Blog-Reference and Blog-Reference
Economics is a failed science. This means more specifically for the history of economic thought: Orthodoxy has failed to produce anything of real scientific value and Heterodoxy has failed to develop a superior alternative. Thus, economics is stuck since its inception at the proto-scientific level “... we know little more now about ‘how the economy works,’ or about the modus operandi of the invisible hand than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations.” (Clower, 1999, p. 401)
The failure of economics is provable and therefore not a matter of debate.
1st layer: Wrong subject matter
Since Adam Smith, economics claims to be a science. It started as a mixture/intersection of sociology and political science: “The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.” (Mill, 1874, V.39)
Economics has been understood as Political Economy. Economists saw themselves as agenda pushers for some greater good and science as a means to that end. The idea of pure science, i.e. the completely independent pursuit of knowledge, never occured to the inventors of utility maximization.
With respect to the subject matter there is no difference between Mill and Marx “My stand-point, from which the evolution of the economic formation of society is viewed as a process of natural history, ...” (Marx, 1906, M.9)
With Jevons/Walras/Menger the focus shifted to methodological individualism and economics became a mixture/intersection of psychology, sociology, and political science.
Economics is NOT a science of individual/social/political behavior — this is the social science delusion* — but of the behavior of the monetary economy. Accordingly, the correct definition of the subject matter is objective/structural/systemic: “Economics is the science which studies how the monetary economy works.”
As a consequence, the Copernican turn in economics consists in the methodological switch from behavior-centered bottom-up, i.e. microfoundation, to structure-centered top-down, i.e. macrofoundation of the world economy. All Human-Nature issues are the subject matter of other disciplines (psychology, sociology, anthropology, biology/Darwinism, political science, philosophy, etcetera) and are taken in from these by way of multi-disciplinary cooperation. To paraphrase J. S. Mill: ‘Economics as a system science presupposes all the physical and social sciences; it takes for granted all such of the truths of those sciences as are concerned with the working of the economic system.’ (cf. Mill, 1874, V.29)
Economists must first of all stop the dilettantish dabbling in the so-called social sciences and in politics and focus on their proper subject matter. What they have collectively produced so far in their own domain is scientific garbage.
2nd layer: Wrong axiomatization
Orthodoxy defines itself briefly as “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)
More explicitly and formally, i.e. axiomatically, Orthodoxy has been defined as “The [neo-Walrasian] program is organized around the following hard core propositions:
HC1. There exist economic agents.
HC2. Agents have preferences over outcomes.
HC3. Agents independently optimize subject to constraints.
HC4. Choices are made in interrelated markets.
HC5. Agents have full relevant knowledge.
HC6. Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub, 1985, p. 109)
The fact of the matter is that there is no such thing as an equilibrium in the economy. Methodologically, HC6 is what is known since antiquity as petitio principii. This is an indefensible methodological blunder. Likewise for HC3.
HC6 and HC3 are methodologically unacceptable as axioms. Because of this the whole set of hard core propositions — the sorta-kinda starting point — breaks apart and with it the WHOLE theoretical superstructure of Orthodoxy.
Keynes identified the pivotal methodological blunder correctly “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)
Consequently, Keynes formulated the foundational syllogism of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (1973, p. 63)
This elementary two-liner is conceptually and logically defective because Keynes did not come to grips with profit and therefore “discarded the draft chapter dealing with it.” (Tómasson et al., 2010, p. 12) As a result, all I=S models including the Keynesian multiplier are false (2014) and with it the WHOLE Post-Keynesian theoretical superstructure.
To see the enormity of intellectual failure one has to let this sink in: Keynes had no idea of the fundamental concepts of economics, viz. profit and income. This did not hinder him to push his economic policy agenda. Keynes’s policy proposals never had a sound theoretical foundation but were at best commonsensical.
So, we have two reliable indicators of the intellectual incapacity of present-day economists: Keynesians are since more than 80 years in the dark. Sorta-kinda neoclassicals are since more than 140 years in the dark. Because they have methodologically disqualified themselves neither Keynesians nor Walrasians can be taken seriously. The same holds for Marxists and Austrians. Economic policy advice has until this day no sound theoretical foundation because economic theory itself has no sound axiomatic foundation.
3rd layer: Wrong formalization
“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, Posterior Analytics)
Certain/true/primary premises are hard to come by “There is no more fertile source of error than apparently trivial premises.” (Schumpeter, 1994, p. 269)
To state one’s hard core premises consistently is the indispensable methodological minimum, to formalize them correctly is an additional step. The pivot of formalization is “Formal axiomatic systems must be interpreted in some domain ... to become an empirical science.” (Boylan et al., 1995, p. 198)
Debreu in his axiomatization of Walrasianism did explicitly the opposite, that is, he disconnected “Allegiance to rigor dictates the axiomatic form of the analysis where the theory, in the strict sense, is logically entirely disconnected from its interpretations.” (Debreu, 1959, p. x)
Debreu missed the crucial point: “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. ... It is only in this sense of the word ‘form’ that one can call the axiomatic method a ‘formalism’.” (Bourbaki, 2005, p. 1276)
NOT ALL mathematical structures incorporate ‘certain aspect of empirical reality’, which means, that there is a “whole crop of monster-structures, entirely without application” (Bourbaki, 2005, p. 1275, fn. 9).
Debreu’s axiomatization of Walrasian General Equilibrium is a mathematical monster-structure that is due to Debreu’s misunderstanding of what formalization is all about. For parallel fatal mistakes with regard to the applicability of mathematical operations in the theory of value see (Barzilai, 2016).
In sum: economists misapply on a regular basis what they take from the ‘storehouse of abstract forms’. The problem is not the application of mathematics per se but dilettantish application. Generally speaking, the economic content and the mathematical form do not fit together. Hence, the ultimate methodological blunder of what is widely criticized as mathiness has always been this “Knight lamented that there are many members of the economic profession who are ‘mathematicians first and economists afterwards.’ The situation since Knights time has become much worse. There are endeavors that now pass for the most desirable kind of economic contributions although they are just plain mathematical exercises, not only without any economic substance but also without mathematical value. Their authors are not something first and something else afterwards; they are neither mathematicians nor economists.” (Georgescu-Roegen, 1979, p. 317)
A mathematical form which has no interpretation in the monetary economy is vacuous at best and misleading at worst. Because of this, no economic policy proposals can ever be derived from such a model, or, to put the other way round, all policy proposals derived from incorrectly formalized models have no more scientific value than a horoscope.
The cumulated three-fold blunder of orthodox and heterodox economics manifests itself in one of the greater embarrassments in the history of science, that is, that the representative economist cannot tell the difference between the elementary concepts income and profit.** This is like a physicist who cannot tell the difference between potential and kinetic energy. After more than 200 years of dilettantism and failure, there is no place for Walrasians, Keynesians, Marxians, and Austrians in the scientific community.
Barzilai, J. (2016). Slutsky’s Mathematical Economics. Scientific metrics working paper, pages 1–5. URL ***
Bourbaki, N. (2005). The Architecture of Mathematics. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, volume II, pages 1265–1276. Oxford, New York, NY: Oxford University Press.
Boylan, T. A., and O’Gorman, P. F. (1995). Beyond Rhetoric and Realism in Economics. Towards a Reformulation of Economic Methodology. London: Routledge.
Clower, R. W. (1999). Post-Keynes Monetary and Financial Theory. Journal of Post Keynesian Economics, 21(3): 399–414. URL
Debreu, G. (1959). Theory of Value. An Axiomatic Analysis of Economic Equilibrium. New Haven, London: Yale University Press.
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic Issues, 13(2): 317–328. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. 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.
Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. 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
Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL
Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, NY, etc.: Cambridge University Press.
* For more details and references go to meta-/cross-references or to the search-field on the AXEC-blog
** See ‘How the intelligent non-economist can refute every economist hands down’
*** For the full scope of economists' mathematical incompetence see Scientific Metrics Publications
I have replaced the neo-Walrasian axioms HC1 to HC6 with the objective-structural set of foundational propositions nHC1 to nHC3. See the post ‘Lars Syll creatively destructs Wren-Lewis’
This is what a paradigm shift is all about. For more details see cross-references.
The objective-structural set of foundational propositions yields testable equations, e.g. for employment and profit. See the post ‘Have data, lack theory’
You or anybody else can test the equations at any time. I will certainly accept an empirical refutation. This is how science works.
You take as hard core proposition 4): “We eat without full knowledge of nutrients in the foods we eat, but, if we can afford it, we are naturally inclined to eat balanced diets.”
Could it be that you have seen too much health channel advertising or do you really think this is heterodox economics?