Home > Keynes, Plutonomy, Political Economy, The Economics Profession > Rethinking Keynes’ non-Euclidian theory of the economy

Rethinking Keynes’ non-Euclidian theory of the economy

from Fred Zaman

“In his General Theory, John Maynard Keynes stated that classical economists ‘resemble Euclidean Geometers in a non Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight—as the only remedy for the unfortunate collisions which are occurring. Yet in truth there is no remedy except to throw over the axiom of parallels and to work out a non Euclidean geometry. Something similar is required today in economics.’” (Paul Davidson, The Keynes Solution, Ch. 4)

In this Euclidean analogy with the classical analysis of free
markets, which is based on “efficient market theory,” Davidson explains that
full employment is the Euclidean equivalent of parallel lines which never meet.
He nonetheless notes, however, that in the real world these lines, although
parallel in an Euclidean analogy with economics, nevertheless unfortunately do
often meet, thereby significantly and persistently producing economic
“collisions” understood as unemployment; the blame for which collisions always
is placed on workers for not passively accepting lower wages, and consequently
also a lower standard of living. Keynes’s solution, to explaining in theory the
occurrence of unemployment in the real world, was to pursue the creation of a
new, non-Euclidean theory of real world economics that discards axioms which
classically have been the foundation of the economy’s supposed ideal Euclidean
structure. Two axioms of classical economics that Keynes kept, however, and with
which keeping Davidson concurs, are (1) people are self-interested and try to
protect their income and wealth; and that (2) firms try to maximize profits
($REF).

These two axioms keep hidden far more than they disclose,
however. For people are not only individually inclined to protect (and increase)
their income and wealth: (1A) they collectively also are very much inclined to
protect (and increase) their income and wealth in common cause, to the extent
deemed necessary even at the expense of others not of their own group. And firms
also: (2A) collectively in common cause to the same extent, are similarly
inclined to maximize their profits above all else, even at the expense of other
groups not of their own. Understanding this truth about collective action in
economics (in politics also), one can replace the word “collisions” in the above
quotation of Keynes with “collusions,” for collusion (by the favored few) is
generally the best means by which to accomplish axioms (1A) and
(2A).

What are we to make of these axioms in the Euclidian analogy of
economics, regarding behavior collectively favoring for those of one’s own kind,
and conversely detrimental to those not of one’s own kind? It is simply that the
lines running parallel to each other, which in this analogy represent full
employment in an efficient market, are actually not straight and do meet, simply
because of collusion against workers (and the general populace) by capitalists
working behind closed doors. The efficient market thus is degraded through the
collusion of others (both individuals and firms) working according to the
non-Euclidean axioms 1A and 2A. The free market, when it thus is not subject to
government regulation and oversight that minimizes the detrimental effects (to
workers and the general populace) of these non-Euclidean axioms (tends to make
the economic lines more parallel), is inherently a very non-Euclidean space.
Government regulation and oversight is absolutely required if the “efficient
market” is to function in at least a quasi-Euclidian space whose economic lines
are (somewhat) parallel and employment is nearly full – with fullness thereof at
the same time not economically oppressing the workers. The non-Euclidean theory
of economics thus to be developed, as perhaps foreseen but not generally
understood by Keynes and Davidson, will therefore explain both the economic and
political oppression of workers in capitalist society, and also the effective
resistance thereto by workers thereby oppressed by society. The significance of
a fully developed non-Euclidian theory of economics to the 99% movement,
regarding how to make the economic (and political) lines more parallel and thus
less impacted by the collusion of capitalism’s much favored few (the wealthiest
1%), thus truly will be immense.

  1. July 10, 2013 at 2:14 pm

    In neoclassical economics (NE) there are six constructs and forms of “efficiency” the first five of which make up the sixth allocative efficiency (AE): 1) Technical (max output/input or min input/output); 2) Economic (min total cost/$ value of output); 3) Productive (on the production possibility frontier); 4) Exchange (P = MSC = MSB or price reflects private and social costs and benefits); 5) Consumer (MuX/Px = MUy/Py … Cannot reallocate income and improve Total Utility) 6) Allocative (no person can be made better off without someone worse off…)

    First of all, in a sociopathic theory that does not care what the “output” is only how much of it is produced relative to the amount of “input” it takes to produce it (Technical Efficiency) or does not care what output produces $X of Total Revenue only what are the Total (Private) Costs to produce and realize those $X of Total Revenue (Economic Efficiency), then places like Auschwitz might stand as models of “efficiency” in terms of Technical and even Economic “Efficiency” which translate into maximum disposed of corpses per RM of expenditure or per unit of time, or per SS functionary.

    Secondly, NC will never get into the potential and actually realized contradictions between internal (within NE) and interdependent forms of “efficiency” under the real-world contexts and imperatives of capitalism and the imperatives of accumulation and expanded reproduction of capital and capitalism:

    1) Technical Efficiency (TE) and Economic (EE) imperatives produce fraud, asymmetric access to commodified information, etc leading to losses of Consumer Efficiency (CE) and uninformed and inefficient marginal utility trade-offs plus losses of Exchange Efficiency where negative and positive externalities are not either assessed correctly nor covered in market prices.,

    Then when we get into the real-world lags in time and space (in absolute Newtonian Terms) or in terms of socio-economically-geographically warped and warping space-time between:

    1) when: ideas get turned into potentially supply-able and demand-able commodities;
    2) when forces of supply and demand shape prices and those prices are sent as signals;
    3) when prices (all relevant inputs and potnetial outputs) are sent as signals and received as tangible and usable “information” and interpreted to show market conditions and trends;
    4) when market information yields usable estimates of relative profit and utility potentials to make decisions as to WHAT to buy with given incomes or produce with given inputs and technology;
    5) when decisions of what to produce or consume and concrete utility and production functions can be constructed and implemented to yield HOW to produce and consume;
    6) when production takes place and distributions over time and space take place;
    7) when potential surplus value has been produced and embodied in production versus when actual surplus value is realized and all accounts receivable have been cleared and money is in the corporate account;
    etc.

    Then finally we deal with the notion of any kind of “equilibrium” (and the ideological uses of the construct itself) when there are no “exogenous” variables producing random shocks to a system that then internally and “endogenously” progressively dampens those shocks to oscillations around some kind of “trend” or “center of gravity” of “dynamic equilibrium” over time and space never mentioned or incorporated or modeled in the theory.

    We see that market “signals” are imperfectly and asymmetrically: sent and received; interpreted and acted/reacted upon; utilized as usable information; reviewed and reinterpreted; sent and received like the light from a distant star that no longer exists (by the time market signals and information of shortages are sent, received, interpreted, acted upon, new production, new distribution over real world time and space the shortages may no longer exist by the time the signals are even received and interpreted.

    What happens to any notion of “equilibrium” when not only do “exogenous” changes in expectations about future price influence both supply and demand and thus market price, but when there are real-world (positive) feedback effects from rising or falling market price and now endogenously shaped new expectations about future market price on the supply and demand sides producing bubbles in markets?

    http://jimcraven10.wordpress.com/2010/04/21/the-debunking-of-economics-a-review-of-the-work-of-steve-keen-et-al/

    http://jimcraven10.files.wordpress.com/2013/01/theoretical-system-of-marx-and-engels-completed-and-proofed-3-pdf.pdf

  2. paul davidson
    July 10, 2013 at 4:14 pm

    Fred:

    You apparently misunderstand the Euclidean vs non-Euclidean geometry analogy.

    What Keynes argued and demonstrated was that even if the economy was purely competitive — with no one [or collusive group trying to protect their wealth from others or corrupt politicians or Marx's exploitative capitalists] having any market power, there could still exist significant and persistent involuntary unemployment. In other words, the free market — even if made free by proper and good government regulations, anti-trust policies , etc] could not automatically assure a return to full employment.

    Your argument about groups [under the self interest concept] colluding to keep workers down , unemployed, etc . would be perfectly compatible with neoclassical economics– and the solution would be to break the colluding groups up even under neoclassical economics..

    Thus, to be the devil’s advocate, suppose some N C economsts, using your collective self-interest idea, argued unemployment occurred because labor unions kept workers from accepting a lower market clearing wage rate, then the “correct” neoclassical economics solution would be to break up the labor unions!

    Or if government minimum wage was above what Neoclassical economists thought was the market clearing wage, then the NC economists would argu to remove minimum wage legislation.

    For Keynes and the Post Keynesians, a general theory, was to demonstrate that even with no collusion, no stupid or corrupt politicians, no labor union, no minimum wage, etc., the competitive free market (with all self-interested decision makers) can not be counted on to assure persistent full employment of all who wanted to work.

    The problem is that a money using, market-oriented economy that organized all transactions on the basis of spot and forward MONETARY CONTRACTS, then, if the future was uncertain (in a nonergodic way), people’s desire to maintain self interest over time could lead to aggregate savings decisions (out of current income) in the form of demand for liquid assets which exceeded the desire of others to purchase produced goods in an monetary amount which exceeded their current income (and therefore aggregate dissaving).. Liquidity was the problem.

    This does not mean that there might be collusion among parties to try to tilt the economic game in their direction— but merely that collusion, corruption, stupidity, etc was the not the fundamental cause of unemployment in a money using, market oriented economy. Even if regulations got rid of all this collusion corruption, stupidity, the economy per se would not guarantee persistent full employment. Hence a role for the government in dealing with a lack of effective demand

    • Paul Schächterle
      July 11, 2013 at 5:16 pm

      Well I would argue that the neoclassical view is NOT comparable to Euclidean geometers in a non euclidian world. Neoclassical economics is a fantasy land that does not resemble the world, not even in the form of a map projection, at all.
      Let’s look at what we get if we take away Keynes – quite plausible – assumption that there can be a desire for savings that does not translate into an investment in production: Neoclassical economist treat the labour market as just another market. They state that demand and supply are a single-valued function of the “price”, i.e. the unit price, i.e. the wage rate. That is already false, but never mind.
      So they say: workers will want to work less if the wage rate falls.
      Think about that for a moment. They will want to work less? Are you sure?
      Would you want to work less if your wage got cut from, say 10€/h to 5€/h? Or would you try to work MORE, to keep you income at a reasonable height?
      Not that it matters but rising labour supply at a lower wage rate is even consistent with neoclassical micro assumption (which obviously makes the neoclassical theory of the labour market inconsistent with “micro foundations”).
      So to conclude: The neoclassical model of the labour market is just ridiculous, even without any of Keynes’s considerations.
      Btw. the model of the demand side is not any better. It assumes that an employer will always want to acquire more work if the wage rate falls. Really? What does the employer wants to do with that work? Does she/he consume it?
      So I would say: No, neoclassical economists are NOT Euclidean geometers. They are rather people who draw fantasy maps like M.C. Escher drawings and ignore the the real world completely.

  3. Fred Zaman
    July 10, 2013 at 6:37 pm

    Paul,

    Thanks for your informative reply. I going to purchase an eBook copy of Keynes General Theory and then respond in some detail. However, based on your quotation of Keynes on his conception of the non-Euclidean analogy, I doubt that I misunderstand the issue with which I am most concerned.

    Fred

  4. Egmont Kakarot-Handtke
    July 12, 2013 at 1:26 pm

    Since each economist starts from some premises, all economists apply — consciously or unconsciously, correctly or incorrectly — the axiomatic method. Keynes, of course, was aware of this:

    “To Senior belongs the signal honor of having been the first to make the attempt to state, consciously and explicitly, the postulates that are necessary and sufficient in order to build up … that little analytic apparatus commonly known as economic theory, or to put it differently, to provide for it an axiomatic basis.” (Schumpeter, 1994, p. 575)

    Political economists start from implicit value judgments (the market system works better, capitalism is unjust etc.) and then argue their case. These kinds of value judgments may emerge as conclusion of the analysis, but it is inadmissible to put them into the premises. Theoretical economists accept that each theory has a kind of architecture and state their premises explicitly:

    “Everyone uses “theory” in multifarious senses. … But in discriminating usage, the term generally denotes a logical edifice.” (Georgescu-Roegen, 1966, p. 108)

    The correct procedure, therefore, is as follows:

    “The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; no claim of truth is implied in the term ‘axiom’ as here used). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations.” (Popper, 1980, p. 71)

    Logical consistency is not something nice to have, it is essential for applicability:

    “They [economists] want to contribute to the solution of urgent practical problems. … Of course, they also pursue the consistency of the theories they make, for he who contradicts himself proves nothing.” (Klant, 1988, pp. 112-113)

    The crucial part of theory building is the choice of foundational propositions:

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

    One of the fundamental propositions of standard economics is a behavioral assumption that, imprudently, has been selected as axiom:

    “Central to the question of formalisation is the role of the rationality axioms. The internal goal, derived from a particular form of mathematics, of developing a closed, axiomatic, mathematically-expressed theoretical system which yielded equilibrium solutions required reductionist axioms of deterministic individual behaviour.” (Dow, 1997, p. 83)

    The rationality axiom implies utility maximization and profit maximization. There are several reasons why the rationality assumption cannot be accepted as axiom but one is sufficient, it lacks the ‘requisite self-evident generality’:

    “But a principle that is not universally true is false. Thus the rationality principle is false. I think there is no way out of this. … Now if the rationality principle is false, then an explanation that consists of the conjunction of this principle and a model must also be false, even if the particular model is true.” (Popper, 1994, pp. 172-173)

    The irony of the Keynesian Revolution, which, in the last instance, explains its failure, is that it retained the immediate derivatives of the false rationality axiom:

    “Two axioms of classical economics that Keynes kept, however, and with which keeping Davidson concurs, are (1) people are self-interested and try to protect their income and wealth; and that (2) firms try to maximize profits.” (see Zaman in the introduction)

    These axioms always come with a caveat in order to make it clear that economists are indeed hard nosed realists:

    “Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed.” (Mill, 2004, p. 106)

    Somehow, the Post Keynesians never perceived that something has gone wrong on the way from the Euclidean to the non-Euclidean axioms. For them, and for all those interested in the proper axiomatization of Keynes’s theory, I have untangled the mess in Keynes’s Missing Axioms (2011).

    References
    Dow, S. C. (1997). Mainstream Economic Methodology. Cambridge Journal of
    Economics, 21: 73–93.

    Georgescu-Roegen, N. (1966). Analytical Economics, chapter General Conclusions
    for the Economist, pages 92–129. Cambridge, MA: Harvard University Press.

    Kakarot-Handtke, E. (2011). Keynes’s Missing Axioms. SSRN Working Paper
    Series, 1841408: 1–32. URL http://ssrn.com/abstract=1841408.

    Klant, J. J. (1988). The Natural Order. In N. de Marchi (Ed.), The Popperian Legacy
    in Economics, pages 87–117. Cambridge: Cambridge University Press.
    Mill, J. S. (2004). Essays on Some Unsettled Questions of Political Economy, chapter
    On the Definition of Political Economy; and the Method of Investigation Proper to
    It., pages 93–125. Electronic Classic Series PA 18202: Pennsylvania State University.
    URL http://www2.hn.psu.edu/faculty/jmanis/jsmill/Unsettled-Questions.pdf.
    (1844).

    Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications
    to Social Philosophy, volume 3, Books III-V of Collected Works of John Stuart
    Mill. Indianapolis, IN: Liberty Fund. (1866).

    Popper, K. R. (1980). The Logic of Scientific Discovery. London, Melbourne,
    Sydney: Hutchison, 10th edition.

    Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and
    Rationality. London, New York, NY: Routledge.

    Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford
    University Press.

    • paul davidson
      July 12, 2013 at 2:38 pm

      The idea that people are self interested does not mean they can make the correct decision regarding the economic future. If the future is nonergodic uncertain then people “know” they can not know with statistical accuracy what the future will bring. Thus in a market economy where money contracts are used to organize all market production and exchange transactions, the desire to be liquid and therefore be able to meet contractual obligations already made and those one might make in the uncertain future becomes a self-interested [rational?] decision. The more uncertain the future appears to be in the imagination of a decision maker, the greater the desire for liquidity!! [And given the “essential properties” of money and all lliquid assets that Keynes specified in Chapter 17, using part of one’s income to save in the form of liquid assets is a spending decision that is not going to induce employment to meet this demand.

      A GENERAL Theory is a theory that has fewer restrictive axioms than a theory with more axioms. Keynes called his general theory “general” as her specifically noted n the German Edition to THE GENERAL THEORY because it had fewer restrictive axioms. Keynes did not add additional axioms — he overthrew three classical axioms to make his theory more GENERAL!

  5. Fred Zaman
    July 12, 2013 at 7:08 pm

    Machiavellian Dynamics of the Wealthiest 1%:

    My principal theoretical concern, in both the previous RWER paper “Nash dynamics of the wealthy, powerful, and privileged: America’s two-player Darwin metaeconomy” and its supporting thread on the RWER blog “Adam Smith, F. Zaman’s RWER paper and the 99% Movement,” has been what can be encapsulated as: the collusion of the “favored few” conspiring behind closed doors against the “unwashed masses,” in America and worldwide. This continues to be the theoretical concern of my commentary on the present thread as well.

    Capitalism’s global economy institutionally is a corruptible and corrupting machine, a worldwide mainspring of corruption so to speak, that operates in a global “non-Euclidean space” in which capitalism’s numerous economic lines of development, while in public appearing to run parallel (individually unfold over time without collusion), nevertheless “meet” behind closed doors conspiratorially. This machine, although materially it is clearly “benevolent” to society in almost countless ways, nevertheless, operating in the secretive non-Euclidean space of the free market, free enterprise, and free trade, is driven by the corrupting, all-consuming desire of individuals to acquire personal wealth, power, and privilege without limit; which goals are to be pursued unrestrained by government in a marketplace that is optimally efficient in the production of goods and services sold at lowest cost to consumers.

    All of this is ongoing under corporate elite control exercised behind closed doors to the extent possible, which de facto is directed against the 99% both economically and politically, to ultimately result in a “plutonomy” (according to Citicorp executives) in which the 99% becomes economically destitute and politically disenfranchised. The Wall Street elite apparently see this as a good thing, something that they are feverishly working behind closed doors to accomplish as soon as possible before the unwashed masses realize in full what is happening. Wall Street institutionally appears to be corporate greed collectively manifested as the lust for dominance by the wealthiest 1% over the 99%.

    The “favored few” here include those called the: ruling elite, power elite, the wealthiest 1%, 0.1%, 0.01%; and to include even any group, of whatever economic stature, whose few are able to control – or at least endeavor to control – the unwashed masses conspiratorially through proceedings ongoing behind closed doors, because in failing to do so the unwashed masses would revolt against such control, ongoing behind closed doors. I take as one example of this conspiracy the convening of energy executives at the White House, at the behest of the G. W. Bush early on in his administration; which convention of the power elite proceeded behind closed doors and whose “proceedings” have never been made available to the American public.

    My commentary on this thread will include discussion in theory of what both neoclassical and Keynesian economists say about, and in particular what they do not say about – perhaps even refusing to discuss, this extremely important issue: the collusion of capitalist elite (the favored few) conspiring behind closed doors against the economy of the 99% (the unwashed masses, which in their mind includes the middle class). Paul Davidson, because he is an important author on this blog that in the past may have (perhaps has) said something pertaining to this subject, but nevertheless more importantly really has not said and may never be willing to say anything of direct significance to this subject, in particular will be meat for this discussion.

    What I can say confidently at present about Keynesian economics, on the basis of his comment on a non-Euclidean analogy in economic theory, is that his theory is far less general than he might have supposed; simply because it fails to consider, AS A MATTER OF ECONOMIC THEORY AND PRINCIPLE, the role played behind closed doors by capitalist elite “collusion” in creating the very public, non-Euclidean “collisions” of the workers (their “involuntary unemployment” as described by Keynes). Many collisions of which, today in America, are patently the consequence of corporate elite collusion worldwide, manifested in many different ways and at many different venues.

  6. davetaylor1
    July 13, 2013 at 10:55 am

    Fred, I’m bring this over from the garbled discussion of “pure shit”, much of which is relevant here, including Egmont at #78. I’ll come back to your plea for us to become more active.

    Egmont, I’ve read your paper ["Keynes's missing axioms"], and despite its eloquence, don’t accept your arguments.

    ” Why did Keynes not heed his own appeal and in earnest work out the required non-Euclidean formal basis?”.

    Instead of the snine suggestion of his not having “fully grasped the logic of his own system”, you might offered the fact that he was not an academic wanting to portray the world but a practicing statesman who saw the need to and possibility of changing it. As I have pointed out before, since he was anticipating a form of ACTIVE logic which wasn’t then clearly worked out until around 1968 (and then not in economics), one should be praising his insight and his work as a consultant behind the scenes, not denigrating his logic.

    ” Keynes’s conceptual groundwork consists in the main of two equations (Y=C+I and S=Y–C, ergo I=S, Keynes, 1973, p. 63)”.

    Have you missed – or maliciously left out – Keynes’s next but one sentence (suggesting his intentions)? “It is only by denying the validity of one or the other of them that the conclusion can be avoided”.

    ” Simplicity demands that we have at first one world economy, one firm, and one product [in a period of arbitrary length”.

    Hidden in the word “one” is the difference between static and active logic. If you divide Pythagoras’s Theorem x² + y² = z² by z² you will find that 1 = sin²a + cos²a, and writing 2πft for a, the angle swept out at frequency f during time t since some starting point, one generates two sine waves 90º out of phase and related by d/dt (sin) = cos, with three further differentiations returning the angle to its starting point. In short, a dynamic ‘1’ is a complex number requiring not 2 (1 as against 0) but 4 terms (0,0; 1,0; 0,1; 1,1) to represent it, i.e. every thing, their activities, and representations of these. C.f. Levi-Strauss conclusion that the social ‘unit’ is [not economic Man but] the biological family; the four points of a compass, where if the first term is the criterion of truth (no error) then the others represent types of error involving 1, 2 and 3 levels of temporal differentiation (as in Algol68 reference levels; Newtonian motion at a point considered as speed, acceleration and force). Thus in active logic, results are not just true or false, Popperian fashion, but more or less true and in any case dynamically correctible.

    By this criterion, Keynes’s theory is not absolutely true but at least (contra the neoclassical theory) not seeing the economy in a monetary mirror and thus advocating quantitative corrections which are back to front – as in austerity where expenditure is needed. Nor does it eschew the continuous use of price as its “compass”; it ADDS unemployment as an indicator of accumulated (integrated) errors from the past, while Keynes’s practical advocacy of progressive taxation by governments as against privatised taxation (rents, unnecessary profits and interest) is at least suggestively adds avoiding a looming iceberg (or should we say, remaining stuck in the ice) of unemployment in the future.

    Keynesian economics is thus (at its simplest) modelled by the cybernetic (steering) logic of a PID servomechanism, the structure of which is ultimately derivable by taking as axiomatic the findings of science about the Big Bang. As I see, it the necessary axioms are the three degrees of freedom of a universe of raw energy expanding and evolving spherically in time, and the formation of electromagnetic waves and self-capture of this polarised wave as localised spray at the surface of the space swept out. The mathematical coordinates of the surface of this are not Euclidian but at all scales 1-dimensional latitude and 2-dimensional longitude.

    FRED, on getting involved in politics, these axioms are manifest in the brain’s having four types of logic: sequential (linguistic) logic, parallel (primarily visual) logic, sensory (input) logic and active (output) logic. Genetically we tend to be gifted in some of these more than others, and since any three of them are necessary and sufficient to think with and habitual use is necessary to generate specialist skills, we tend to be good at some things and correspondingly bad at others. Unlike you, Egmont and Michael in particular, I don’t have the gift of the gab, and what I intuit are visual gestalts – in what I have been seeing over a long time – which are particularly difficult to describe to people who don’t already see them. In short, I have found that my trying to get involved tends to confuse people and turn them off rather than enthuse them, so I’ve stuck to argument with academics not because I don’t want to get involved but precisely because I do. As I see it the majority learn not from protest but from teachers, whose job includes translating into practical terms what they have themselves been taught by academics, who in turn need to learn from those who have learned by observing reality. Since I’m one of the latter, that’s the niche in which I am trying to participate. Believe you me, though, it is not an easy one, for academics tend to see their job as teaching rather than learning.

    • davetaylor1
      July 13, 2013 at 2:19 pm

      The strange word ‘snine’ above started out as ‘snide’, not ‘asinine’!

  7. Egmont Kakarot-Handtke
    July 13, 2013 at 11:01 am

    Fred Zaman #7

    There are two kinds of revolutions, political and scientific, and you are in the wrong movie. The Keynesian Revolution was intended as a scientific revolution.

    “But, if my explanations are right, it is my fellow economists, not the general public, whom I must first convince. At this stage of the argument the general public, though welcome at the debate, are only eavesdroppers at an attempt by an economist to bring to an issue the deep divergences of opinion between fellow economists which have for the time being almost destroyed the practical influence of economic theory, and will, until they are resolved, continue to do so.” (Keynes, 1973, p. xxi)

    Political revolutions are usually not started by politely throwing the public out of the auditorium.

    Keynes and his contemporaries witnessed two scientific revolutions. In physics Einstein put forth the theory of relativity, in mathematics Hilbert put forth the axiomatic method. Both scientific revolutions were recognized by the contemporaries as such. Keynes, as most economists before him, tried to profit from the prestige and triumph of the real sciences to sell a paltry piece of common sense.

    The physicists got the GENERAL Theory of Relativity, Keynes titled his book the GENERAL Theory. The mathematicians got the non-Euclidean axioms, Keynes threw over the second postulate of the classical doctrine [The utility of the wage ...] and declared this as akin to throwing over Euclid’s axiom of parallels (Keynes, 1973, p. 17).

    Keynes talk of generality and axioms was sales talk for his fellow economists. He understood the axiomatic method but he did not apply it, quite the contrary:

    “There is, however, no absolute need to start with axioms, let alone particular ones, or even with abstraction. There is a role for historical generalisation, which relies on one of the most important logical tools, pattern recognition (metaphor, analogy); and a role for argument from first principles. Both of these procedures are part of what Keynes called ‘human logic’ in contrast to ‘formal logic.’” (Keynes, quoted in Chick, 1998, p. 1860)

    Keynes never intended to leave the realm of common sense (aka human logic) “where nothing is clear and everything is possible” (see Section 3 of my paper in Real-World Economics Review, Issue No. 63, 2013).

    It were the neoclassicals who recognized that there is a real problem and tried to get out of the perennial verbiage of Political Economy:

    “The very definition of an economic concept is usually subject to a substantial margin of ambiguity. An axiomatized theory substitutes for an ambiguous economic concept a mathematical object that is subject to entirely definite rules of reasoning.” (Debreu, quoted in Ingrao und Israel, 1990, p. 287)

    Let us face the facts: on the methodological point the neoclassicals are definitively superior. Keynesianism and axiomatization is a contradiction in terms. The Post Keynesians explicitly defend ‘incoherent Babylonian babble’ with their silly slogan “It is better to be vaguely right than precisely wrong” (for details see2013, p. 96).

    Time for heterodoxy to stop wordplay with collision of parallels and collusion of capitalists and to start an intellectual revolution of their own. If heterodoxy means something scientific then you have to put heterodox axioms against orthodox axioms or, as Keynes advertised, to get up and to move from Euclidean axioms to non-Euclidean axioms. This is a tough formal exercise.

    References
    Chick, V. (1998). On Knowing One’s Place: The Role of Formalism in Economics.
    Economic Journal, 108(451): 1859–1869. URL http://www.jstor.org/stable/2565849.

    Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the
    History of Science. Cambridge, MA, London: MIT Press.

    Kakarot-Handtke, E. (2013a). Crisis and Methodology: Some Heterodox Misunderstandings. real-world economics review, 63: 98–117. URL http://www.paecon.
    net/PAEReview/issue63/kakarot-handtke63.pdf.

    Kakarot-Handtke, E. (2013b). Why Post Keynesianism is Not Yet a Science.
    Economic Analysis and Policy, 43(1): 97–106. URL http://www.eap-journal.com/
    archive/v43_i1_06-Kakarot-Handtke.pdf.

    Keynes, J. M. (1973). The General Theory of Employment Interest and Money.
    The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke:
    Macmillan. (1936).

    • Paul Schächterle
      July 13, 2013 at 1:03 pm

      I sort of understand that you prefer an axiomatic approach over just verbal models. I also understand that you don’t like the notion of “euclidean geometers in a non-euclidean world” although I can understand what Keynesians want to say with it.
      I just don’t understand how you can describe the neoclassical method a superior method in any sense.
      Why is “better vaguely right than precisely wrong” a silly slogan? Isn’t it rather an obviously true statement?
      I certainly prefer a rather vague verbal argumentation based on observation and common sense over mathematised nonsense like Debreu’s General Equilibrium theory, or neoclassical micro in general. (Debreu’s “axioms” in particular are so poorly founded and so obviously not of this world, it hurts my mind.)
      The scientific method does not require axiomatic reasoning!
      Which be extension also means: as long as heterodox economists listen to facts and do not commit logical errors they are in the camp of science. (Whereas neoclassical economists who deny facts and commit open logical errors are not.)
      Reading classical political economists like Malthus who do not use the axiomatic method at all is just so refreshing and lets todays economists look pale. I guess that is because they do not take any “axiom” for granted but long to grasp the essence of the real economic movements and relations.

  8. Egmont Kakarot-Handtke
    July 13, 2013 at 4:16 pm

    Paul Schächterle #11

    (a) It is not the question of what I prefer or like, it is the question of what is a scientific proposition.

    (b) It is important to distinguish between method and actual application. Spinoza used the axiomatic method to prove the existence of God. This, obviously, is a misapplication. This misapplication is no argument against the method. By defending the method I do not defend the neoclassical axioms. That is a shortcut of your own making.

    (c) If you prefer the vaguely right you must already know what is right. However, there is no criterion to discriminate between vaguely right and vaguely wrong. Finally, if you already know what is right why are you content with vaguely right? The argument is silly because it presupposes what it tries to prove.

    (d) The first rule of science is that there is no such thing as a pure and simple fact.

    (e) You can look out of the window and say the sun rises. That’s not science, that is common sense. As J. S. Mill put it: “People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcileable with the theory they held and with a totally different one. It seems strange that such an instance as this, … , should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.” (Mill, 2006, p. 783). It certainly did not open the eyes of Paul Schächterle.

    (f) If Malthus refreshes you that’s ok. Unfortunately, you are in the wrong movie. Science is not about wellness but about knowledge.

    (g) Neither Malthus, nor Keynes, nor you, nor anybody else can grasp the essence of real economic movements and relations by looking out of the window: “Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the social science, while we look at the facts in the concrete, clothed in all the complexity with which nature has surrounded them, and endeavour to elicit a general law by a process of induction from a comparison of details; there remains no other method than the à priori one, or that of ‘abstract speculation.’” (Mill, 2004, p. 113-114)

    References
    Mill, J. S. (2004). Essays on Some Unsettled Questions of Political Economy, chapter
    On the Definition of Political Economy; and the Method of Investigation Proper to
    It., pages 93–125. Electronic Classic Series PA 18202: Pennsylvania State University.
    URL http://www2.hn.psu.edu/faculty/jmanis/jsmill/Unsettled-Questions.pdf.

    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,
    volume 8 of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund.

    • davetaylor1
      July 13, 2013 at 4:52 pm

      At it again! “However, there is no criterion to discriminate between vaguely right and vaguely wrong”.

      Paul was talking about “precisely wrong”, and I used a compass as my criterion of truth, thinking of “precisely wrong” as reading back to front a needle merely aligned between North and South.

    • Paul Schächterle
      July 13, 2013 at 5:07 pm

      Well I get your ideas and disagree.
      My point of view is: You can’t discuss the validity of axioms using axiomatic deductive reasoning. This goes by definition. But axioms have to be right for a model to be right. So there has to be such a discussion about the axioms. And to get to a useful model a lot of work has to be done before any modelling can take place. There has to be a place for this in the economic science.
      Well, we won’t be able to discuss epistemology in its entirety in blog post comments, though. But this shows IMHO how important epistemology is and that it should definitely be part of any curriculum.

      • davetaylor1
        July 14, 2013 at 8:23 am

        I entirely agree your first para, Paul, but to the second may I add Tony Lawson’s and my argument – like Egmont’s about Fred “going to the wrong movie” – that the importance of Hume’s epistemology is negative: one doesn’t always need description based on measurement but one does need ontology: to know what things do or what they are used for. Hence my argument – suggested by Smith’s “invisible hand” that what economics is is a control system.

        Incidentally, Egmont at #10 is providing Keynesian quotes well worthy of discussion. I’d like to think he’s been playing “devil’s advocate” here!

      • davetaylor1
        July 14, 2013 at 9:08 am

        Except on looking again, I’d fallen for another misquotation. Keynes wouldn’t be saying “Keynes said …”. The apparent quotation is surely Chick’s interpretation.

  9. davetaylor1
    July 13, 2013 at 4:30 pm

    Paul Davidson @ #2.

    “You [Fred] apparently misunderstand the Euclidean vs non-Euclidean geometry analogy.

    “What Keynes argued and demonstrated was that even if the economy was purely competitive — with no one [or collusive group trying to protect their wealth from others or corrupt politicians or Marx's exploitative capitalists] having any market power, there could still exist significant and persistent involuntary unemployment”.

    Paul, the first job I had back in 1960 was working with pioneering electronic industrial control systems using discrete components, these being of such a nature (glowing thyratrons, belt-driven feedback generators etc) that one could actually see what was happening. Above, I’ve indicated the connection of non-Euclidian axioms with everything, including PID control systems. Back then the original control systems only had the ‘P’ feedback (i.e. speed feedback when one was trying to control speed). The problem was that when the system came under load it had to slow down enough to create a big enough error to release enough power to drive that particular load, so we were trying out other types of feedback in applications where this was a problem. It was a problem also with record player motors in the days of record players, where the answer was found in ‘transcription’ motors using a ring of electromagnets which moved the table from one magnet to the next, so the speed error was reduced to a positional error, i.e. the integral (‘I’) of the speed over the 1/50 of a second period of the alternating supply voltage.

    Even when I first read Keynes in 1969, it was obvious to me that this problem of needing an error [in times of neo-classical economics "a reserve army of the unemployed"] to drive a system controlled solely by market prices, was precisely the one Keynes had been trying to address, and that his solution was also a non-price ‘I’ feedback, responding to accumulating unemployment. Incidentally, the economic system is surely using ‘D’ feedback when investors change markets where they anticipate profits drying up. (Now, of course, they hold portfolios of investments too, seeking stability statistically by means of cybernetician W. Ross Ashby’s ‘requisite variety’).

    Paul Schächterle @ #3. I greatly appreciate your demolishment of neo-classical economics, but I hope you will see from mine via non-Euclidian geometry that the issue is deeper than a map projection. It is about the conditions for being able to make a map projection, which the neo-classicists don’t meet. In particular it is about the degrees of freedom which may need to be controlled. NC Economic Man is a Maxwellian inert atom, free to be moved in any direction. If he’s controlled via price he’s still free to move in two other ways, and if one of those (employment) is controlled he can still change direction as an investor. The fact is, Real Man is a human, with biology already controlling his freedom from not eating and his humanity from doing nothing if he’s ignorant, bored, curious or challenged. Employment may resolve his biological needs, but the devil finds work for idle hands.

    Curious how Fred develops the ‘conservative’ idea of freedom in the US political context.

    Limited government > free enterprise > privilege.

    Economic Freedom > free market > power.

    Individual liberty > free trade > wealth.

    What needs to be mentioned are the undersides of these coins that are out of sight: the reciprocity of rights and duties > the duty to use privilege, power and wealth responsibly > responsibility for making good all they have devalued, devoured and demeaned. I can’t see the 1% wanting to give up their privilege, power and wealth, but it may be possible to appeal to their better nature with Edward de Bono’s argument in “The Happiness Purpose”: that work at a worthy challenge is actually more satisfying than “living it up”.

  10. Egmont Kakarot-Handtke
    July 14, 2013 at 2:49 pm

    Paul Schächterle #14

    Perhaps we agree on the following:

    The neoclassical approach is inadmissible. This needs no further elaboration because enlightened neoclassicals have already abandoned it.

    The Keynesian approach is inadmissible because it is formally defective. The proof has been given in (Kakarot-Handtke, 2013).

    The heterodox camp has unearthed many flaws of standard economics but failed to develop an alternative that satisfies scientific standards, i.e. material and formal consistency.

    Even Paul Schächterle’s fresh theory of the labor market can give us not much impetus because he overlooked that it is well-known textbook stuff (Samuelson, 1973, p. 229 Fig. 13-4).

    As an old Viennese saying goes: the situation is hopeless but not serious.

    References
    Kakarot-Handtke, E. (2013). Why Post Keynesianism is Not Yet a Science. Economic
    Analysis and Policy, 43(1): 97–106. URL http://www.eap-journal.com/
    archive/v43_i1_06-Kakarot-Handtke.pdf.

    Samuelson, P. A. (1973). Economics. Tokyo, Düsseldorf, etc.: McGraw-Hill,
    Kogakusha, 9th edition.

    • paul davidson
      July 14, 2013 at 4:36 pm

      Citing Eichner is not citing post Keynesian economics.

      and indicating that Keynes relied on two equations is not Keynes or Post Keynesian economics. the two cited equations are simply accounting identities — and by definition they can nott be false as long as one accepts the definitions. But I=S is merely an ex poste accounting identity and by itself is just as true for neo classical economics as for anything else — including Marxian economics.

      The Keynes approach was to get behind the two identities; as I explain in my textbook: POST KEYNESIAN MACROECONOMIC THEORY, [see page 41 for example]

      There we see that there are only two decisions an income earner makes about how to use his/her current income.

      the first decision is what classical theory called time preference and Keynes called the propensity to consume. in this decision the income recipient decision maker decides on how much of current income to spend on current production [ i.e, consumption] and how much to save. The classical theory is that saving is merely indicating a “time preference” for specific future consumption — and therefore savings is used to purchase a real capital good that produces future income (or in Friedman’s terms a future flow of utility) for the product one wants in the future.

      For Keynes there is a second decision and that is on what should current savings out of current income be sent on currently. And this second decision is the liquidity preference decision. Namely the income recipient will buyy out of current income some type(s) of liquid assets to move liquidity, i.e., contractual settlement power into the indefinite future. And in the chapter on the “essential properties” of money and other liquid assets Keynes specified that liquid assets have TWO ESSENTIAL properties — the elasticity of production is zero and the elasticity of substitution between liquid assets and producible real durables is zero.

      Thus for classical theorists a penny save is a penny spent on something that will be produced and create jobs now to earn at least a penny in real terms– and in Milton Friedman’s permanent income hypothesis savings is defined as any producible thing purchased today that is not consumed today (i.e., all its utiles of happiness are not generated today )– thus for Friedman a yacht is “savings”. Friedman prides himself on not defining the purchase of durables such as cars, yachts, etc as consumption — but instead as defining them as savings. thus according to Friedman, and all classical economists savings creates jobs today just as much as consumption of nondurables today

      Keyne’s saving to purchase a liquid asset with essential properties means that the decision to save is a decision not to induce employment and production currently!!

    • Paul Schächterle
      July 14, 2013 at 7:18 pm

      Where I agree is that neoclassical theory is inadmissible. That is because it does not satisfy scientific standards.

      The labour market is a perfect example:

      I won’t waste my time searching old versions of neoclassical textbooks (maybe you can elaborate what you mean) but when I look in Samuelson’s current edition in Google Books –

      http://books.google.de/books?id=gzqXdHXxxeAC&printsec=frontcover&dq=samuelson+economics&hl=de&sa=X&ei=0vHiUb7cIsXSsgbB2IH4Aw&ved=0CD0Q6AEwAA

      – I don’t see that Samuelson copes with my “fresh theory of the labour market” at all. Figure 13-4 (p. 311) somehow concedes that people might work less with rising wages. Wow! No mention of rising supply at lower wage rates, though.

      And of course any argument against a simple market model of the labour market is forgotten when it comes to slamming trade unions. Oh, look! Labour supply rises as the wage rate rises, labour demand diminishes as the wage rate rises, unions must cause unemployment! Figure 13-6 (p. 320)

      Cherry-picking assumptions and maintaining models that contradict each other is unfortunately the bread and butter business of neoclassical economics.

      Be honest, what did you learn in neoclassical micro? Did you learn that there is no market clearing wage because people don’t prefer to starve in their spare time or did you learn that unions cause unemployment. I mean, just look at the wikipedia page for the labour market. These people don’t invent that nonsense, they get it from the textbooks.

      As for heterodox economics: They may have “failed” to create a quantitative axiomatic model. But at least they do not pretend to have such a model like neoclassical economists do. And they discuss what may be good assumptions or possible mechanisms that could one day make it into a quantitative model. Where did Steve Keen get his assumptions for his quantitative model? He read books of heterodox scientists like Minsky.

      Heterodox economists search for the truth!

      And searching for the truth makes you a scientist. Pretending to know the truth makes you … a pretender.

      I would also say that you can discuss fruitfully without having quantitative or highly formalized models. There are even subjects that are not suitable for quantitative methods (e.g. Law). And there may be subjects not sufficiently understood to create sensible formal models. We have a language so that we can communicate and make our ideas clear. We do not need Mathematics. If we can use Mathematics, good. If not, good as well.

      • Egmont Kakarot-Handtke
        July 15, 2013 at 9:17 am

        Paul Schächterle

        Your online-version is perfectly ok. You say:

        “I don’t see that Samuelson copes with my “fresh theory of the labour market” at all. Figure 13-4 (p. 311) somehow concedes that people might work less with rising wages. Wow! No mention of rising supply at lower wage rates, though.”

        Your revolutionary idea is simply the inverse: if workers work less with rising wages (Samuelson) they work more with falling wages (Schächterle).

        This corroborates my contention that heterodoxy is logically not up to scientific standards and this has nothing to do with axiomatization. One can talk common sense nonsense and one can talk axiomatized nonsense.

        Axiomatized nonsense has the advantage that it is easier to detect, which the neoclassicals did. Truth emerges rather from error than from confusion.

        “We should also like to underline Debreu’s effective reference to Bacon when he says that “citius emergit veritas ex errore quam ex confusione.” It would be a mistake to lower the level of analysis and clarification. The only way possible is a thorough reexamination of the theory’s basic hypotheses, i.e., a true paradigmatic revolution.” (Ingrao and Israel, 1990, p. 362)

        References
        Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.

  11. Fred Zaman
    July 14, 2013 at 6:35 pm

    Keynes “economic science,” if it is not also “political science,” is worthless to the 99%:

    The “scientific” economic theory of John Maynard Keynes, his General Theory elaborated by Paul Davidson in “The Keynes Solution,” was implemented “politically” in the 1930’s by President Roosevelt at the behest of Keynes himself. Is there any doubt that if he were alive today that he would desire to engage in a “political” renewal of his “scientific” solution to economic problems today in the 21st century? Surely no one can honestly say that he would not.

    However, “hope” that the shakers and movers of Wall Street will respond positively to The Keynes Solution (his General Theory) was not the instrument by which Roosevelt was able to accomplish this monumental work in the United States. He reputedly in a meeting with those most concerned with implementing The Keynes Solution, the American people protesting on Main Street and elsewhere, told them that they must politically make him do this, through street demonstrations, strikes, sit-ins, political protests, etc. I read somewhere that in 1936 or 1937 there were some 4,700 such events, which were in protest to increasing congressional (Republican) resistance to the New Deal in Roosevelt’s second term of office. Nor will the “hope” of Paul Davidson about today’s movers and shakers on Wall Street responding positively thereto, voiced in his closing paragraph of The Keynes Solution, accomplish what it (“hope” regarding Wall Street’s selfless adoption of Keynesian economics) never was able to do during the Great Depression.

    The Keynes Solution – as economic science – is presently, and will continue to be, worthless to the 99% and their Occupy movement unless it is backed up politically by the strong, clear voice of the people. Otherwise, his solution will be thrown into the dustbin of history, the event of which currently is in progress. RWER authors, if they were to choose being such however, could be the vanguard of a 99% movement that will insure this does not happen.

    • Fred Zaman
      July 14, 2013 at 11:16 pm

      What economic theory must incorporate, ultimately if it is to become a science truly, is the human propensity for inordinate greed and the lust to dominate over others by whatever means necessary. Such propensities are a human, indeed “all too human,” reality; and therefore must, if economics is to become science truly, be explained in principle and theory.

      • Egmont Kakarot-Handtke
        July 15, 2013 at 8:39 am

        Fred Zaman

        You are running through wide open neoclassical doors:

        “I am rather convinced that the rational greedy economic agent will continue in a central role.” (Hahn, 1984, p. 68)

        This is a perfect corroboration of my contention that heterodoy has nothing innovative to say.

        That “man” is greedy and lazy is the behavioral axiom of economics:

        “Just in the same manner [as geometry] does Political Economy presuppose an arbitrary definition of man, as a being who invariably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained in the existing state of knowledge.” (Mill, 2004, p. 110)

        This is poor psychology or sociology but not science.

        References
        Hahn, F. H. (1984). Equilibrium and Macroeconomics. Cambridge, MA: MIT Press.

        Mill, J. S. (2004). Essays on Some Unsettled Questions of Political Economy, chapter On the Definition of Political Economy; and the Method of Investigation Proper to
        It., pages 93–125. Electronic Classic Series PA 18202: Pennsylvania State University.
        URL http://www2.hn.psu.edu/faculty/jmanis/jsmill/Unsettled-Questions.pdf.

      • Fred Zaman
        July 15, 2013 at 3:09 pm

        Wrong! I am breaking out of neoclassical economics through its plate glass window. The aforementioned classical economic axioms of (1) and (2) and non-Euclidean axioms of (1A) and (2A) are quite different in scope and substance. The collusion/deception of (1A) and (2A) is quite different than the assumption of perfect knowledge/asymmetric information of neoclassical theory.

  12. Paul Schächterle
    July 15, 2013 at 9:38 am

    Egmont Kakarot-Handtke :
    […]
    Your revolutionary idea is simply the inverse: if workers work less with rising wages (Samuelson) they work more with falling wages (Schächterle).
    […]

    I’m afraid you don’t read the graph correctly, look where the graph is pointing when wages fall – it goes to the origin.

    Or maybe you did not understand my proposition. I state that workers will want to work more if their wage rate falls to keep a certain income level. (Why would they then want to work less if the wage rate falls even further.) You know, if the wage rate falls a worker may work more and still earn less.

    Also you cherry-pick your arguments: What about the other graph? What about Wikipedia? What about micro courses in the university?

    Regarding what makes something a scientific endeavour, we obviously have very different opinions.

    • Egmont Kakarot-Handtke
      July 15, 2013 at 10:53 am

      Paul Schächterle

      I am cherry picking instead of following you into the swamps of labour market theory which has never produced more than that the elasticity of labour supply with regard to the wage rate is either less than 1, equal 1, or greater 1. Nobody needs a fresh approach to know that.

      It is not the labour market theory that is under discussion but your statement: “And searching for the truth makes you a scientist. Pretending to know the truth makes you … a pretender.”

      The statement is a truism in the general sense but false, to say the least, in your specific sense, i.e. that heterodoxy is searching for truth and all others don’t.

      Even if your statement were true it remains equally true that heterodoxy has not achieved much.

      • Paul Schächterle
        July 15, 2013 at 11:24 am

        Swamp, indeed. In my book someone who thinks that workers prefer to starve in their spare time and that therefore a market clearing wage exists does not want to know the truth and is therefore no scientist.
        Someone who struggles to get to know the true (i.e. not obviously false) structures of the economy is a scientist, regardless of whether she or he uses mathematical symbols or greek letters. And not having achieved much, supposed this is true, does not change that.
        Btw. your statement about the “elasticity” of labour supply suggests that you still fail to understand the argument. A neoclassical economist could call my proposition a negative elasticity of supply. In any case it is about whether the graph slopes upward or downwards near the origin.

    • Paul Schächterle
      July 15, 2013 at 11:27 am

      Edit: “near the origin” should be “near the price=0-axis”.

      • Egmont Kakarot-Handtke
        July 15, 2013 at 12:14 pm

        Paul Schächterle

        I appreciate that you want to save workers from starving.

        However, you don’t need to be a humanist to save a drowning person — you must first of all be a good swimmer. The declaration of good intentions is not a substitute.

        Likewise, you must have a true economic theory to take effective measures. A vacuous labour market theory feeds nobody.

  13. davetaylor1
    July 15, 2013 at 12:06 pm

    I’ve responded to Egmont’s idea of science on the “pure shit” blog, so for those whose interest has moved on I’ll repeat it here.

    Microcompassion @ #9: “It seems to me that until we are able to properly understand how our social system (of macroeconomics) actually works, we stand no chance of getting the necessary and correct responses by government”.

    Absolutely. Governments understand no more and (due to their atypically privileged backgrounds) probably less than the rest of us. You and Damien – you looking for a macro model which expands to a micro, and Damien for a practical alternative based on honestly interpreted money – are more nearly looking in the right direction than economists busy repainting pieces of a jig-saw puzzle they can’t picture or, like Egmont refusing to rethink Keynes, claiming “the situation is hopeless but not serious”. (If he thinks that, he’s nuts). The problem, of course, is that the present chaotic theory doesn’t work in the sense that governments hope and act as if it does, when the situation of the real world is not only serious but not far off catastrophic: certainly for millions of humans and possibly for life on earth.

    So let’s pursue the number of entities/players argument by reverse engineering the evolution of the universe back to the Big Bang, where invisible energy explodes as a three-dimensional sphere in a fourth dimension of time.

    Given that as the primary axiom Egmont demands, the energy will become visible by the formation of electromagnetic waves at the discontinuity at its surface of the space being swept out. This polarisation of some of the energy permits the secondary axiom, that energy has been localised by circulation as particulate “spray”. From this, via atomic structure, molecular binding, cell formation etc we can reconstruct a coherent model of evolution: not only up to our bodies with brains having four types of logic, any three of which are needed to provide the input, program and output of thought, so there are four types of thought object (things, representations, activities and procedures) as well as four types of logic, four types of specialist in the human economy supplying our ecological household needs, but on likewise in the fictitious economy of money-making (chrematistics) evolved by the same type of human animal as evolved economy from ecology.

    What is true of all is true of any, as in any (complete) family involving men, women, girls and boys, who in a natural family have different roles as consumers, producers, distributers and experienced advisers. So this way round, everything (in the “macro” view of economics) can be reduced to 4 “players” (things) and – taken two at a time – 6 communication channels (transaction procedures) between them. A “generalised” macro view doesn’t have to be worked up from the accounts; the accounts already provide the micro view.

    What’s missing from this is the ECOLOGY as input (last year’s surplus output stored in barns) and CHREMATISTICS as monetary surplus output. (This was originally banks storing barter money like an expansion tank stores excess water in a hot water central heating system). What’s gone wrong has been localisation of about 97% of the money by capture in the “money making cycle” of printing money as IOU’s, lending these for purchasing legal entitlements to existing real assets, insuring them (originally by charging interest to cover risk) to make IOUs look safe, and defrauding the insured with junk derivatives, unfair contracts and unjust foreclosures. This all restarted with Henry VIII losing his flagship, then William of Orange joining the bankers of England in “ripping off Britain” in exchange for an easy life, ostentatious palaces and “stately homes”.

    Be encouraged, both of you: Microcompassion with your 6 player game (4 plus input and output) and Damien with your 4-player chrematistics circulating IOU money. What Egmont asserts – that “The heterodox camp has unearthed many flaws of standard economics but failed to develop an alternative that satisfies scientific standards, i.e. material and formal consistency” – simply isn’t true. What is true is that we need a Keynes able to re-educate government officials behind the scenes and a Roosevelt with the political nous to enlist the support of protesters. Mighty acorns from little acorns grow, but only where they are planted.

    • davetaylor1
      July 15, 2013 at 1:16 pm

      O the joys of growing old! “Might oaks from little acorns grow …”.

  14. Fred Zaman
    July 15, 2013 at 3:21 pm

    To the readers of this thread, posts 26 through 32 are interpositions that have absolutely nothing to do with the original post and relevant responses thereto. They appear to be attempts to bury the original message—i.e. to cover the needle with a haystack. Why don’t they stick to what this thread is supposed to be about? They appear to be subversives de facto trying to confuse the reader about what this thread is or should be about—rethinking Keynes’ non-Euclidean theory of the economy.

    • davetaylor1
      July 16, 2013 at 12:07 am

      Fred, I’m sorry you don’t like Paul S. and I responding to Egmont’s attempts to rubbish what you are saying, but I protest: both at #8 and at a deeper level in #31, I am addressing precisely the nature of a non-Euclidian Keynesian economy and endorsing your conclusion about its significance. I’m embarrassed enough by the length of my contributions to these blogs, so in cutting them perhaps I’ve not detailed the bits interpreting self-interest and profit motivation that it seems you wanted to hear. Let’s deal with that.

      Incidentally, the parallel railway lines analogy involves subjective local perception and projective geometry, but in the universal Einsteinian objective geometry which happens to apply to the surface of our planet, longitudinal coordinates which are parallel at the equator also meet at the poles.

      Let’s go back to what Keynes accepted as “self-interest”, then. As I can show theoretically and explain physically, prior to the development of economics we already had four parts to our brains, with different preferences and different blind spots. In the economic system people tend to specialise in what they are good at and, not seeing how the economy functions as a whole, see that as the purpose of economics. So, in the macro economy we have four types of function – consumption, reproduction, distribution and improvement, with the improvement purpose in a monetary economy dependent for survival on availability of credit, leaving managers whose minds are not improvement-oriented to see the firm’s purpose as avoiding bankruptcy. For brevity let’s accept as a working hypothesis the Keynesian invisible hand functions as a PID control servo having an aim and three feedbacks. Which of the four functions is the aim and which the feedbacks?

      When money managers hold the purse strings, “making money” becomes seen subjectively as the purpose. In either/or logic that means money flows to productive investment, distribution and consumption are both the feedbacks and what can be cut to make more money, hence the present 1% vs 99% confrontation. When seen objectively with an understanding of active PID control (steering), Nature’s cycle of the seasons, and the cyclic (reproductive) nature of economic activity, an alternative can be found: time-sharing. There are times for each type of thing to be ceded priority and the others to assist as feedbacks. When the capitalist harvest is in, it is time for stocking up for the winter so that belts won’t have to be tightened.

      If you don’t understand what I’m saying, Fred, keep looking, or you may never see that “The non-Euclidean theory of economics thus to be developed” has already been developed, if inadequately articulated and not quite what you were expecting. Gestalts, Copernican and scientific revolutions don’t happen immediately; simple diagrams and analogies are “worth a thousand words”, but it seems one still needs to learn how to read them. What “Microcompassion” is saying at the top of #31 is absolutely fundamental, but my penultimate sentence there was intended to cede your point about action by the 99% while putting it in context.

  15. Egmont Kakarot-Handtke
    July 15, 2013 at 5:31 pm

    Paul Davidson #19, July 14th

    Your post comes to heart of the matter. Please allow me to answer it in two separate parts. The second part will follow within one or two days.

    (1a) I am aware that you wrote an article about who is a Post Keynesian. By rephrasing Eichner’s title [Why Economics is Not Yet a Science] I by no means intended to take a hand in that discussion. Whether Eichner is a Post Keynesian or not is tangential to the content of my paper Why Post Keynesianism is Not Yet a Science (2013).

    (1b) My point of departure is the quote: “For Keynes as for Post Keynesians the guiding motto is ‘it is better to be roughly right than precisely wrong!'” (Davidson, 1984, p. 574). It is this motto which I attack because it provides the justification for conceptual carelessness and I am by no means the first to realize that intellectual sloppiness is the hallmark of both neoclassical and Keynesian economics: “I think it is the lack of quite sharply defined concepts that the main difficulty lies, and not in any intrinsic difference between the fields of economics and other sciences.” (von Neumann, quoted in Mirowski, 2002, p. 146 fn. 49), see also Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist (2013).

    (1c) The methodological anythings-goes mentality is, in my view, the main reason for the proto-scientific condition of theoretical economics.

    (1d) The stated purpose of my paper is to demonstrate that conceptual and formal sloppiness leads to theoretical errors. It is well known that a theory that contains logical errors is worthless even if it makes good sense from a political point of view. To resume that Keynesianism is logically defective is not anti-Keynesian. The errors can be corrected and it can even be shown that some of Keynes’s verbal statements that were hitherto hanging in the air are fortified by a correct formal underpinning. That is: axiomatization is healthy for Post Keynesiansim.

    (1e) I have demonstrated that a correct formalism would have saved the life of Post Keynesianism in the Phillips curve debate, see Keynes Employment Function and the Gratuitous Phillips Curve Disaster (2012).

    (1f) I think two of your statements deserve rigorous refutation:

    • You can define anything you want but as a sage once said “A rose by any other name will smell as sweet!”

    • … the two cited equations [Y=C+I, S=Y-C] are simply accounting identities – and by definition they can not be false as long as one accepts the definitions. But I=S is merely an ex post accounting identity and by itself is just as true for neoclassical economics as for anything else – including Marxian economics.

    (1g) I have refuted the first statement in Keynes’s Missing Axioms (2011, Sec. 17-20) and Why Post Keynesianism is Not Yet a Science (2013, Sec. VI-VIII)

    (1h) I have refuted the second statement in The Common Error of Common Sense: An Essential Rectification of the Accounting Approach (2012).

    For details see my forthcoming post.

    References
    Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian
    Economics, 6(4): 561–575. URL http://www.jstor.org/stable/4537848.

    Kakarot-Handtke, E. (2011). Keynes’s Missing Axioms. SSRN Working Paper
    Series, 1841408: 1–32. URL http://ssrn.com/abstract=1841408.

    Kakarot-Handtke, E. (2012a). The Common Error of Common Sense: An Essential
    Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415:
    1–23. URL http://ssrn.com/abstract=2124415.

    Kakarot-Handtke, E. (2012b). Keynes’s Employment Function and the Gratuitous
    Phillips Curve Desaster. SSRN Working Paper Series, 2130421: 1–19. URL

    http://ssrn.com/abstract=2130421.

    Kakarot-Handtke, E. (2013a). Confused Confusers: How to Stop Thinking Like
    an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series,
    2207598: 1–16. URL http://ssrn.com/abstract=2207598.

    Kakarot-Handtke, E. (2013b). Why Post Keynesianism is Not Yet a Science.
    Economic Analysis and Policy, 43(1): 97–106. URL http://www.eap-journal.com/
    archive/v43_i1_06-Kakarot-Handtke.pdf.

    Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.

  16. Egmont Kakarot-Handtke
    July 16, 2013 at 2:39 pm

    Paul Davidson #19, July 14th

    Part 2

    The analytical starting point determines the course of a theoretical investigation and ultimately the productiveness of an approach. The classics took production and accumulation as their point of departure, the neoclassicals exchange. Exchange implies behavioral assumptions and notions like rationality, optimization, and equilibrium. This approach has led into a blind alley. Why?

    “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.” (Keynes, 1973, p. xxi)

    To change a theory therefore means to change its premises or, in Keynes’s words, to ‘throw over’ the axioms. One can take this figuratively or literally. I take it literally and this means that the subjective-behavioral axioms of standard economics are fully replaced by objective-structural axioms. In Keynes’s metaphor: we move from Euclidean to non-Euclidean axioms. To recall, Keynes preserved part of the foundational assumptions of orthodoxy. This halfway construction is unsatisfactory.

    (2a) Axiomatization is indispensable because the methodological anythings-goes mentality among economists is the proximate reason for the proto-scientific condition of theoretical economics. Because of conceptual sloppiness neither orthodoxy nor heterodoxy has a clear idea of the fundamental economic concepts income and profit. Doing economics without a clear idea of income and profit is like doing physics without a clear idea of force and mass — it cannot yield practical results, and it has not.

    (2b) I have demonstrated that Keynes’s formal basis is a limiting case of the structural axiom set. This means that there is no contradiction between the two formalisms, the latter is only more general (see Set and Subset, 2011, Sec. 20).

    (2c) This implies that the concept of saving is also more general. Total saving is given axiomatically as monetary and nonmonetary saving. Monetary saving is identical with Keynes’s definition. Nonmonetary saving is identical with Friedman’s notion (see Primary and Secondary Markets, 2011, Sec. 4.2). The structural axiomatic approach consistently integrates Keynes and Friedman, although only with regard to consumption/saving.

    (2d) The relation between monetary saving, liquidity and interest rate has been dealt with in (2011, Sec. 9). The structural axiom set formally underpins Keynes’s conception of liquidity preference. The commonplace quantity theory is refuted.

    (2e) A summary of the structural axiomatic theory of saving has been given in Settling the Theory of Saving (2013). The classical notion of saving/time preference, which reappears in DSGE, is refuted.

    (2f) The structural axiom set consists exclusively of measurable variables and yields testable propositions.

    References
    Kakarot-Handtke, E. (2011a). Keynes’s Missing Axioms. SSRN Working Paper
    Series, 1841408: 1–32. URL http://ssrn.com/abstract=1841408.

    Kakarot-Handtke, E. (2011b). Primary and Secondary Markets. SSRN Working
    Paper Series, 1917012: 1–26. URL http://ssrn.com/abstract=1917012.

    Kakarot-Handtke, E. (2011c). Reconstructing the Quantity Theory (I). SSRN
    Working Paper Series, 1895268: 1–26. URL http://ssrn.com/abstract=1895268.

    Kakarot-Handtke, E. (2013). Settling the Theory of Saving. SSRN Working Paper
    Series, 2220651: 1–23. URL http://ssrn.com/abstract=2220651.

    Keynes, J. M. (1973). The General Theory of Employment Interest and Money.
    The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke:
    Macmillan. (1936).

  17. July 16, 2013 at 5:31 pm

    July 16th 2013
    Judging from the repetitious blame & punishment games played by “the confused & the confusers”, above, we can only lament the sad state our once respectable social ‘science’ [As in Hayek's ,Keynes' & Georgescu Roegen's usage] has fallen into !
    Does anybody remember that former mathematical prodigy J.M.Keynes, very wisely taught that “Economics is essentially a moral science and not a natural science.That is to say, It employs introspection and judgements of value” ?
    But, we cannot wish away the increasingly ominous consequences of giving up the search for a “Gordian-Knot” paradigm [nothing-at-all-the matter with that Kantian inspired concept]. Which can restore Economics’ lost repute as a practical guide for modern societies. “When the glaciers melt & recede, Old weeds bloom afresh” teaches the old Zen Haiku”. Therefore,We should not be surprised by the tedious outcropping of all those “born-again” & usually ruinous panaceas from a tragic & discredited “economic underworld” [Keynes' insightful word]:Now vaporously touted as potential ‘role-models’ for restoring Economics’s lost “scientific” glory.
    They range from : [1] Scarcely disguised & toxic conspiracy theories; Like the Marxists’ [& the Nazi version] of “scientific socialism”, now rechristened “progressive economics”]: And once again touting omnisciently- “scientifically-planned” economies: e.g.”Mechanism Design”.
    [2] To the pseudo scientific quackery of proclaiming poorly digested metaphors from thermodynamics ["Technocracy", i.e. energy credits as 'coin of the realm', Paul Samuelson's now almost pathetic "Foundations of Economic Analysis" 1947], [3] Pseudo -Cybernetics e.g. Shot-gun “application” to economic “modeling” of the great Claude Shannon’s foundational concepts of logic circuitry from the late 1930’s, as a means of converting Economics to an authentic “science”;[4] Hydraulics & Boyle’s gas laws, applied to monetary phenomena: e.g. Irving Fisher’s mechanical monetary flow -model [actually built] and Tustin’s “Hydraulic Keynesianism” from the 1950’s]: [5] From Chemistry.. Milton Friedman’s ‘Old Chicago School’ Titration theory of increasing the Money-supply by gearing it to “predicted” growth, [6] Old time “funny money” Social Credit. [7 ] Snuffing out the 400 year legal traditions embodied by the Law of Intellectual Property: Almost as pathetic as Samuelson. Thank-you Hugo Chavez fan & hater of “market fundamentalism” [???] Joseph Stiglitz.
    Is there no end to this sad roster ? TELOS & TECHNOS,THE TELEOLOGY of ECONOMIC ACTIVITY and the ORIGINS of MARKETS, was written In the spirit of Kant’s dictum that “Theory without empirical content is hollow. Empirical observations without [good & falsifiable] theory are directionless”. Because Kant clearly understood that there existed an almost chaotic super-abundance of empirical observations. And that even the most penetrating critiques [like Philip Mirowski's] hits a stone wall of no returns–quickly. From which little of explanatory value automatically emerges. This kind of addiction to the most vulgar form of Francis Bacon’s empiricism [Mirowski is not guilty of it] is what sank the initially promising “German Historical School” of Gustave Schmoeller. These well meaning [but Kant-forgetful] scholars thought that truthful patterns of structure would emerge automatically from the morass of methodically recorded historical phenomena.
    Explanatory “paradigms” of how a system works must come first. Working policies and Economic guidance systems flow from sound explanations. That’s why all the applied & tediously repeated theologies of Monetary management cannot explain or remedy the dynamics of modern complex economies All the great Economic thinkers of the past, especially Hayek, understood the primacy of sound explanation over hit and miss policies, that only exacerbated a wilfully misunderstood economic system. These great thinkers of the past,are far from being the “road-kill” implied by many of you otherwise well -meaning fellows who contribute to RWER.
    .The author of TELOS & TECHNOS, never asked for or received a dollar from any of the institutes, foundations, units, centers, endowments or projects, which are more numerous than fleas from a thousand camels. And which invariably anoint themselves as “new” or “pluralistic’ or “heterogeneous.” There can be no such thing as “pluralistic” explanatory paradigms. Ask Emmanuel Kant, Thomas Kuhn, Karl Popper etc. None of them were infallibly right. But they asked the right questions. And went a long way to a solution.
    One last plea. If you [plural] haven’t read it, you can’t bad-mouth it ! We, at this end challenge you.
    Norman L. Roth, Toronto, Canada. Please GOOGLE: [1] Norman Roth, Technos [2] Norman Roth, Origins of Markets,
    [3] Norman Roth, Economics of Technology [4] Telos & Technos, Roth
    .

  18. davetaylor1
    July 16, 2013 at 9:50 pm

    Norman, you seem to be saying “Don’t read it, then you can’t bad mouth it”. Are you trying to say, then, that refutation of misguided (with a suspicion of dishonest) comment, is “bad mouthing”? Like Fred, YOU are not reading, but misunderstanding what you are seeing out of context. What you are seeing between me and Egmont is a personality conflict. We have a shared appreciation of the need to “Scrap the lot and start again”, and with complementary talents ought to be cooperating, but his writing skills haven’t helped him understand my practical science. This leaves us a bit like the Christian and the Atheist entrapped in a lunatic asylum in Chesterton’s novel, “The Ball and the Cross”: the best of friends but always arguing.

    As Fred has reminded us, this discussion is supposed to be about rethinking Keynes, so I’ll respond only to a few misconceptions in your many interesting comments. “Explanatory ‘paradigms’ of how a system works must come first”, but when suggesting German History (but not Mirowski’s) is “addiction to the most vulgar form of Francis Bacon’s empiricism” is to misrepresent both history and Bacon’s science. The latter was about precisely what you are asking for: taking things to bits to see how they work. Your bogey-man ought to be the historian turned philosopher of scientism and legal morality, David Hume.

    Egmont’s references are always worth following up, and he’s got me re-reading Mirowski and getting new insight on my own “time-sharing computer” model of the economy from reflecting on my work in light of his references to Chomsky’s hierarchy and the von Neumann/Nash clash over games theory and automata.

    Here, though, I’ve been rethinking Keynes’s theory in terms of what at [3] you call “Pseudo-Cybernetics”. “As a means of converting Economics to an authentic ‘science'”? NO! As an explanatory paradigm of how the system works! I’m an applied scientist who has “never asked for or received a dollar …” and sees the monetary economy as a technology: a human artifact. Nevertheless technology deserves a scientific base which has got hold of the stick at the right end, and uses genuine (cooperative) scientific methods – including defining its terms unambiguously. My work. Egmont’s axiomatisation”, but taking account of Chomsky’s Hierarchy (as in Algol68), and relationally, Codd’s Normal Forms. Unfortunately, Mirowski didn’t understand the paradigmatic significance of “the great Shannon”.

  19. davetaylor1
    July 17, 2013 at 7:16 am

    Norman, having googled you at Technos as requested, I’m impressed. Your teleological “ghost” beckoning us into the future is not so far off the ship’s lookout in the generic PID servo system view I saw Keynes as anticipating. We are near enough to have comparable views, though for me RWER is having to make shift as the support team it seems you have. How to get in touch?

  20. Robert Locke
    July 17, 2013 at 7:53 am

    Thread 37 “If you [plural] haven’t read it, you can’t bad-mouth it ! We, at this end challenge you.”

    This is a false premise. One can’t know everything, so one turns to others more knowledgeable or to reading experts engaged in debate for advice about what is acceptable, e.g., mathematicians for judgments about how economists use mathematics. “Your end” hasn’t been doing very well, Norman, because very smart people point out deficiencies in economics, conceptually and practically, all the time. And we live with the consequences of following economists’ prescriptions (prolonged depressions, market failures, mal-distribution of wealth, etc.). Economics’ plight today, I draw from reading expert opinion, results from it being a failed prescriptive science, not from the misguided opinion of a bunch of ideologues and fruitcakes as your colorful nonscientific prose characterizes them.

  21. Egmont Kakarot-Handtke
    July 17, 2013 at 9:42 am

    Norman L. Roth

    In the glorious days of economics the great thinker Hayek was quipped by the great thinker Keynes:

    “… a remorseless logician can end up in Bedlam.” (Keynes, quoted in Moggridge 1976, p. 36)

    Economists in those days already were Confused Confusers (2013). This is not a lament but a statement of fact. Neither Keynes nor Hayek had a clear idea of the foundational concepts income and profit. That’s easy to prove.

    We perfectly agree on Kant’s dictum: “Theory without empirical content is hollow. Empirical observations without [good & falsifiable] theory are directionless”.

    Theory, though, starts with axioms, as Kant would have told you also.

    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 http://ssrn.com/abstract=2207598.

    Moggridge, D. E. (1976). Keynes. London, Basingstoke: Macmillan.

  22. July 18, 2013 at 4:00 pm

    July 18th, 2013
    Here’s a couple of helpful addendums to my post of July 16, 2013. I advise interested [& willing to admit it] RWER contributors to read :

    [1] Bruce Caldwell’s: OF POSITIVISM & ECONOMIC THOUGHT, Center for the History of Political Economy at Duke University.

    [2] His superb HAYEK’S CHALLENGE, which I cited in my bibliography on page 192 of the 197 page edition of TELOS & TECHNOS. I don’t know which page it’s on in the 256 page edition. Somewhere in my floppy disc library I have an approximately 34 page comparative study from about 8 years ago comparing the contents of HAYEK’s CHALLENGE to those of TELOS & TECHNOS.

    [3] I also urge interested parties to consult Ross Ashby’s classic AN INTRODUCTION to CYBERNETICS,1965, also cited on page 192 of the 197 page edition. Ashby’s chapter seven on “Quantity of Variety” has a potential application to the CCSL [Current Conception of the Standard of Life], Chapter 2 of TELOS & TECHNOS. Thank you for your patience. Norman L. Roth. Please GOOGLE: [1] Norman Roth, Economics of Technology [ 2] Norman Roth, Origins of Markets [3] Norman Roth, Economics

  23. Egmont Kakarot-Handtke
    July 18, 2013 at 8:46 pm

    Norman L. Roth

    The idea that systems theory could be useful in economics is not as novel as you might think. It fact, it provides the strongest backup for the claim of neoclassicals that what they do is science:

    “General systems theory (G.S.T.), of which general equilibrium theory is but a specification to certain economic problems, has existed for many years. … G.S.T., then, looks for, and finds, many structural similarities among fields of scientific analysis. To the extent that G.S.T. is a constructive approach to inquiry, general equilibrium theory in economics becomes rooted not just in the particular tradition that have generated the multi-fold extensions of the Arrow-Debreu-McKenzie [ADM] model, but in the very structural unities of science itself. To attack general equilibrium theory in economics as a legitimate model of reasoning is to simultaneously deny homeostatic reasoning to psychologists and morphogenetic analysis to the biologist. To argue that G.S.T. is inapplicable to economics is to negate claims that economics is a science.” (Weintraub, 1979, pp. 71-72)

    To propagate systems theory seems not to be the way to a fundamental paradigm shift, rather to improved neoclassical systems theory, i.e. to more descriptive realism.

    Apart from this I would like to support your appeal to take systems theory seriously:

    “Concepts of equilibrium, homeostasis, adjustment, etc., are suitable for the maintenance of systems, but inadequate for the phenomena of change, differentiation, evolution, negentropy, production of improbable states, creativity, building-up of tensions, self-realization, emergence, etc;” (von Bertalanffy, 1969, p. 23)

    Systems theorists realized this long ago but equibrilists are still behind the curve.

    References
    von Bertalanffy, L. (1969). General Systems Theory. New York, NY: Braziller.

    Weintraub, E. R. (1979). Microfoundations. Cambridge, London, New York, NY,
    etc.: Cambridge University Press.

  24. davetaylor1
    July 19, 2013 at 6:16 am

    One of the signs of a good blog is the number of significant comments, so Fred is to be congratulated on this one, and Edward Fullbrook even more for stirring us up about the “pure shit” being generated by following the Royal Society’s focus on opinion rather than fact: “Take no-one’s word for it”. Keynes having been the only economist to have significantly improved the lot of the 99%, getting into his mindset so we can re-think his theory sounds like a jolly good idea.

    There is a difficulty here, though. The word ‘rethinking’ is ambiguous. We can take Keynes’s theory as basically correct and try to reconstruct it more simply and precisely, or we can do as he did and end up not with a definitive cook-book solution to all our economic ills but a useful working hypothesis concluding by looking forward to the emergence of a future owing more to Gesell than to Marx.

    The neo-Classicals have taken the Royal Society line and rejected Keynes and all he stood for, just as the Royal Society did in my field with Oliver Heaviside and his electric circuit theory (a story well worth googling). Friend Egmont and I agree we need to “scrap the lot and start again”, but now we come up against a similar ambiguity in the meaning of science. His continental Popperian view leads him to reject Keynes’s theory as “falsified” and to start again from Cartesian axioms, whereas my Baconian English empiricism leads me to appreciate how much Keynes achieved by “taking things to bits to see how they worked”, starting again by doubting, in light of the modern theory of Relativity, the mathematics of the doubters (i.e. the Cartesian coordinates of the ancient Euclidian world-view and the arithmetic of Humean scientism).

    Since I started this, Egmont has made a really helpful critique of Norman Roth’s understanding of system theory, setting von Bertalanffy against Weintraub. Again, though, there is an ambiguity: this time between a mathematical and a “real world” understanding of the word ‘system’.

    I appreciate von Bertalanffy as I do Keynes (as a big advance on his predecessors), but quite clearly he has the ‘mathematical’ understanding, and is mainstream Humean in taking science as being about patterns in observations rather than in the supposedly unknowable realities observed. Take Fig 3.2 (c) in his discussion of Elementary Mathematical Considerations. He sees a closed curve, not a closed circuit, and I’ve found no sign of his being aware that a closed electrical circuit is open to the influence of magnetic variation. Nor do his references to Shannon suggest any understanding that an open switch is a far more tangible form of information than an interrupted telegraph signal, or of the context of information in Shannon’s model (akin to encoding the location of a memory or a book in a library). In short, both his method and Ashby’s (GST, p.101) miss the significance of information science, which is both formal AND physical.

    If Egmont is willing, we can use GST as a starting point for starting again. We can surely agree that GST is a general science of “wholeness” and thus “macro-economics” an application of it. What needs to be examined is how developing Information Systems has enabled me to meet its major aims (GST pp.36-37), in particular number(4): to develop “unifying principles running ‘vertically’ through the universe of the individual sciences”. If Egmont can get his head round what I’m seeing, I have no doubt he will be able to translate it intelligibly into words much better than I can. And that articulation is vitally important. It is necessary for the achievement of von Bertalanffy’s fifth aim: “a much-needed integration in scientific education”.

  25. Egmont Kakarot-Handtke
    July 19, 2013 at 7:48 am

    Norman L. Roth, Addendum #37

    You counted Georgescu-Roegen among the respectable thinkers of old. Correctly so, and this is what he said:

    “What particular reality is described by a given theory can be ascertained only from that theory’s axiomatic foundation.” (1966, p. 361)

    References
    Georgescu-Roegen, N. (1966). Analytical Economics, chapter Economic Theory and Agrarian Economics, pages 359–397. Cambridge, MA: Harvard University Press.

    • davetaylor1
      July 20, 2013 at 8:27 pm

      So what are G-R’s axiomatic definition of an axiom, a theory and a reality, then? Isn’t a theory empty – a mere group of theorems – if it is comprised solely of logical, mathematical or even structural relationships? If none of the axiomatic base is real, surely the resultant descriptive theory is that a particular group of theorems can be used to describe a particular group of realities, and it becomes an empirical question whether or not it does. An explanatory theory, by contrast, is more useful, in that it explains one type of reality whose use or properties are unfamiliar in terms of another group of realities whose use, properties and/or axiomatic base are well known and/or simpler. Thus one theory used to be that a whale was a fish; despite it looking more like a fish than a land animal, scientists have now established that it is a mammal.

  26. Fred Zaman
    July 20, 2013 at 5:41 pm

    Toward a non-Euclidian theory of economic injustice: an intellectual storyline for the 99% movement

    A “Theory of Economic Injustice” (TEI), in its support of the 99% movement, can analytically explain the economic and political infrastructure behind real-world economics; which theory will serve as the intellectual vanguard that shows what the 99% movement needs to know and do in order to ultimately succeed in its struggle against the avaricious hegemony of capitalism’s wealthiest 1%. The players in this two-player game of socioeconomic Darwinism are “plutopians” (the wealthiest 1%) and “proletopians” (the remaining 99%). The high level definition of the social orders thereof are as follows:

    Plutopia: a social order in which social and economic justice for the 99% is sacrificed to the exorbitant wealth, power, and privilege of capitalism’s wealthiest 1%.
     Proletopia: a social order in which the exorbitant wealth, power, and privilege of capitalism’s wealthiest 1% is sacrificed to the social and economic justice of the remaining 99%.

    Mark Levin’s book “Ameritopia,” which may turn out to be a key source of information about conservative ideology in the development of a theory of economic injustice, is an ultra-conservative caricature of what is a liberal, populist in-progress “proletopia” of the 99%, which conservatives intend to overturn whatever progress has been made thus far, and replace it in its entirety (if possible) with a capitalist elite “plutopia” of the wealthiest 1%; which also is a work in-progress made possible through globalization of the capitalist workforce.

  27. Egmont Kakarot-Handtke
    July 22, 2013 at 9:13 am

    Fred Zaman # 47

    It is only our inability to divorce research from politics, or our suspicion, all too often justified, that the other fellow cannot analyze with single-minded devotion to truth, which makes problems and party issues out of decisions that do not excite anyone in more fortunate fields of research. (Schumpeter, 1994, p. 566)

    References
    Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.

  28. Egmont Kakarot-Handtke
    July 24, 2013 at 8:44 am

    It seems that political economists have run out of arguments. Hence it is appropriate that this thread’s summary is given by a theoretical economist:

    “…, before accepting the conclusions of any economist’s model as applicable to the real world, the careful student should always examine and be prepared to criticize the applicability of the fundamental postulates of the model; for, in the absence of any mistake in logic, the axioms of the model determine its conclusions.” (Davidson, 2002, p. 41)

    Keynes has to be praised for “throwing over” the classical axioms (aka Euclidean). Post Keynesians have to be criticized for failing to establish a new set of axioms (aka non-Euclidean). Theoretical economics is therefore hanging in the air and, by consequence, political economy with it. Economists have not yet done their scientific homework.

    References
    Davidson, P. (2002). Financial Markets, Money and the Real World. Cheltenham,
    Northampton, MA: Edward Elgar.

    • davetaylor1
      July 24, 2013 at 11:37 am

      “… failing to ESTABLISH a new set of axioms (aka non-Euclidean)”?

      Or aka “non-ergodic”. But how do you establish anything where the audience [of economists] doesn’t want to listen? One cannot reasonably criticize the outsider who proposes a new set of axioms (aka spacetime coordinate structure, ergodic error rather than tendency, real world side effects of energy path closure) but isn’t heeded.

      “You cannot solve a problem at the same level of thinking that created the problem”.
      – attributed to Albert Einstein.

  29. Robert Locke
    July 24, 2013 at 10:24 am

    In Thread # 1 to my post “Getting Business School Reform Wrong,” H. Thomas Johnson wrote”

    American business schools must ground their study of business and the human economic system in the view of reality that comes out of 20th and 21st-century science, particularly modern life science, evolutionary cosmology and astrophysics. In doing this the business schools will move beyond the mechanistic, reductionist, and individualistic 18th-century view of reality that informs neoclassical mathematical economics and finance. Instead, business school teaching and research will view reality and ask questions through the lens of the systemic, process-oriented, and complex feedback view of reality that informs modern life-oriented cosmology.

    I have difficulty understand why neoclassical economists do not grasp Tom Johnson’s point that the axioms of the model that determine conclusions of neoclassical economics are based on a discredited 18h century view of science and should be replaced by modern scientific outlooks.

  30. Fred Zaman
    July 25, 2013 at 5:15 am

    Capitalism’s 1% solution: A theory of economic injustice augments Keynes’ non-Euclidean theory of economics:

    An augmentation of Keynesian economics can be based on an axiom that perhaps is “self-evident” to those not blinkered by neo-classical ideology: that capitalist hegemony, serving as the principle source of economic injustice to the 99%, is empirically demonstrated in the sum of the numerous times when, the diverse places where, and the degree to which, economic injustice is the lot of the middle and lower classes (categorically here called the 99%); the injustice of which is clearly manifested in the multitudinous hegemonic actions taken and policies adopted by capitalism’s most wealthy, powerful, and privileged (here categorically the 1%) as follows:
    — publically without recourse by the 99%
    — secretly without knowledge by the 99%; whether done “behind closed doors” by individuals, or institutionally “behind the scenes”
    — through capitalist deception and intrigue that denies, or otherwise disguises, the injustice done to the 99%
    This is “capitalism’s 1% solution”: a new Keynesian theory of economics that augments Keynes’ non-Euclidean economics with a nouveau capitalist “theory of economic injustice.”

    In this “new Keynesian economics,” lines of economic competition in the “ideal free market” run parallel and never meet, because the collusion of capitalists that cause various lines of competition to “meet,” i.e. converge in the dark, non-Euclidean spaces of capitalist hegemony, never occurs. The dark, non-Euclidean spaces of capitalist hegemony never seen by the public either lie behind corporate boardroom doors, or they otherwise deceptively lie buried within the infrastructure of what is falsely idolized by the public as “the free market,” wherein the 1% in their hegemony conspire against the 99%; which conspiracy (de facto secret agendas), according to the “conspiracy theory” in essence fomented by Mitt Romney, implicitly to fellow elitist travelers during his presidential campaign, particularly must include the 1% acting in secret against the “47%” – all of which are simply lazy and pay no income tax because they take no responsibility for their lives and refuse to work.

    The above describes a new Keynesian economics of capitalist hegemony, which at the same time de facto is a “non-Euclidean theory of economic injustice” by which capitalism’s 1% solution is presently economically dispossessing, politically disenfranchising, and socially disempowering the 99% worldwide. In this theory capitalism’s ruling class sustains itself through hegemonic policies and actions directed against the 99%. One exemplar, of a hegemonic policy adopted and acted upon by capitalism’s 1% in particular is Keynes’ “liquidity motive” (The Keynes Solution, p. 47, e-book). Capitalism’s liquidity motive, clearly a de facto “policy” supporting capitalism’s 1% solution, was recently demonstrated when the money from the government bailout that stopped the nation from sliding further into an even greater economic recession, which otherwise even might have escalated into Great Depression II, was kept in-house as bank liquidity rather than given out in loans that could have greatly assisted the 99% in relieving their dire circumstances. The “liquidity motive” of which openly demonstrated, to all willing to see the truth thereof, is the ruthless nature of capitalism’s 1% solution.

    The axioms/postulates of “efficient market theory” rejected by Keynes, as invalid in a real-world economy, are easily explained within the theoretical framework of capitalism’s 1% solution as the neoclassical economist’s justification for capitalist hegemony. Next considered within this theoretical framework will be the neutral money and ergodic axioms of efficient market theory rejected by Keynes, which also are false justifications for elite hegemony over the 99% – capitalism’s 1% solution to maintaining “market efficiency.”

    • Robert Locke
      July 25, 2013 at 6:38 am

      There are lots of way to explain why the 1% versus the 99% exists rather than to reply on the system arguments of bourgeois “exploitation” or managerial “oppression”. The oldest is original sin, which explains that people in precapitalist, capitalist, postcapitalist, or anticapitalist societies sorted themselves out in terms of the privileges and wealth of the few and the misery of the many. Its the result of human nature. Charles Peguy said that “everything begins as mystique and finishes as politique,” including how we talk about our own views (mystique) and how we treat those of our opponents (politique).

    • davetaylor1
      July 25, 2013 at 11:20 am

      Fred, this comes across more as an entirely justifiable rant about injustice than a useful contribution. Perhaps the problem is in your starting point: by “A theory of economic injustice”, surely mean a false theory of economic justice”?

      Keynes’ parallel lines analogy is actually about “the need to overthrow the second postulate of the classical doctrine”, i.e. “The utility of the wage when a given volume of labour is employed is equal to the marginal disutility of that amount of employment”. (GT pp.17,5).[This, incidentally, is a general theory of employment, interest and money, not of economics].

      The interested parties are unfortunately glossed over here, but in context this is looks more like an assertion from the employer’s side seeming tautologically true only in monetary terms: the cost to the employer is equal to the price to the employee.

      When the employee is a robot whose cost has been allowed for in the product price, its marginal price is the cost of maintaining it. However, the cost of creating a product-consuming human employee (that of the “factory” producing it: the home, parents, educational and medical assistance etc) is clearly not being factored into the marginal cost of products and thereby into wages, and indeed, humans may not be employed at all if it is cheaper to employ a robot. From the point of view of an employer the purpose of his enterprise is to cover the costs of creating and being an employer. But not only are employees being forced into debt to consume goods: would-be employers are being forced into debt to invest in factories, robots and employees, and with debt being manifest as shortage of money, both employees and employers end up in debt to vendors of producers of money created out of nothing, whose “interest” is in indebtedness contracts of merely marginal cost to them covering the costs of creating and being a financier. The net result is that the costs of living of most humans are not being covered in wage pricing, so whatever the pricing of material products there is no surplus to invest, so financiers become employers of factories and investors give way to CEOs employed by financiers, allowing the 1% and their entertainers to grow fat while the 99% are being left struggling to keep a home, never mind raise the next generation of families.

      Keynes, while being careful not to get the financiers on his back, is very interesting in the bits of history he comes out with in passing. At GT p.342 is reference to J. Child which should interest Robert. “Child, the omnipotent leader of the East India Company [the privatised operator of Britain's Indian Empire] and its most skilful advocate, discussed (1668) the question of how far the LEGAL maximum rate of interest, which he emphatically demanded, would result in drawing the “money” of the Dutch away from England. [The Dutch form of money being that adopted 16 years later by the Bank of England]. On the same page he has “the great Locke” [some years before 1692] opposing a maximum rate of interest on money by likening it to rent on land of varying productivity. On the next he has Hume beginning “the practice amongst economists of stressing the importance of the equilibrium position as compared with the ever-shifting transition towards it”. So there’s the rotten apple.

      Let’s always remember Keynes ends up commending the effectively negative interest of Gesellian free money.

      • Fred Zaman
        July 25, 2013 at 1:51 pm

        But it really isn’t a rant it is a real-world axiom about what is actually happening, If it seems like a rant, it is only because economists are used to not addressing in axiomatic terms what is really going on.

  31. Fred Zaman
    July 25, 2013 at 1:54 pm

    A theory of economic injustice is correct. It is a theory of how injustice in economics is realized by those thus engaged.

    • davetaylor1
      July 25, 2013 at 5:51 pm

      I suppose.

  32. Fred Zaman
    July 28, 2013 at 10:59 pm

    Capitalism’s “1% solution” to “economic progress” in the 21st century:
    Enslaving the 99% slowly, economically and politically

    The “free [and efficient] market,” intellectually based on axioms of which two are “economic “ergodicity” and the “neutrality of money” – both of which are falsehoods that perpetuate free market ideology, is capitalism’s intuitive design of the economy’s conservative “1% solution” to progress in the 21st century. The ultimate objective of neoclassical economics underpinning capitalism’s 1% solution, perhaps directed to a large extent unconsciously, is toward de facto enslaving the 99% both economically and politically. These axioms do not simply describe how the free market operates in principle, however; they more importantly intellectually justify the economic instruments that can be used, by the wealthiest 1% on Wall Street and their enablers in the under classes, to (gradually) enslave the 99% worldwide. To the politically conservative enablers of Wall Street’s greed and lust to dominate, “freedom” and “liberty” are code for the freedom and liberty of the 1% to de facto economically and politically enslave the 99%. The “free market,” whose freedom – its lack of economic regulation and oversight – is justified by neoclassical economists as being ethical and moral, in reality is (1) the facade behind which Wall Street greed and the lust to dominate masquerades as economic freedom, and (2) the economic freeway to capitalist globalization paved by the 1%.

  33. Fred Zaman
    July 30, 2013 at 1:49 pm

    That the pseudo scientific principle of economic ergodicity underwrites the corruption of Wall Street by the 1% is a fact of life that real-world economics is morally obligated to make known to the 99%.

  34. August 18, 2013 at 4:13 pm

    August 18, 2013,
    Please refer back to our posts of July 16, 2013 and July 18, 2013 above. Especially Immanuel Kant’s timeless wisdom about how practical theories, [PARADIGMS in current parlance] that have both direction, and potential for absorbing [falsifiable & falsifying] empirical evidence, are the only way to go for sorting-out consistent explanatory value: In a world of almost infinite & confounding observations. ["percepts" in the English translation of Kant's late 18th century German].
    With this in mind please proceed to to-day’s[August 18, 2013] comments by BFWR [???]
    and DEAN BAKER.
    The perplexed content of both BFWR’s and Dean Baker’s musings is understandable, but not workable in free and open societies. And their musings are not exactly new economic thinking. The unbridled ‘force majeure’ of state power is the only source of execution [literally] for such ‘solutions’. Indeed,we cannot fail to notice how closely THEIR “not-that -complicated” policy/remedies resemble the policies of the [envied ?] villains they [often hysterically] berate.
    But their simplistic and potentially destructive “remedies” reflect an underlying & wilfully anti-historical incoherence about how human economic behaviour and the complex economic systems it generates, actually works: And a totally simplistic perception of the limits and dangers of STATE power. It’s almost as crude as King Canute’s self proclaimed omniscience and omnipotence over tidal forces. With a touch of underlying “conspiracy” paranoia about the primal need to restrain the unspeakable power of “market fundamentalism” :While, sotto voce, ignoring the dreadful power of the state to unleash “the law of unintended consequences”. How else can one explain such musings as:
    [1] Getting to Full Employment.. It’s not that complicated.” Or, [2] “WE” [??] know how to create the demand that will put people back to work”. So did certain other mustachioed impressarios of death during the twentieth century. And their bearded & creatively hatted imitators of the late 20th and early 21st century. In all hemispheres. BFWR and Dean Baker, plus a “baker’s dozen” of other economic ‘medicine men [& women] herein, are not exactly innovative in their offerings. The world has been around their blocks a few times !
    It’s wilfully ant-historical presumptions like those of BFWR & Dean Baker that portend the dreadful opportunity costs that await us: If those who stubbornly & self-destructively continue to wield the same old policies that spew-forth from their failed and dangerously entrenched paradigms are not superceded A.S.A.P.
    A superceding paradigm has arrived. It may not be exactly what many of you want to hear. Nor is it telling you only what you want to hear. Norman L. Roth, Toronto, Canada. Please GOOGLE [1] Norman Roth, Technos
    [2] Norman Roth, Economics of Technology [3] Norman Roth, Origins of Markets [4] TELOS & TECHNOS, Roth

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