NOT because it has nothing to say about the moral social order, just the contrary, economists messed up economics BECAUSE OF permanent pointless waffling about good/bad human nature/behavior/action.

Science keeps out of the Ought-issues and focuses on the Is-issues. Its very strength lies in focusing on tiny and seemingly insignificant segments of reality (lever, pendulum, falling apples, etcetera) and in leaving the infinite x-dimensional whole to the thinkers/ storytellers/agenda pushers of philosophy/religion/politics. What these folks have produced so far is provably false. Science does not explain everything, but non-science explains nothing.

Economics has to explain how the monetary economy works. The economist as scientist has NOTHING to say/blog about the moral order of society. This holds for Orthodoxy AND Heterodoxy. Economists have to fix economics. It is deeply immoral to maintain, defend, and disseminate theories that are known to be false (2014; 2011).

References
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL

***

REPLY to Ken Zimmerman on Jul 27

Economists are privileged because one of their founding fathers was a noteworthy methodologist. Therefore, every economist knows that science is about Is and NOT about Ought: “Science is a collection of truths; art, a body of rules, or directions for conduct. The language of science is, This is, or, This is not; This does, or does not, happen. The language of art is, Do this; Avoid that. Science takes cognizance of a phenomenon, and endeavours to discover its law; art proposes to itself an end, and looks out for means to effect it.” (Mill, 1874, V.8)

Science is NOT about the biographies of scientists or how they arrived at the solution of a problem. Only the solution itself matters. The story of Archimedes jumping out of the bathtub and running naked through the streets shouting Eureka is stuff for the retarded audience of the History Channel. The same holds for your story about how scientists work and what goes on in their heads and how they make decisions. That is more or less entertaining mind-reading of a hobby psychologist who has never produced a single proposition that satisfies scientific criteria.

The problem of economics is this: “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)

Every moron has an opinion. But, as a matter of plain historical fact, economists do not have the true theory of how the monetary economy works (2013). Neither have you. So neither your nor Robert Locke’s nor anybody else’s psycho-sociological storytelling can be made part of the economists’ dialogue. Economics is a systems science, and what is welcome are testable propositions about how the economy works. Psychologists, historians, sociologists, and all other cargo cult scientists are requested to dump their rubbish elsewhere.


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
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
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.