Home > methodology > “The failure of economics is due to the use of axiomatic method”

“The failure of economics is due to the use of axiomatic method”

Math and Science have ENTIRELY different methodologies which are suitable to them. Because of the spectacular success of the axiomatic method in Mathematics, people naturally started using the same method for science. This proved to be an equally spectacular failure. The scientific method involves making observations about nature and then GUESSING at laws which generate the observed patterns — that is induction. Later, one can verify these guesses by the means of experiments. To see that scientific laws and mathematical laws are entirely different creatures, do the following simple thought experiment. Consider the Pythagorean Theorem. It would make no sense to draw triangles and measure their sides to verify it, or to attempt to find a counterexample to the law. In contrast, because scientific laws are established on basis of empirical evidence and guesses, EVERY law is subject to empirical verification and has the potential to be refuted empirically. As Popper put it, if there is no potential observation which could conflict with the law, then it is not a scientific law.  The observational and empirical aspect of science means that it cannot be axiomatic. GREAT progress in science resulted PRECISELY from dropping the axiomatic methodology and switching to an observational and inductive process which led to scientific laws which could never be proven, UNLIKE mathematical laws. The failure of economics is due to the use of axiomatic method, which is eminently unsuitable for natural science, as was proven in the course of history.

1. December 22, 2014 at 2:56 pm

I think Pythagoras is a very bad example to choose. It is just BECAUSE we san measure the side of the triangle and we can trust the theorem to make statements about the real world that it is more than a curiosity. If we found a right angled triangle where it did not apply, that would be devastating. Much of mathematics is more than just a game of rules.
Of all the many sets of rules which we could apply, Euclidean geometry is important because it relates to the world we see.
That said, your basic point is absolutely right. Economics has become obsessed by abstract constructions without regard to reality. Paper after paper proves that it is possible to validate some doctrine subject to various conditions, without caring whether these conditions exist in the real world.
The demand for microfoundations would have prevented many of the great scientific breakthroughs of the past. Kepler had no microfoundations when he discerned the movement of the planets. That could come later. Indeed the only real benefit of the whole microfoundations scam is that attempts to link rational expectations microfoundations with the macro economy sows what nonsense that particular set of foundations is.

2. December 22, 2014 at 3:23 pm
3. December 22, 2014 at 4:31 pm

I don’t know what to say anymore. I find myself discussing two equally wrong statements.
(1) postulates that the axiomatic deductive method is equal to science, that there are no other methods to be used, and that axioms do not need to be correct.
(2) postulates that the axiomatic method is not used in science and should not be used in science.
Re 1: The axiomatic deductive method is just applied logic. Logic is not bad. Logic is good. Logic is used in science and should be used. Quantitative logic is heavily and very successfully used in the natural sciences. If it is possible to use quantitative logic in the social sciences, it is good to use it.
Re 2: On the other hand logic is only one part of scientific reasoning. A logically true statement can be total nonsense if the axioms are nonsense. So of course axioms have to be true. And whether an axiom is true or not cannot be determined through logic. So there is a lot to science that has nothing to do with logic.

• December 22, 2014 at 5:52 pm

Eureka
Comment on Paul Schächterle

You write: “A logically true statement can be total nonsense if the axioms are nonsense. So of course axioms have to be true. And whether an axiom is true or not cannot be determined through logic.”

Yes.

“A method of obtaining accurate premises is needed because science can only be true if its premises are true.” (Redman, 1997, p. 328)

Therefore, it is the first task of every science to find the true axioms. And this is exactly what J.S. Mill said:

“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)

What is the real-world situation? Neither Orthodoxy nor Heterodoxy has accomplished the opus magnum. That is, there is no economics, only some people who call themselves economists but cannot tell the difference between profit and income (2014). This is indeed weird: having no better scientific foundation than any religious group these people claim to offer sound political guidance or to make the world a better place.

It is this mixture of alleged science and politics which is toxic. The first condition of doing proper science is to gain an objective standpoint beyond politics.

What Heterodoxy constantly overlooks is that debunking is necessary but not sufficient in the longer run.

“The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)

So Heterodoxy has to come up with a new paradigm. And that is the tough part.

“The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy.” (Feynman, 1992, p. 161)

Egmont Kakarot-Handtke

References
Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University
Press, 5th edition.
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics:
Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2489792.
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. URL http://www.econlib.org/library/Mill/
mlP.html. (1866).
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and
the Classical Economists. Cambridge, MA, London: MIT Press.

• December 22, 2014 at 7:36 pm

“The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy.” (Feynman, 1992, p. 161)

I disagree with this quote: “replace it by something — and that is not so easy”. On the contrary, it has been easy for economists to replace one bad theory with another bad theory. We have a pluralism of bad theories, instead of one “good theory” – now “that is not so easy”.

• December 22, 2014 at 8:40 pm

Mind the audience
Comment on Lyonwiss

Of course, Feynman should have said: “The problem is not just to say that something might be wrong, but to replace it by something BETTER.” But Feynman spoke to an intelligent audience and not to morons, so there is not much to criticize. To the contrary:

“What we must avoid … is the bad taste of a finicky scholasticism — getting tied up in little assertions or minor criticism for the sake of criticism.” (Popper, quoted in Redman, 1993, p. 64)

Egmont Kakarot-Handtke

References
Redman, D. A. (1993). Economics and the Philosophy of Science. New York, NY, Oxford: Oxford University Press.

• December 23, 2014 at 12:24 pm

There is a confusion here : true/false is a logical qualifier, accurate/inaccurate is a realism qualifier. There is no reason to believe that a true statement should necessarily be accurate. In fact mathematics contain a large number of true statements that have nothing to do with some aspects of reality.
The two problems are not linked and there is no reason to think that logical coherence makes a theory more accurate. Theories are developped by way of logic to ensure that there is a single degree of inaccuracy relevant for each of them. But this use of logic has no influence on the magnitude of the said degree of inaccuracy.

And the aim is not to reduce the degree of inaccuracy in absolute term. It’s to decrease the degree of inaccuracy relative to the tolerance to errors specified by given design specifications.

• December 23, 2014 at 12:36 pm

Yes, you’re right that debunking does not suffice but for the human sciences (including economics) there is no objective standpoint beyond politics. That does not excuse obfuscation or distortion in a political cause nor absolve us from applying best practices (including mathematics where appropriate) or searching diligently for facts. But economists live in human societies and all human relationships contain a dimension of politics, understood broadly rather than in narrow terms of party or interest.

We will do better to acknowledge this and grapple with its implications rather than pursue an unattainable ideal.

4. December 23, 2014 at 3:40 am

F.Y. Edgeworth, founder of neoclassical economics expressed his 1st principle of economics in his Mathematical Physics as a “self interest” axiom based upon the premise that individuals seek maximizing returns. While later protagonists of this fiction claimed this was self evident, Edgeworth appears to have considered this ideal only true in pure contracts and warfare.
so much for axioms replacing neoclassical economics…it started there !

• December 23, 2014 at 9:34 pm

Replacing the neoclassical axioms
Comment on Bruce E. Woych

You write: “F.Y. Edgeworth, founder of neoclassical economics expressed his 1st principle of economics in his Mathematical Physics as a “self interest” axiom based upon the premise that individuals seek maximizing returns.”

In fact, the attempts to axiomatize human behavior can be traced back to Hutcheson, Hume’s and Smith’s celebrated teacher (Redman, 1997, p. 116).

From whom did the Scottish philosophers and economists borrow? Of course from Newton.

“Smith certainly used the Principia as an analogy for finding laws of motion of the social world, …” (Redman, 1997, p. 211)

And how did the Principia start? At the head of Book I stand the famous ‘Axioms, or the Laws of motion.’

But as clueless epigones the social scientists did not really grasp the Newtonian style. What should be obvious is that human behavior does not yield to the axiomatic method (2014).

Therefore, it is not sufficient to replace ‘unrealistic’ behavioral axioms by more ‘realistic’ ones.

The simple reason is that NO way leads from ANY behavioral assumption to the understanding of how the economy works. One has to go one step further.

“… if we wish to place economic science upon a solid basis, we must make it completely independent of psychological assumptions and philosophical hypotheses.” (Slutzky, quoted in Mirowski, 1995, p. 362)

In other words, the methodological underpinning of economics is deficient (2013). That is: subjective-behavioral axioms have to be replaced by objective-structural axioms. The latter define the fundamental systemic relationships.

Human behavior should be left to psychology, sociology, and anthropology. Economists can only talk nonsense about it.

“The purpose … is to criticise the notion that economics is a science of behaviour or that a science of behaviour is fundamental to economics. This plausible and, as I believe, mistaken idea has sometimes been called (methodological) psychologism, … If it [my argument] is correct, then all the attempts to derive an adequate model of economic behaviour (as practised, for example, by the representatives of ‘behavioural’ or ‘psychological economics’) are misconceived.” (Hudík, 2011, p. 147)

A paradigm shift requires to replace the familiar behavioral axioms by structural axioms. Nothing else will do. The behavioral assumption of constrained optimization is not at all fundamental to economics.

Egmont Kakarot-Handtke

References
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of
Economic Methodology, 18(2): 147–162.
Kakarot-Handtke, E. (2013). Crisis and Methodology: Some Heterodox Misunderstandings.
SSRN Working Paper Series, 2083519: 1–25. URL
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2083519.
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working
Paper Series, 2418851: 1–19. URL
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2418851.
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and
the Classical Economists. Cambridge, MA, London: MIT Press.

5. December 23, 2014 at 12:46 pm

@niethil:
I am not sure whether I understand your point.
I would say a true statement can be more or less accurate or inaccurate. Then there is some margin of error for that statement.
But for a false statement the level of accuracy is irrelevant.

6. December 23, 2014 at 4:52 pm

Intermediate summary
Comment on Asad Zaman’s ‘The failure of economics is due to the use of axiomatic method’

• Asad Zaman’s assertion has been fully refuted in the parallel thread about the proper use of math in economics. See
https://rwer.wordpress.com/2014/12/17/proper-use-of-math-in-economics/

• The failure of economics is NOT due to the use of axiomatic method but to wrong or non-existent axiomatization.

• Failure is never due to a tool but always to the user. “My opinion continues to be that axiomatics, like every other tool of science, is no better than its user, and not all users are skilled.” (Clower, 1995, p. 308)

• It is not alone orthodox economics that is a failed science but heterodox economics too.

• The representative economist cannot tell the difference between profit and income. The profit theory is wrong since Adam Smith (2014). Economists have not captured the essence of the market economy. Their policy prescriptions are scientifically worthless. “At all times, including the present, in judging from the standpoint of the requirements of each period … the performance of economic theory has been below reasonable expectation and open to valid criticism.” (Schumpeter, 1994, p. 19)

• The failure of economics is due to the scientific incompetence of the representative economist.

Egmont Kakarot-Handtke

References
Clower, R. W. (1995). Axiomatics in Economics. Southern Economic Journal,
62(2): 307–319. URL http://www.jstor.org/stable/1060684.
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics:
Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2489792.
Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford
University Press.

7. December 23, 2014 at 6:40 pm

From my view most (if not all) sciences have already been partially axiomatized. You can write all of them down, and you’ll have a book of maybe 30 pages, plus an appendix with definitions). The same is true for math and logic. Also, of course, many people do not think logic and math are distinct (going back to bertrand russel), and many nowadays also think math is a science — logical axioms are discovered—check out ‘new foundations’ (i think willard Quine) or various other ideas (constructivism (bishop, or strict finitism) , relatiives of Brouwer’s intuitionism) or proposals for ‘large cardinal axioms’. (I’m fairly conservative, so i think ZFC is it for now, though noone knows what the ‘C’ means (axiom of choice, or http://www.axiomsandchoice.blogspot.com )). . (In fact, many people have argued pythagrorean theorem actually is science (just as is reimann geometry) because it was was discovered partly as an applied math problem because geometry was used to divide up land way back in the day). Sciences are only partly axiomatized because they discover new axioms off and on (usually called ‘symmetries–as in ‘gauge symmetry’ or ‘supersymmetry’ (still an axiom which makes logical sense but may not make sense empirically —the mathematical universe (tegmark) is bigger than the one we live in apparently, though maybe thats just we can’t afford to visit it all, or is unconfirmed). General and special relativity are based on axioms of symmetry (invariances under coordinate transformations).

Some people want to get rid of axioms and the axiomatic method and replace it with some arbitrary ‘faith’—which is actually just a set of different axioms like the 10 commandments or the US constitution of or Us or international declaration of human rights, or some other arbitrary, historical, vague, and outdated system.

All axioms are a kind of expression of faith. (Try to prove the second law of thermodynamics without the ‘assumption of repeated randomness’. If you watch a clock ticking how do you know you are actually seeing the seconds in the correct order? you Kan’t.)

The problem with axioms is they may be wrong—more so in sciences than in math/logic. (Though even to this day or a few years ago, people like E Nelson of Princeton U math (and others) tried to prove Peano arithmatic was inconsistant—he also has a similarily failed attempt to reformulate quantum theory as a classical theory—he got about as far as all the others (eg Bohm) before he hit his head against the wall (born’s rule—Max Born was even invited by Hitler to come back to Germany (after being expelled) to help the ‘fatherland’ , probably to help Heisenburg build an atom bomb, though he had been expelled since they didnt want no ‘jewish science’ (blond, blue eyed aryans like hitler of course didnt want that influence though for some reason I guess Hitler couldn’t do the math or engineering; i guess his field was failed actor, and also felt math and science was beneath his pay grade. He did get a gig in a movie later on under the pseudonym Charlie Chaplin, called the ‘great dictator’) . The stipulation was that Born couldn’t bring his wife because she was also jewish (they might procreate and dilute the purity of germany), but Born declined and stayed in England). Maybe Born should have asked if she could stay in Auschwitz or Belsen. (a great very un-pc song by the sex pistols is called ‘belsen was a gas’; the gas actually was created by a famous german jewish scientist who also figured out how to make nitrogen useful for fertilizer, allowing puppies to procreate since there is plenty of food, and their masters (who they own) can eat too).

The problem is people choose the wrong axioms, and then turn them into a religion. That is what is proven in history and natural science. The axioms (heuristics) work for awhile and then they fail so you have to find the ‘new normal’ (where you can apply the ergodic hypotheis). “you by the phone, you all alone, its a long way back to germany’ (Ramones, old US punk band—on youtube–they just sold their 1,000,000th record though i think they all died (some made it to 50) but everyone stole their sound, or thunder—i saw em a few times—fastest and loudest band i’d ever seen, and funny and very msart too).

8. December 24, 2014 at 6:21 am

Axiomatization is fine and can be used to discover new truths. Example 1:

Axiom 1: The velocity of light is constant and isotropic.
Axiom 2: Maxwell’s equations are formally invariant under uniform motion.

These two axioms are consistent only with Lorentz transformations which is the basis of the special theory of relativity, with new discoveries of time dilation, length contraction, Doppler effect, energy equals mass times speed of light squared (one of the most famous equations).

The key point is these axioms are needed to explain observations and have been rigorously tested empirically. The velocity of light has been tested for more than a century, accurate to 17 decimal places when last tested in 2009. Maxwell’s equations encapsulate centuries of experimental work in electricity and magnetism.

Example 2:

Newton’s Principia Mathematica does not start with axioms, but with definitions all of which were introduced by Copernicus, Galileo and Kepler in centuries of empirical observations. They were the giants in Newton’s saying, “If I have seen farther, it is by standing on the shoulders of giants”. Newton’s key axiom is the law of gravitation which was explicitly to deduce Kepler’s empirical laws of planetary motion. Newtonian physics went on to make other discoveries in mechanics, aerodynamics, rocket science, etc.

The key point is: axioms are created, in the first place, to deduce what are already known as critical facts of reality. Unless we know what important empirical reality we are trying to explain, axioms are just playing mathematical games, and not doing science.

What are the definitive empirical truths that economic theory tries to explain? For example, Phillips curve, efficient markets, general equilibrium, etc. are not empirical truths, because they have regularly been proven false. If we don’t know exactly what we need to explain what is economic theory but playing games?

9. December 24, 2014 at 12:24 pm

Yeah bro i totally support your views. many great economists are seen as great not because they created real life practical theories and models but because they created models and theories that sre filled with mathematics that looks pleasing to the eyes. To tackle this problem one way of going about it is tackling the issue of diagram.many graphs in economics are totally senseless. the creation of a graph reference book that uses converted economics graph into simpler models that depict real life situation is the key to creating a real life practical economics that studies economics from a real life point of view which is what I have done and i wish the economics experts will use my research to create the graph dictionary or reference book in other to make economics more real

10. December 24, 2014 at 8:47 pm

Everyone keeps assuming that process is a given that is necessarily unlimited for us. It isn’t. That’s because we are the markers of it. As individuals we die and with us so goes our speculation. Societies crumble and in the process their essence is lost to knowing. It is true that whatever we can glean from the past is fixed in the continuum of which it and we are currently a part, but the best we can do is to make assumptions about what we have not lived. Today, there is yet another wrinkle in this quest for understanding. Unlike in the past, the future is no longer a given in the form of a continuum that can be logically tied to its players, for we are now faced with the ever growing possibility of human extinction. When we are gone, and with it all our self assumed wisdom, there will be no one to look back on what we might have thought or felt or did.

If one chooses to try and link human annihilation with the process that is leading us to it, there can only be ONE conclusion that makes any sense. We know that ingrained in the psychological construct out of which the self comes to the realization of itself, there is a real deterrent to self destruction. It’s called pain. And yet, imminent annihilation is the eventuality which has materialized out of our best efforts to understand who and what we are, by way of the linear quantitative thought process by which we attempt to do so. So, if we are NOT inherently inclined to destroy ourselves, then the fault must lie with the thought process, which (for us) is integral to all else. And so it does.

Because of the dynamics by which we come to the realization of our own difference, we are limited to characterizing the past as being infinitely regressionable — or, back to the “big bang” and beyond. The same infinite characterization applies to the present as we seek to confirm its certainty via our senses, which always present in the past. As a result. we are forever playing catch up. Finally, there is the future which our analysis of the past and the present limit us to seeing as being likewise infinite.

It should be immediately obvious that any thought process capable of encompassing an infinite past, present and future is NOT the product of our imagination. And yet, we have somehow come to be endowed with the ability to utilize it. Had we respected our place in the greater picture and constrained our curiosity to the limitations by which we are defined, this thought process would have yielded for us everything we could have possibly needed. But, we have NOT restricted its use thusly, and instead have used mechanical contrivances to extend our access to conclusions and the machinations they are capable of materializing. As a result, it was only a matter of time before this thought process provided us access to that which we are unable to control. Hello present!

So where do we go from here? Do we just knuckle down and continue with more of the same and allow fate to do unto us what we know we deserve? Or, do we manifest some concern for the innocent in this equation that we have put at risk, and try and make things right for them? This is the question I continue to ask, and the very same one that continues to be ignored here.

Egmont, there is undoubtedly a precision evident in you posts. And, I don’t know what your background is or how it has impinged upon your thinking. However, there is something that you need to give real thought to here. In the transition of any idea into the real world, we find ourselves engaged in a game of tolerances. Nothing is specific, but only functional relative to whatever variations lie in whatever it has to interface it. Axioms (initial premises) are undoubtedly helpful, since they provide a starting point from which variables can them be factored into the resulting objectives, but that is all they are. And, it doesn’t matter how many “authorities” you quote. That changes nothing. At the end of the day human nature with all its frailties sneaks into every equation we are capable of conceptualizing to bite its creator in the ass. If we can screw up the prime directive initialized by Deity (and it doesn’t matter how you choose to qualify this difference) we can sure do it to the best approximations that man has to offer. So, we need to ask ourselves — is all this hypothesizing important? Yes, it does have a part to play in it all. But let’s not lose sight of why. It’s not for the purposes of tying down certainty, but for the purification of intent relative to understanding who and what we are and most importantly of all, our correct PLACE in it all.

I would also like to direct everyone to another post that can help to shed further light on the substance of this one. If you have questions or critique I look forward to fielding them.

https://rwer.wordpress.com/2014/12/23/real-world-homo-economicus/#comment-85777

11. December 26, 2014 at 2:40 am

There are too many complex ideas which have come up in the stream. I have tackled just one of these in my recent WEA Pedagogy Blog Post: Is Scientific Methodology Axiomatic?
http://weapedagogy.wordpress.com/2014/12/26/is-scientific-methodology-axiomatic/

12. December 26, 2014 at 5:01 pm

Asad Zaman switched from the thread ‘Proper use of math in economics’ to this thread (see my post of Dec 12 above). Now he switches elsewhere. I cannot see any deeper sense in this jumping around and therefore return to

https://rwer.wordpress.com/2014/12/17/proper-use-of-math-in-economics/

more precisely to

https://rwer.wordpress.com/2014/12/17/proper-use-of-math-in-economics/#comment-86037

13. December 26, 2014 at 7:15 pm

I believe you are absolutely correct Asad. There are “too many complex ideas which have come up” not only in the field of economics, but in every other discipline seeking to extend understanding towards the objectivity that we sense must exit (for a linear method) but unfortunately is not relevant to a consciousness that is limited by physicality — such as ours. Even if we were immortal and possessed total capability to explore possibility by way of linearity, we still could NOT understand how subjective time might relate to uninterrupted space. The reason is because successive reflections are absolutely essential for us to know that we are; or, that we exist in the unknowability that forever prevents us from validating our existence otherwise. How can that be you say? Surely, “I think, therefore I must be.”

The reason is because it is NOT the immediacy of self realization that is at issue here, it’s the relevance of immediacy to possibility. Even a billion years of immediacy compared to an eternity of possibility constitutes NOTHING. So, without the realization of process everything is reduced to nothing for us, since (for us) hence, we are it and it is us in the here and now. This is why it has become so important for us to be able to measure some kind of progress relative to process. For, that is the only way we have of confirming our existence. Unfortunately, there exists a liability in pressing this issue to far. Do so, and it inevitably results in our demise — something that we are now facing. The reason is because process cannot afford to allow anything to inhibit its nature or else it ceases to be what it is. You might liken mankind and his austere body of information to a stone thrust into a moving stream. Sure, it can persist for a time, but inevitable the constant force of the moving stream will remove it.

Egmont complains because he believes you have switched horses in the middle of that moving stream. But, I sense that the horse you’ve been riding on has morphed for you, and I commend you on being able to see that everything does not present in black and white with respect to an ever changing field of information. There are only two things that do not change for us. That which has occurred, and the mechanics of thought by which we attempt to understand it. Conclusions are forever changing (by necessity) — since, this is the demarcating difference of process itself. Like it or not we have been reduced in the greater equation to attempting to understand the relationship between limitation and the lack thereof. A difficult task to be sure. We can complain if we want, but rarely does it seem to make any difference. On the plus side, this labor does afford us access to a world of selective relevance, something without which there could be no realization or cause for our difference. And therein, we can find reward through the satisfication of the limitations we bear. There might be more, but as of now only faith can promise it.