Home > Old Paradigm Economics, The Economics Profession > A point is reached … when a continuously modified hypothesis becomes difficult to entertain seriously.”

A point is reached … when a continuously modified hypothesis becomes difficult to entertain seriously.”

from Peter Radford

I came across this whilst reading Sharon McGrayne’s history of Bayesian theory, its a quote attributed to the statistician Jerome Cornfield:

“A point is reached … when a continuously modified hypothesis becomes difficult to entertain seriously.”

How apt.

For much of economics.

Looking back over the history of the development of economic theory, more precisely theories since we have such an abundance of them, we cannot but be struck by one constancy: that they are all updated regularly. This updating is not to replace them because they have proven to be incorrect, but to modify them sufficiently to prolong their life despite the evidence. It is, apparently, intellectually cheaper to tinker than to replace.

This is especially true of the array of ideas that loosely can be called neoclassical theory. It is a mishmash of ideas that are known to be false or highly questionable or utterly divorced from reality, yet are still used as a basis for thinking and modeling economies. It is an archeologists dream. 

If you, as I have done a little, start to peel away at the layers of assumptions, axioms, and other paraphernalia necessary to support orthodox economics the interest is not that it represents much about the economy, but that it represents an enormous amount about what someone, or some people, want to think about the economy. It is a stylized and rigorous emblem of what a certain group want to think. It is not a scientific enquiry into what is actually out there in the economy you and I come into contact with.

For one thing, you and I are nowhere to be found. Instead we are represented by an unrecognizable and inhuman cipher. Oftentimes just one. Yes a single person is taken to act on our collective behalf. This single person then interacts with – you guessed it – a single representative business. These two objects, person and firm, then heroically act out all the economists want in order to theorize, model, and draw conclusions about the real economy, which here in the US encompasses hundreds of millions of people, millions of firms, and there myriad interactions.

This is an exercise in simplification writ large. Or gone bonkers. I get that scientists habitually simplify in order to tease into the open key relationships, but it seems a tad odd to eliminate exactly that which needs to be simplified: the imperfection, asymmetry, and outright lumpiness of human based interaction.

You only arrive at such an extreme limit of simplification if all prior attempts to make sense of something have failed. If you have to go to this extreme you ought to invoke Cornfield’s thought: your hypothesis is hard to take seriously.

Likewise with what is known as marginal theory. It began as a perfectly reasonable observation about the diminishing returns on ever decreasing quality parcels of land. Then it was applied to distances travelled to markets by farmers. From there it was appended to practically everything. This extension, or modification, has made it pervasive and stretched it from useful to, potentially, ludicrous. Now almost everything is evaluated as if the precise edge of activity was clearly known, and as if we all – sorry that automaton representing us – knows it is dealing with a defined marginal activity. It doesn’t. It can’t. But tell that to an economist. They love margins.

You can go on like this: consumer preferences are another example. The original idea was useful: there has to be some element of usefulness attaching to an intentional action undertaken by a free willed consumer. When you buy something, you expect to get something useful from whatever it is you buy. This became utility theory. Which then marched relentlessly into a whole panoply of related theories some of which are absurd, with the ultimate absurdity being what is called rational expectations theory wherein we are all omniscient, hyper aware of our needs and desires, and cooly calculating about how to satisfy them. I know I am not. Perhaps you are. I assume all economists, those who hew to this line of thought, never, ever, miscalculate.

And so it goes.

My point being that there comes a time when a much stretched, over extended, and ultra modified idea ends up being used somewhere where it doesn’t belong. It is time, then, to to set its aside and start anew. Or, at least, to take it less seriously.

We seem to have arrived at such a point with much of orthodox economics. The only people who ought take it seriously are economists. The rest of us ought to ponder the actual economy. Not their made-up one

  1. February 9, 2014 at 5:31 pm

    “The rest of us ought to ponder the actual economy. Not their made-up one”

    That starts with understanding what money is, which economists also simplify to absurdity. Their concept of money is WRONG. Everything that follows, however mathematically sophisticated is thus fatally flawed.


  2. BC
    February 9, 2014 at 11:18 pm


    Paul, to your point, currently the cumulative compounding interest to total debt outstanding to average term exceeds US private GDP in perpetuity.

    Moreover, the annual change of the rentier claims of the financial industry on value-added economic activity exceeds the yoy change in US nominal GDP.

    IOW, the total rentier claims from the current level of debt-money to wages and GDP owned by the top 0.01-0.1% to 1% precludes growth of US real GDP per capita indefinitely hereafter.

    The higher the value of equity and real estate (land) prices rise to wages and GDP, and the more central banks print no-cost bank reserves to encourage levering up asset prices, the larger the rentier claims on economic activity, and the slower the trend or real GDP per capita will be hereafter.

    Financial asset bubbles are by definition a reflection of hoarding of financial assets, EXTREME wealth and income concentration, and falling velocity of debt-money circulation, as well as a precursor to slow or negative future real GDP per capita.

    Rather than a “wealth effect” from central banks encouraging asset bubbles, what is created is a “hoarding effect” at falling velocity and a “slow-growth” effect thereafter.

  3. February 9, 2014 at 11:41 pm

    You might enjoy this chapter from Money as Debt II. Near the end, I illustrate that money migrates upward never to return. The assumption that money is lent into existence is still a revelation for economists. They haven’t even begun to consider what happens next. The assumption that it is borrowed, spent and is then assumed to be available to be paid back later is also so WRONG.

    • Oliver
      February 11, 2014 at 1:04 pm

      @ Paul

      I’m guessing that your title ‘money as debt’ is supposed to be descriptive, as opposed to being prescriptive? If so, I agree that that is an accurate description of the current system. But I’m not sure the term debt is useful for making the point I think you’re trying to get accross. Namely that it is not the obligation part of money that poses the problem, but rather the leakages from the income cycle due to cumulative interest / rentier finance as described in your video. My fear is, that by using the term debt, which nowadays always implies both the principal obligation AND the interest flow, you are playing directly into the hands of those who think that there can and thus should be a system in which there is no principal obligation, i.e. a reference to as yet unproduced goods or services, implied in the value of money. I am referring, of course, to the metallists and their genesis of money as deriving from barter. I would suggest using a more neutral term than debt such as obligation, liability or receivable in order to distinguish that part of money which is necessary and sustainable from that part which is potentially self-defeating.

  4. SJB
    February 13, 2014 at 8:08 pm

    I agree with your critique. In addition, I think economists fail to use the concepts of marginality in cases where they should. For example, Herman Daly has pointed out that economists fail to consider the idea that there may be diminishing returns to economic growth. Most economists also seem to make the same mistake with trade. In cases of things that economists deem “good”, there never seems to be any consideration of the possibility that there may be a point at which the marginal benefit of the policy is overtaken by the additional cost. In other words, economists seem incapable of thinking like economists about many economic phenomena!

    As an economist myself, it seems that the profession is woefully inadequate at looking at complex situations, and taking the right approach for a specific situation. It is a hammer and nail type of thing. Economists are taught how to use the hammer, and then how to make everything look like a nail. At the same time, their own house is falling apart due to a lack of having the right kind of nail in the proper places.

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