August 3, 2017

Economics, philosophy, and mathematics

Comment on Robert Paul Wolff on ‘Mathematics in economics’

Blog-Reference

The ancient Greeks started science with the distinction between doxa (= opinion) and episteme (= knowledge). Scientific knowledge is well-defined by material and formal consistency.

Economics is a failed science, that is, there is NO knowledge that satisfies scientific criteria. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong.

In the beginning, there was Political Economy. J. S. Mill defined it clearly as a social science: “The fundamental problem, therefore, of the social science, is to find the laws according to which any state of society produces the state which succeeds it and takes it place.” Or, a bit more specific with regard to economics: “The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.”

Economics started as a hodgepodge of sociology, history, folk psychology, and folk philosophy, which came under the heading of utilitarianism.

Classical Political Economy was carried one step further with methodological individualism: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow)

Orthodox economics is built upon the Walrasian axioms which are verbally given as follows: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

These axioms and the analytical superstructure have been given a mathematical form by Debreu, Arrow, McKenzie.

The representative economist has not realized it but methodologically the Walrasian premises are forever unacceptable. It should be pretty obvious that the axiomatic core contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every theory/model that contains a nonentity is A PRIORI false. The lethal methodological blunder of economics is NOT mathiness but the NONENTITIES in the premises.

What is missing among economists is a proper understanding of what science is all about. Aristotle gave a working definition 2000+ years ago: “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.” When the premises are NONENTITIES this is cargo cult science and produces nothing but pathetic blather.

The mathiness problem of economists does not consist in the application of advanced mathematics but in the incapacity to apply the straightforward arithmetic of accounting. Fact is that economists are since Adam Smith too stupid to put 2 and 2 together.#1

Fact is also that the subject matter of economics is ill-defined since the founding fathers. Economics is NOT a social science but a system science.#2

Egmont Kakarot-Handtke

#1 Economists: just too stupid for counting
#2 For more details see ‘The myth of economics knowledge'


For details of the big picture see cross-references Math/Mathiness and Accounting and Incompetence

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REPLY to Écrasez L'infâme on Aug 4

You say: “Marx had already developed Ricardo and Smith in ways that the establishment of the time found threatening, yet found difficult to argue against.”

Marx was a philosopher, sociologist, soap box economist, and agenda pusher but NOT a scientist. He never understood what profit is. See ‘Profit for Marxists’.

The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are at the SAME proto-scientific level, i.e. axiomatically false, materially/formally inconsistent, and all got profit wrong.

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REPLY to JKH on Aug 6

You say: “And I would say that the GT of Keynes is replete with the power of accounting logic as the required fundamental framing.”

Fact is that Keynes got the accounting logic wrong. The formal core of the General Theory is given with: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Because profit is ill-defined the whole theoretical superstructure of Keynesianism is false, in particular, all I=S and IS-LM models.

Let this sink in: Keynes had NO idea of the fundamental concepts of economics, viz. profit and income.#1 After-Keynesians did not spot the foundational blunder until this day.#2

You say: “Interestingly, Keynes was a mathematician before (in effect) he was an economist.”

I doubt this. Keynes was a lifelong agenda pusher and not of the stuff mathematicians are made of: “I consider that Keynes had no real grasp of formal economic theorizing (and also disliked it), and that he consequently left many gaping holes in his theory.” (Hahn)

As a soap box economist, Keynes never rose above common sense: “In the early thirties he [Keynes] confessed to Roy Harrod that he was ‘returning to an age-long tradition of common sense’.” (Coates) No one who has tasted mathematics ever returns to common sense.

Keynes was a fake scientist. In a fake science, this is not a disadvantage.

#1 How Keynes got macro wrong and Allais got it right
#2 Economists: just too stupid for counting

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ADDENDUM on Aug 7

Philosophy: From Plato’s Academy to Trump’s Academy
Comment on Robert Paul Wolff on ‘A comment on the comments’

You ask: “How could the manifestly brilliant men [mostly] in the discipline of academic economics have missed a truth that struck me as virtually self-evident?”

If you were a philosopher you would know that, first of all, there is NO such thing as self-evidence. That the sun goes up is self-evident but turns out to be an optical illusion. The very least a self-declared philosopher should have taken notice of is Plato’s cave metaphor which clearly says that what you call self-evident are only the shadows of reality on the cave wall.#1

Being utterly ignorant of the problem of epistemology, your brain-dead explanation for the failure of profit theory consists in simply imputing a motive: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

For the genuine philosopher, this is NOT an answer to the original question of what profit is. Obviously, you do not know it either. Are you also paid to not understand it?

The aim of the philosophical discourse ― in contradistinction to sitcom gossip ― is to advance knowledge: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.” (Schumpeter).#2

Take notice that Marx’s profit theory, which you find self-evident, is provably false.#3 You have simply not done your philosophical homework which is to pierce through the appearances and not to be content with flimsy self-evidence. All philosophers, except those from Trump Academy, of course, know: “But all science would be superfluous, if the appearance, the form, and the nature of things were wholly identical.” (Marx)

#1 Economics, Plato’s Cave and the Silver Blaze Case
#2 Schumpeter’s two axioms of discourse
#3 Profit for Marxists

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REPLY to F Lengyel on Aug 7

You say: “There are some philosophers who believe that philosophy has a more modest aim than the advancement of knowledge: that of therapeutics.”

Yes, philosophy has been re-branded recently by the Trump Academy and is now essentially a wellness program on a par with Yoga or Neurotics Anonymous. This is, indeed, a far cry from Plato’s Academy where only the mathematically and mentally fit were allowed to enter.

What is a bit curious, though, is that the therapeutic philosopher occasionally forgets his modest aim and engages in a discussions about profit theory which is far beyond his modest intellectual means. To recall, after 200+ years “A satisfactory theory of profits is still elusive.” (Desai, Palgrave Dictionary) This includes Marx’s profit theory, which the therapeutic philosopher finds self-evident. This is self-debunking.

You criticize my working paper: “If, as you waste no opportunity to point out, you wish to enlighten dunderheads, you might have included illustrative examples.”

This is a misunderstanding. My philosophy is similar to Socrates’ who famously said: I know that you know nothing. This is better than the other way round and therefore I have no reason to enlighten anyone.