Home > Uncategorized > Why the ergodic theorem is not applicable in economics

Why the ergodic theorem is not applicable in economics

from Lars Syll

At a realistic level of analysis, Keynes’ claim that some events could have no probability ratios assigned to them can be represented as rejecting the belief that some observed economic phenomena are the outcomes of any stochastic process: probability structures do not even fleetingly exist for many economic events.

7107nQVwWOLIn order to apply probability theory, one must assume replicability of the experiment under the same conditions so that, in principle, the moments of the random functions can be calculated over a large number of realizations …

For macroeconomic functions it can be claimed that only a single realization exists since there is only one actual economy; hence there are no cross-sectional data which are relevant. If we do not possess, never have possessed, and conceptually never will possess an ensemble of macroeconomic worlds, then the entire concept of the definition of relevant distribution functions is questionable. It can be logically argued that the distribution function cannot be defined if all the macroinformation which can exist is only a finite part (the past and the present) of a single realization. Since a universe of such realizations must at least conceptually exist for this theory to be germane, the application of the mathematical theory of stochastic processes to macroeconomic phenomena is therefore questionable, if not in principle invalid.

Paul Davidson

To understand real world “non-routine” decisions and unforeseeable changes in behaviour, ergodic probability distributions are of no avail. In a world full of genuine uncertainty — where real historical time rules the roost — the probabilities that ruled the past are not necessarily those that will rule the future.

hicksbbcWhen we cannot accept that the observations, along the time-series available to us, are independent … we have, in strict logic, no more than one observation, all of the separate items having to be taken together. For the analysis of that the probability calculus is useless; it does not apply … I am bold enough to conclude, from these considerations that the usefulness of ‘statistical’ or ‘stochastic’ methods in economics is a good deal less than is now conventionally supposed … We should always ask ourselves, before we apply them, whether they are appropriate to the problem in hand. Very often they are not … The probability calculus is no excuse for forgetfulness.

John Hicks, Causality in Economics, 1979:121

To simply assume that economic processes are ergodic — and a fortiori in any relevant sense timeless — is not a sensible way for dealing with the kind of genuine uncertainty that permeates open systems such as economies.

  1. May 8, 2015 at 9:13 pm

    Is it not an oximoron to ask: whether a non-measure-preserving, non-volume-preserving, reflexive, dissipative dynamical system ergodic?

  2. Garrett Connelly
    May 8, 2015 at 10:03 pm

    I vote for invalid. Concentration of wealth leads asymptotically to nobody owning everything. If Nicholas Georgescu-Roegen were alive he would laugh out loud at the statistical probability of such an outrageous meme – I guarantee it.

    • May 9, 2015 at 7:18 pm

      “Concentration of wealth leads asymptotically to nobody owning everything.”

      Interesting way of putting it. My own way of communicating a variant on this concept is that while full socialism leads to “full employment, but nothing to eat”, full-blown capitalism leads to “perfect efficiency when everybody gets canned”.

  3. originalsandwichman
    May 9, 2015 at 1:30 am

    But economics is magic.

    “Science,” Malinowski explained, “is founded on the conviction that experience, effort, and reason are valid; magic on the belief that hope cannot fail nor desire deceive.” In contrast to the reliance of science on “observation, fixed by reason,” the domain of magical pseudo-science is “hedged round by observances, mysteries and taboos.”

  4. Franklin Chiemeka Agukwe
    May 9, 2015 at 3:21 pm

    The question is what does economics intend to solve? are their useful ideas and not methods to solve them? Economists must realise that ideas and methods in another sense are two different things.Ideas are not neccessarily expressed in mathematical terms while methods are mostly expressed Algorithmically.What does economics intend to solve? i prefer the use of idea than method to solve it

  5. Fred Zaman
    May 9, 2015 at 5:16 pm

    Exploring the Subjective Backside of General Relativity:
    An Inertial Frame of Reference for Macroeconomic Anthropology

    A “general covariance” of the physical and subjective derived from the theory of general relativity provides an inertial frame of reference for causality in the life sciences in general, and in “macroeconomic anthropology” in particular. Einstein’s postulated equivalence of inertia and gravity, dubbed the equivalence principle, is the conceptual foundation on which the development of the general theory of relativity was based. However, this principle also can be incorporated directly into Newtonian physics to create a general covariance of the dynamical properties of mechanism and subjectivity, in which the mechanistic Newtonian laws of motion and gravitation are transformed into intersubjectively equivalent laws of persistence, sensibility, sociability, and intentionality; the result of which is a new inertial frame of space and time in which physical being and subjective being are dynamically covariant. This subjective transfiguration of Newtonian physics is possible because the forces of Newton’s Principia are in fact ontologically under determined thereby making possible two very different interpretations of force: one mechanistic and externally impressed on insensible bodies, and the other subjectively immanent within sensible bodies and sensibly evoked by external stimuli/information fields. The second interpretation has been altogether blocked in the natural sciences by Occam’s razor, but it nevertheless remains a viable alternative in an emerging 21st century science of subjective being; the “intersubjective naturalism” of which dynamically incorporates “persistence” (first law of subjective inertia), “sensibility” (second law of subjective change), “sociability” (third law of subjective action-reaction), and “intentionality” (fourth law of purposeful, intersubjective fields of stimulus/information). These laws, a de facto “subjective backside of general relativity,” establish a covariance between the physical and subjective which establishes an inner dynamics of subjectivity in human behavior in economics and elsewhere.

    • Fred Zaman
      May 9, 2015 at 11:01 pm

      “Macroeconomic anthropology” here studies the “economy” broadly conceived of persons and things coordinated by structures of power held by society’s “haves” against the “have nots.”

    • Fred Zaman
      May 10, 2015 at 4:06 am

      The ontologically underdetermined character of Newton’s laws of motion and gravitation allows for two quite different inertial frames of reference in the dynamics of macroeconomic anthropology; one in which economics is mechanistic and devoid of purpose, the other in which economics is dynamically intersubjective and altogether intentional in character. In the first Newtonian-based economic reference frame, the structures of economic power are insensible and devoid of intentionality or purpose—just like every other “mechanism” in nature society’s haves exercise their power over the have nots blindly and without purpose. The haves are simply the human instruments of blind power that actually have no responsibility whatever for the economic structures that have evolved, or for the role in which they individually play in those structures. In the second, Newtonian-based economic reference frame possible, however, economic structures are ontologically intentional and purposeful in the power that the haves exercise over the have nots, whether for better or worse. Current economic theory is completely muddled ontologically in this regard, for it attributes intentionality and purposeful behavior to economic players, called rational agents, whose behavior nevertheless is viewed within, and thereby justified by, a mechanistic and thus quite irrational frame of reference. The two frames might be dynamically covariant mathematically, but empirically their human effect nonetheless may be dramatically different.

  6. May 10, 2015 at 3:24 pm

    The Big Bang Theory of economics
    Comment on ‘Why the ergodic theorem is not applicable in economics’

    It should be clear by now — long after Mirowski’s classic ‘More Heat than Light’ (1995) — that physical conceptions are inapplicable in economics. This holds for equilibrium, field, ergodicity, the quantum wave function, special/general relativity, and all the rest.

    What can be actually learned from physics is that each discipline has to work out its own framework of concepts and its own mathematical tools.

    It is bizarre enough to see people who cannot tell the difference between profit and income (2015) wrecking their brain about ergodicity and relativity in economics. But it blows the mind to see Samuelson, the very same who introduced ergodicity and other physicalisms into economics, upbraiding the profession:

    “Now what in the world has all this to do with economics? There is really nothing more pathetic than to have an economist or a retired engineer try to force analogies between the concepts of physics and the concepts of economics. How many dreary papers have I had to referee in which the author is looking for something that corresponds to entropy or to one or another form of energy. Nonsensical laws, such as the law of conservation of purchasing power, represent spurious social science imitations of the important physical law of the conservation of energy; and when an economist makes reference to a Heisenberg Principle of indeterminacy in the social world, at best this must be regarded as a figure of speech or a play on words, rather than a valid application of the relations of quantum mechanics.” (Samuelson, 1975, p. 332)

    This was an extremenly rare event, Samuelson had the right intuition: all this has nothing to do with economics. So, throw all physical concepts and analogies out of the window. Equilibrium first, then ergodicity, then the rest.

    Egmont Kakarot-Handtke

    Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Profit. SSRN Working Paper Series, 2575110: 1–18. URL
    Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
    Samuelson, P. A. (1975). Maximum Principles in Analytical Economics. Synthese, 31(2): 323–344. URL http://www.jstor.org/stable/20115073.

    • Paul Schächterle
      May 11, 2015 at 7:00 pm

      “What can be actually learned from physics is that each discipline has to work out its own framework of concepts and its own mathematical tools.”
      “So, throw all physical concepts and analogies out of the window.”
      I couldn’t agree more.

      • Fred Zaman
        May 11, 2015 at 8:04 pm

        That of which I speak are not analogies, but relativistic informed transformations that make the principles of Newtonian physics ontologically anthropological, thereby allowing their direct application to the life sciences, in particular including macroeconomics. Your cavalier dismissal of any such possibility without serious consideration, is of course quite typical.

  7. Fred Zaman
    May 10, 2015 at 6:25 pm

    The above critique is accurate concerning the introjection of the mechanistic framework into economic theory. What it fails to do, however, is to understand that an intersubjective transfiguration of the physical based on the ontological under determination of force by Newton’s laws of motion and gravitation is a different matter entirely; for the causal framework then becomes non-mechanistic in principle and the normal terms of physical theory then take on an entirely new meaning within an intersubjective framework of causality. To dismiss this as more of the same, as it seemingly is done above, is to actually understand nothing about what is being proposed–which is not economics per se, but rather an anthropological engagement with the “power and conflict” manifested in both real-world economics and the economic profession.

  8. paul davidson
    May 10, 2015 at 8:38 pm

    After reading my 1982 paper on the fallacy of rational expectations, John Hicks wrote in in a letter to me dated February 12, 1983 “I have just been reading your RE [rational expectations] paper….I do like it very much…. You have now rationalized my suspicions, and have shown me that I missed a chance of labeling my own point of view as nonergodic. One needs a name like that to ram home a point” [Letter on file in the Duke University library archives of economists’ letters]

    Paul Davidson

    • May 10, 2015 at 9:02 pm

      Excellent Paul. That is to your credit. Now what are the macro-economic policies that will enable virtual equilibrium and ergodicism to our modern technologically advanced economies?

  9. Fred Zaman
    May 10, 2015 at 11:16 pm

    The economist’s ergodic presumption is, within the mechanistic framework of physics in which it is employed, indeed false and needs to be eradicated altogether from economics. However, the problem is much, much deeper than the ergodic theorem itself, and indeed can be traced backward to the mechanistic worldview of Newton’s Principia, which assumes – in the minds of physicists following Newton at least – that a mechanistic account of nature alone is scientifically valid. The mechanistic worldview of “scientific naturalism” current is only one of two possibilities, however, the other being a form of naturalism that is “intersubjective” rather than “mechanistic.” When Newton’s Principia is revisited ontologically with regard to the mechanistic paradigm of matter and force, the ergodic theorem can take on a quite different meaning in which causation is ontologically intersubjective and the ergodic assumption then becomes fundamentally non-mechanistic. The problem in economic theory is not ergodicity per se, but rather the mechanistic worldview in economics that it currently props up. Overthrow the mechanistic worldview and replace it with one that is inherently non-mechanistic, the problem with the ergodic assumption in economics simply disappears. Much more foundational issues need to be addressed in economics than ergodicity; but this then requires addressing the same issues in a more general context that includes physics, and indeed virtually all of science.

  10. May 11, 2015 at 4:14 am

    What economics is not about
    Comment on Fred Zaman on ‘Why the ergodic theorem is not applicable in economics’

    Economics is not about the behavior of individuals (this is the subject matter of psychology/anthropology), neither about the relations of groups/classes (this is the subject matter of sociology/political sciences), nor about the behavior of Nature (this is the subject matter of the natural sciences), it is, rather, about the behavior of the economic system.

    Because economics deals with a distinct subject matter, which, no doubt, is interwoven with all other domains, it needs a distinct framework of economic concepts consisting of, for example, price, productivity, profit, wage rate, saving, market clearing, deflation, you name it. Neither Orthodoxy nor Heterodoxy has developed a consistent framework of analytical concepts. This is why economics resembles nothing so much as ‘Babylonian incoherent babble’ (Davidson).

    I can understand your preoccupation with power and conflict. What I cannot see is how this relates to Newton’s definition of force, mass, acceleration, inertia or gravitation; or, for that matter, to ergodicity or relativity. It is not the economist’s business to reinterpret these well-defined concepts for his alien purposes.

    Isn’t it curious that economists dabble in virtually all disciplines except economics proper? And isn’t it perfectly understandable that they have become a scientific laughingstock?

    Egmont Kakarot-Handtke

  11. Fred Zaman
    May 11, 2015 at 4:54 am

    “Macroeconomic anthropology” here proposed deals with much more than mechanisms of the marketplace. It is about the economy more broadly conceived in terms of “persons and things” coordinated by structures of power held by society’s “haves” against the “have nots;” which is something that economists per se, some of those on RWER being an important exception, have little or no interest in. The “economics proper” of which you speak, however, is itself an instrument of power by which the “haves” are now speedily accomplishing their objective. Understanding the relationship of this effort to the mechanistic worldview of Newtonian physics, however, which permeates virtually all of science, is something that will be achieved only by those with an open mind on the subject, and have the interest to pursue it. The problem lies not with the mathematical definitions of the terms of Newtonian physics, but with the ontology of mechanism that has been attached thereto and de facto declared as alone being science. There is a better way. Newton’s hypotheses non fingo has been completely ignored in classical physics.

    • May 11, 2015 at 12:13 pm

      Science and travesty
      Comment on Fred Zaman on ‘Why the ergodic theorem is not applicable in economics’

      You say “Understanding the relationship of this effort to the mechanistic worldview of Newtonian physics, however, which permeates virtually all of science, is something that will be achieved only by those with an open mind on the subject, and have the interest to pursue it.”

      Let us put some things straight.

      When one compares the respective starting points — Newton and Smith — and the actual state of the fields then one is driven to the conclusion that in the course of time economics has fallen behind even farther.

      Neither orthodox nor heterodox economists have a clear idea of the fundamental economic concepts income and profit. What is known for sure from the most elementary structural axiomatic analysis is that the conventional approaches are logically deficient (2014). Doing economics without a clear idea of income and profit is pointless. It is like doing physics without a clear idea of force and mass.

      From past performance, Steve Keen has drawn the correct conclusion.
      “The position I now favor is that economics is a pre-science, rather like astronomy before Copernicus, Brahe and Galileo. I still hold out hope of better behavior in the future, but given the travesties of logic and anti-empiricism that have been committed in its name, it would be an insult to the other sciences to give economics even a tentative membership of that field.” (Keen, 2011, p. 158), see also (2013)

      Economists are simply not in the position to lecture Newton post festum on methodology.

      “According to one widely held viewpoint in the history of ideas, eighteenth-century thought was dominated by the concept of the “Newtonian world-machine.” God had been assigned the role of master clockmaker who designed a universe so perfect that it could run indefinitely without any need for divine tinkering. Closer inspection of Newton’s own writings shows that he was actually quite firmly opposed to this concept which had been popularized by earlier writers such as Robert Boyle.” (Brush, 1976, p. 605)

      Egmont Kakarot-Handtke

      Brush, S. G. (1976). Irreversibility and Indeterminism: Fourier to Heisenberg. Journal of the History of Ideas, 37(4): 603–630. URL http://www.jstor.org/stable/2709027.
      Kakarot-Handtke, E. (2013). Toolism! A Critique of Econophysics. SSRN Working Paper Series, 2257841: 1–13. URL
      Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics:
      Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
      Keen, S. (2011). Debunking Economics. London, New York, NY: Zed Books, rev.

  12. Fred Zaman
    May 11, 2015 at 2:00 pm

    Putting things straight, I agree with almost everything you say, and furthermore there is little you have said that actually contradicts what I am saying. If you think it does, then you simply do not understand what is being said. Einstein is the one who in general relativity flat contradicts Newton, because this theory tells us that Newton’s external forces in fact do not exist—they are fictitious forces, which ontologically upsets the applecart of the mechanistic worldview and can never be set upright. The problem actually is not Newton’s, but those who followed in his footsteps, who nevertheless failed to follow his dictum: hypotheses non fingo. And the consequences of Einstein’s ontological falsification of classical physics, when logically pursued rather than ignored (as you seeming would do), are indeed monumental for science—including the would-be science of economics.

    • May 11, 2015 at 7:57 pm

      Physics as obsessive windmill
      Comment on Fred Zaman

      From equilibrium to ergodicity economists have misunderstood and abused physical concepts. One should think that after more than two hundred years of consistent failure at least Heterodoxy would be out of physicalism. That much is clear from this thread, Fred Zaman is not.

      One cannot by any stretch of the imagination enlist Einstein for ‘macroeconomic anthropology.’

      “Like Planck, Einstein viewed the human element of any physical theory as essentially arbitrary, something that should be purged on realization of the final true theory.” (Mirowski, 2004, p. 159)

      One cannot by any stretch of the imagination enlist Einstein for ‘ontological falsification.’

      “On the contrary the scientists of those times were for the most part convinced that the basic concepts and laws of physics were not in a logical sense free inventions of the human mind, but rather that they were derivable by abstraction, i.e. by a logical process, from experiments. It was the general Theory of Relativity which showed in a convincing manner the incorrectness of this view. For this theory revealed that it was possible for us, using basic principles very far removed from those of Newton, to do justice to the entire range of the data of experience in a manner even more complete and satisfactory than was possible with Newton’s principles. But quite apart from the question of comparative merits, the fictitious character of the principles is made quite obvious by the fact that it is possible to exhibit two essentially different bases, each of which in its consequences leads to a large measure of agreement with experience.” (Einstein, 1934, p. 166)

      What Einstein lays out here is the axiomatic-deductive method which has been applied with overwhelming success by Newton.

      “Could all the phaenomena of nature be deduced from only thre [sic] or four general suppositions there might be great reason to allow those suppositions to be true.” (Newton, quoted in Westfall, 2008, p. 642)

      Stop physicalism, stop psychologism, stop sociologism: start at long last with economics proper. It is not science that has to be reinvented, it is economics.

      Egmont Kakarot-Handtke

      Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL http://www.jstor.org/stable/184387.
      Mirowski, P. (2004). The Effortless Economy of Science? Durnham, London: Duke University Press.
      Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.

      • Fred Zaman
        May 11, 2015 at 8:13 pm

        What Einstein has established without doubt is that, putting all the above rhetoric aside, is that the externally impressed forces of Newtonian are fictitious forces that do not physically exist; so that what now is required are modifications to Newtonian theory that will unify his theory of matter in motion with the equivalence principle of general relativity–this is putting things straight.

  13. Fred Zaman
    May 12, 2015 at 5:08 am

    For those wishing to learn more on the physical basis of this subject:
    “Why Einstein did not believe that general relativity geometrizes gravity” by Dennis Lehmkulhl in Studies in History and Philosophy of Science Part B: Studies in History and Philosophy of Modern Physics, Vol. 46, Part B, May 2014, Pages 316-326. http://www.sciencedirect.com/science/article/pii/S1355219813000695

    • May 12, 2015 at 9:28 am

      Einstein, Mill and the Starting Problem
      Comment on Fred Zaman

      Thank you for the link to the Lehmkuhl article.

      Einstein, of course, is significant for economics — yet it is not his physics that is of importance but his methodology. And here comes the big surprise, Einstein got his ideas from an economist. Indeed, physicists understood J. S. Mill better than hordes of economists.

      “They [Einstein and Dirac] agreed that science was fundamentally about explaining more and more phenomena in terms of fewer and fewer theories, a view they had read in Mill’s A System of Logic.” (Farmelo, 2009, p. 137)

      Mill in turn was quite clear that the first task of every science is to get the fundamentals right. This is Mill’s Starting Problem.

      “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)

      And now all is pretty obvious: you cannot put utility maximization, equilibrium, ergodicity or any other physical or psychological assumption into the premises. After the failure of Orthodoxy is falls to Heterodoxy to spell out the ECONOMIC propositions ‘which may reasonably be received without proof.’

      This is what Constructive Heterodoxy is all about.

      Egmont Kakarot-Handtke

      Farmelo, G. (2009). The Strangest Man. The Hidden Life of Paul Dirac, Quantum Genius. London: Faber and Faber.
      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).

  14. Fred Zaman
    May 12, 2015 at 7:27 pm

    Egmont, what proposition or short list of propositions do you hold to be reasonably received in economics without proof? No dissertation please. A succinct statement will do.

    • May 13, 2015 at 9:26 am

      Short list
      Answer to Fred Zaman

      Here is the short list of the economic propositions which may reasonably be received without proof.

      The seven equations contain all of heterodox economics.

      Egmont Kakarot-Handtke

      • Fred Zaman
        May 13, 2015 at 3:25 pm

        How about a short verbal description of these propositions that are less cryptic.

    • May 13, 2015 at 5:30 pm

      Formal and verbal description of the evolving economy
      Answer to Fred Zaman

      For the reader’s convenience here again the short list of the economic propositions which may reasonably be received without proof.

      Because these seven equations contain the core of all of heterodox economics a reasonable verbal description fills a textbook. So, here is the compact overview.

      The first three equations describe the structure of the most elementary economic system, that is, the pure consumption economy. The equations stand for income generation, production, consumption and relate to a period of predetermined length.

      The 4th equation describes the time paths of the variables of the first three equations. The three dots symbolize the discrete rates of change per period.

      The 5th equation says that total profit is the sum of monetary profit and nonmonetary profit. The 6th equation says the same for saving.

      The 7th equation finally describes human behavior in the most general form as target-oriented. Directed human behavior and chance determine the rates of change in the 4th equation.

      All equations together define an open ended simulation of the elementary economy which, as a well-defined mathematical object, can be formally summarized by one single equation:

      The shortest verbal description of the equations’ objective economic content spans 16 pages and is titled Essentials of Constructive Heterodoxy: Behavior. See

      Egmont Kakarot-Handtke

      • Fred Zaman
        May 13, 2015 at 5:55 pm

        I think that the proposition that J. S. Mills might have been looking for is one more general than all of the above: that a computer simulation of economics which is based inherently on a mechanistic worldview, which yours appears to do, can adequately explain behavior that real-world economics suggests is inherently non-mechanistic. Your model of the economy appear to be no less mechanistic than any you would propose to replace–this perhaps is your Achilles heel.

      • May 14, 2015 at 10:25 am

        No license for drivel
        Comment on Fred Zaman on ‘Why the ergodic theorem is not applicable in economics’

        Neither Orthodoxy nor Heterodoxy has a license for incompetence. Orthodoxy has been debunked beyond recovery for its formal and material inconsistencies and not because we don’t like it for some reason. The first requirement of scientific work is that you can read and understand. Obviously you cannot. You simply repeat your anti-mechanistic mantra.

        “Your model of the economy appear to be no less mechanistic than any you would propose to replace – this perhaps is your Achilles heel.”

        If you could read and understand, you would realize that my previous post clearly states.

        “The 7th equation finally describes human behavior in the most general form as target-oriented.”

        Target-oriented or intentional is clearly different from mechanistic.

        Please note also that the axiomatic foundations of a theory are not a model (or modl as Leijonhufvud calls the economist’s proto-scientific plaything). And finally, both Newton and Einstein applied the axiomatic-deductive method. For the first pages of Principia see

        What all this tells you is that it is an absolute necessity in any field — not excepting economics — to state one’s premises clearly. Waffling about the old mechanism/vitalism chestnut or psychology or sociology or physics simply won’t do. This, of course, has always been the Achilles heel of traditional Heterodoxy and this is why the failure of economics as it is open before all eyes must be attributed to both Orthodoxy and Heterodoxy.

        Egmont Kakarot-Handtke

  15. Fred Zaman
    May 13, 2015 at 3:35 am

    Contrary to what Egmont contends above, it may well be possible to combine economic models of utility maximization, equilibrium, ergodicity, and others both physical and psychological that he wishes to scrap, in a comprehensive macroeconomics that rethinks these ideas intersubjectively within the context of economic forces that are immanent and sensible, rather than externally-impressed and insensible. What might we call this new, heterodox theory of economics? Lets see…, what about the “Physics of Constructive Heterodoxy”? The physically “heterodox” principles of which might be derived from the intersubjective transfiguration of classical Newtonian principles guided by general relativity’s equivalence principle.

  16. May 13, 2015 at 11:40 pm

    ““Could all the phaenomena of nature be deduced from only thre [sic] or four general suppositions there might be great reason to allow those suppositions to be true.” (Newton, quoted by Egmont on may 11,7.57 pm, along with Einstein flatly contradicting him).

    How sad I find Egmont’s hostility, given I have been able to do exactly what Newton envisaged. I have to agree with Fred (May 11, 2.00 pm) about Egmont: “you simply do not understand what is being said [explained on May 10, 6.25 pm as about “intersubjective transfiguration of the physical”]. Einstein [says Fred and Egmont demonstrates] is the one who in general relativity flatly contradicts Newton, because this theory tells us that Newton’s external forces in fact do not exist—they are fictitious forces, which ontologically upsets the applecart of the mechanistic worldview and can never be set upright.”

    Fred, for your view to look like more than opinions you need to show how physical forces can actually evolve into everything from atoms to humans and their systems. This requires understanding of their having direction, how they can become localised, and how the same (or false) directional information and processes can be conveyed or triggered by very different encodings detectable as e.g. sound, vision and physical structures. Prior to the formation of waves and particles there would be no diversity to create ergodic randomness.

    I much appreciate Mill as a great thinker, but Egmont misses his subtlety citing (May 12, 9.58 am): “What are the propositions which may reasonably be received without proof?” These propositions, then, are not fictions, but reasonable interpretations of the facts, implying there can be more than one interpretation (cf. Newton vs, Einstein) and good reasons for choosing one rather than the others (e.g. that it works for humans as well as Hume’s billiard balls ). What is unreasonable is to adopt economic starting points without proof of their consistency with the reasonable interpretation of physics and its evolution.

  17. Fred Zaman
    May 14, 2015 at 2:02 am

    And what might Isaac Newton feel about the transfiguration of force here proposed, from externally impressed and insensible to immanent and sensible? Newton’s Principia (2010 [1713]) in fact explicitly refers only once to a force impressed “externally,” later in the book on the circular motion of fluids (ibid. p. 271). In truth all references to impressed forces in the Principia can be understood both empirically and mathematically – Occam’s razor notwithstanding – with equal validity in an intersubjective causality of immanent force evoked internally by external stimuli; for in DEFINITION VIII on page 15, Newton states that “I design only to give a mathematical notion of those forces, without considering their physical causes and seats…[which] I call attractions and impulses: in the same sense, accelerative, and motive, and use the words attraction, impulse or propensity of any sort towards a centre, promiscuously, and indifferently, one for another, considering those forces not physically, but mathematically: wherefore, the reader is not to imagine, that by those words, I anywhere take upon me to define the kind, or the manner of any action, the causes or the physical reason thereof, or that I attribute forces, in a true and physical sense, to certain centres (which are only mathematical points); when at any time I happen to speak of centres as attracting, or as endued with attractive powers.” Based on this caveat of Newton, which the natural sciences universally ignore, it logically is impossible for any scientist to call “pseudo science” any account of matter and force that mathematically and empirically remains “Newtonian” in form, but whose ontology of matter and force nevertheless is intersubjective and intentional, rather than being mechanistic, lacking any real intentionality, and devoid of any conceivable purpose.

    • May 14, 2015 at 11:54 am

      Really interesting reply, Fred. Constructively, I will draw your attention to gravity not being “impressed” but an “attractive power” between two bodies proportional to their masses, and someone’s intuitive relating of the words “tension” and “intention”.

      Where the “pseudo-science” comes from is Hume’s use of Occam’s Razor to deny the existence of what Newton rightly eschews, given the limitations of the instrumentation and geometry available to him. It (or what Egmont calls pre-science) exists today when so-called scientists, ignorant of communication and computer switching circuit logic/information technology and geometrically-variable circuit/symbol topology, confine themselves to Newtonian mathematics and Humean statistics.

      Your defence of your own position seems to defend (as [still] scientific) Jevon’s treatment of utility in The Theory of Political Economy (1871, Ch 3, Fig 3). In terms of Shannon’s mathematical information theory this leaves necessary utility undefined and treats only of redundant (surplus) utility. Jevons can be excused in that he could not have known of Shannon’s discovery that redundant utility (of Ashby’s “requisite variety”) is used to make good failures of necessary utility (e.g. sufficient income). Not so today’s economists and political stooges, in whose logic nothing ever fails. [NB. The word “stooges” is interesting].

  18. May 15, 2015 at 10:18 am

    What scientists in all ages knew
    Comment on ‘Why the ergodic theorem is not applicable in economics’

    “The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition … is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown, 2011, p. 211)

    It is a bit strange that economists, who after more than 200 years still cannot tell the difference between profit and income and have still not realized that utility and equilibrium are nonentities like angels on a pinpoint, lecture physicists about the ‘intersubjective transfiguration of classical Newtonian principles guided by general relativity’s equivalence principle.’

    Orthodoxy is odd enough and Heterodoxy should not strive to surpass what will be footnoted in the history of ideas as an embarrassing scientific aberration.

    Egmont Kakarot-Handtke

    Brown, K. (2011). Reflections on Relativity. Raleigh, NC: Lulu.com.

  19. May 16, 2015 at 11:15 am

    Answer to the original question
    Comment on ‘Why the ergodic theorem is not applicable in economics’

    Imagine a rather elementary economy.* Total employment is L, the wage rate is W. So total wage income is Y=WL. The household sector’s total consumption expenditures are C and equal to price P times quantity bought X, i.e. C=PX. The productivity is R, so output is O=RL. In the initial period the market is cleared X=O and the budget is balanced C=Y.

    Now let the five elementary variables L, W, P, R, X vary at random. The respective rates of change are symmetrical around zero and a distribution function is defined such that each path meets the condition of ergodicity. Hence, by construction, each path and the whole economy is initially ergodic.

    When we run a simulation we observe a changing stock of inventory, because O-X is always different from zero, and a changing stock of money, because Y-C is always different from zero. The two stocks follow random paths.

    Next, the agents enter. The business sector sets the price in order to bring the inventory to a target value and to clear the market. Likewise the household sector adapts consumption expenditures in order to bring the stock of money to a target value and to balance the budget.

    Obviously, the economy is no longer ergodic. The reason is that agents are target-oriented and interfere with pure randomness. Their behavior is formally defined by the propensity function (2015) which eliminates the initial ergodicity through directed randomness.

    Ultimately, this has nothing at all to do with uncertainty or nomological machines or rational expectations. The sheer existence of agents in a pure random system suffices to eliminate initial ergodicity.

    No heterodox economist worth his salt would ever apply ergodicity. True, orthodox economists still do but they are already irrecoverably over the cliff. Thus, it does not really matter.

    Egmont Kakarot-Handtke

    Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Behavior.
    SSRN Working Paper Series, 2600523: 1–17. URL http://papers.ssrn.com/sol3/
    * For the graphical representation see

    • May 17, 2015 at 9:45 pm

      “Obviously, the economy is no longer ergodic. The reason is that agents are target-oriented and interfere with pure randomness. … The sheer existence of agents in a pure random system suffices to eliminate initial ergodicity.”

      Elegantly expressed, Egmont. Why do you need to mathematise this into a “propensity function”? It might improve technical understanding more to note that control systems are also target-oriented, and – if working – interfere with (i.e. correct) random deviations from their (intended) target setting.

      • May 19, 2015 at 5:10 pm

        Of course you are right, the economy is a system, and concepts of systems theory are directly applicable. What we are interested in, however, are the specifics of the economic system and how all fits together. These vital basics are part of the new heterodox curriculum. For cross-references see

        For the rationale of the propensity function see in particular: Essentials of Constructive Heterodoxy: Behavior.

        The general behavioral equation must consistently fit into the set of structural axioms because inconsistent theories are worthless. And of those theories we have already more than enough.

      • May 20, 2015 at 8:16 am

        “What we are interested in, however, are the specifics of the economic system and how all fits together. ”

        I think this is where micro theory is getting confounded with macro theory, Egmont. At macro level I am not interested in the specifics of the actual economic system we have so much as specifics of the TYPE of economic system we have. Is it a control system, and if so, which if any of the TYPES of feedback circuit does it have? How does it provide for correction of present, past and future errors: mathematically negating them, negating any accumulation (integral) or positively avoiding any anticipatable error?

        The point is that TYPES of system logic can be distinguished from particular cases of it and so become suitable curricular material. Thus a PID controller is available as an integrated circuit which can “fit together” such feedbacks as are available. Once students understand the concept of a PID controller they are in a position to understand the proposition that our present economy is one with monetary negative feedback and a Keynesian one also has feedback from accumulated unemployment. Entrepreurs have long assumed that when enterprises cease to be profitable it is time to divest; but then their aim is to make money, not (like Mondragon) to invest where investment is needed.

      • May 21, 2015 at 9:28 am

        If anyone has better foundational equations, please come forward
        Comment on Dave Taylor

        There is no way around it: each theory rests on a tiny set of foundational propositions.

        “The highest ambition an economist can entertain who believes in the scientific character of economics would be fulfilled as soon as he succeeded in constructing a simple model displaying all the essential features of the economic process by means of a reasonably small number of equations connecting a reasonably small number of variables.” (Schumpeter, 1946, p. 3)

        Orthodoxy’s behavioral axioms are now generally known to be false.

        Constructive Heterodoxy’s reasonably small number of equations is given here

        As long as you cannot state your premises clearly with a few simple equations you cannot go beyond political filibuster. It is pretty clear by now, that economics has had more than enough of this stuff.

        Political economics is part of the entertainment industry. Traditional Orthodoxy and Heterodoxy are sitcoms. Only theoretical economics is science. Science is about the real world.

        Egmont Kakarot-Handtke

        Schumpeter, J. A. (1946). The Decade of the Twenties. American Economic Review,
        36(2): 1–10. URL http://www.jstor.org/stable/1818192.

  20. May 21, 2015 at 11:42 am

    When the exchanges between Fred Zaman, Egmont and myself have been so profound, it would have been nice for Lars Syll, here apparently our technical guru, to have shown some interest in them. Will he have read them? (His blog here was introduced by our Editor and mainly quoted Davidson and Hick).

    The discussion seems to have taken off with Fred’s (I have to say “difficult”) response on May 9, 2015 at 5:16 pm. Reading it again, I can see that this – which takes into account communication processes as well as what economic language refers to – really was profound. He is saying much the same as I am about the significance of information science and PID control when he notes:

    “a general covariance of the dynamical properties of mechanism and subjectivity, in which the mechanistic Newtonian laws of motion and gravitation are transformed into intersubjectively equivalent laws of persistence, sensibility, sociability, and intentionality; the result of which is a new inertial frame of space and time in which physical being and subjective being are dynamically covariant”.

    I have come to this via Heaviside’s incorporation of the equivalent of Newton’s laws of motion in electric circuit theory, distinguished by different feedback circuits in PID control, and spelled out by great helicopter engineer Arthur M Young in “The Geometry of Meaning”. What I can add is an explanation of how different forms of encoding in memory reproduce from inside the sensory conditions created by automatic focus on external stimuli. Given this and the mature findings of information science, there is no good reason to doubt the detail one senses, in both perception and rememberance, is more or less that of the object perceived, as transmitted by modulation of an energetic information carrier.

    The related issue of free will may be accounted for in terms of chemical activation of relevant memory (much like a computer operating system loading processes); in terms of learned ability to wait, and waiting for activation of untimely or unsatisfactory processes to subside. As W S Gilbert put it to a bereft lover: “Time will do his duty. Leave the thief alone”.

    I am volunteering all this not to make economists look small but because I have at best a few years to live and realise that understanding communication is crucial. Physical facts don’t lie but liars do. I’ve asked whether Lars is interested because if even its gurus are not interested there is, sadly, not much hope for the success of heterodox economics.

  21. May 22, 2015 at 12:16 am

    Interesting exchange. comments:

    1. Egmont K’s short axiomatic formulation of his system as well his one on his propensity function seem fairly consistant (haven’t done the details, and i also have questioned some of his mathematical manipulattions, which do not appear wrong, but rather i wonder if they are unwarranted or unmotivated. I have seen many of these these and I call them ‘obfuscationism’—-and they are done to make a paper appear more mathematical, rigrorous etc.

    Also his use of 3 dots above his Z(t) and other variables is a notation i have never seen —if i get the argument, usually one just uses 1 dot for the time derivative, unless he is talking about the 3rd time derivative. (I don’t have time to learn a new notation).

    In addition, just from reading the descriptions, despite his claims, there appears to be little that is conceptually that much different from other models using stochastic differential equations of which there are many around since the 80’s. His propsensity function is similar to other utility function analogues in that approach (Santa Fe Inst types and vefore).

    The continual claimks that all other economics work is bogus and incoherent, comparedf with his, is in my view just boasting and misrepresentation (and that is very common—eg I run across people all the time who claim they are, say, the new messiah, and have invented the golden rule, or are brilliant economic thinkers and have discovered there is a flaw in GDP. (Some go on speaking tours and careers based on this too—-to me this is not that different from recent cases of bank fraud by Citigroup, etc (got caught and had to pay 5$billion which they can easily afford) or 3 linked cancer charities who spent the money on themselves ($187 million ).

    2. D taylor’s views of Asad’s comments i agree with, but these ideas also are not that new—-similar views are expressed in some papers i have read in the BNArchives, as well as elsewhere (including pop literature) —and there is a long history of this. The problem is almost all of these these discussions are qualitative or analogogical, rather than very formal and rigorous like general relativity. I have dabbled with this approach as well—the problem is its hard to know exactly how much of this is really applicable—you aren’t going to be able to make a scientific prediction in economics using this approach similar to the way Whitehead confirmed Einstin’s prediction for the perihelion of mercury .

    Also combining this sort of geometrical approach with ideas based on electrical or chemical circuits —which i agree also have possibilities for these ideas which are somewhat distinct from standard economics is not easy at least conceptually. (I personally don’t think any of these ideas or models are4 really all that distinct—-any more than, say, shi’ites and sunni’s, isis and taliban or al quaeda, protestants or catholics, whites and blacks, etc,. are that distinct though there is a big industry in claiming there is. I used to be in the ‘punk rock’ scene, which had a big claim of being ‘nonconformist, though actually it was just conforming to another dress code and fashion style.)

    ( G Kron of course did write down general relativity as a set of electrical circuit equations in the 50’s, and this was also used to reformulate chemical networks, and there is alot more stuff by people like S Smale (Fields medalist) along this line (i did some work with someone from SFI who also did some of this approach (with someone who was killed by a PLO bomb in the 70’s in israel) , but it became too involved to be useful (though now with advanced computing now this is viable—he was a mathematician, not a computer person). Another blog i follow also has very recent stuff on this approach—i thought it had gone extinct).

    I might add a recent paper in economics actually provides a fairly rigorous link between the linked chemical reaction approach and the relativistic (reimann geometry) approach because one if its authors actually is quite familiar with both fields (as well as information theory, etc.) (I may discuss this with one of the authors —he told me to stop by since he works in my city —but he wouldn’t do it over email—i have other projects going on and actually avoid universities. The last professor i talked to up there—in economics—was very positive—he wanted me to put his model into a computer simulation since i used to do that, and he gave me his books, and said i would have the resources of the dept at my service, but he couldn’t pay me, and when i told him how to do it he said i was crazy (he wanted some sort of 40’s era linear programming algorithm approach, since he hadn’t read anything about computer simulations since he learned that approach in grad school). I told him forget it (he found a chinse grad student to do it—anything to get a job in the USA).

    As regards the issue of why mainstream or expert economists ignore each other’s work i view this as being because most people are basically pushing their own brand (my all new theory) and want all the credit, etc. (I am involved with an economics reading group, which is sectarian—some want to read only Marx, others Piketty and others’ ‘capital as power’ BN archives—i’m mostly sortuh observing the zoo), Its better to write your own magnus opus, stick with your own limited paradigm or formalism, rather than read or listen to anyone else. (I personally try to read and listen to everything—impossible, take notes, write informal drafts, and move on to a new project. The few proejcts that might have resulted in publications i was involved in i rejected—eg i told the SFI person that since he took out some sentences in our jointly written paper i had written (involving renormalization group and set theory) i didn’t want my name on the paper. (He was actually pragmatic and correct—its better not to mention some things in an applied math paper if you want to keep your grant).

    i would say i am perfectly open to a cooperative project (with asad, taylor, egmont, anyone else who does not have an axe to grind or looking for someone to exploit for their personal aggrandizement etc. and even me—-especially if i stop by my local expert’s (academic economist) office and he and his co-auhors are open to it. but for me this is not about just trying to get a reputation or be famous. but ‘i will not be your stepping stone’.
    The basic issue in economics is coordination–either you use the invisible hand and slef interest, or you try another mechanism (‘mechanism design’)—a free market of competing paradigms. Most people (including heterodox and every other brand of economist—eg Bowles and Gintis–‘radical economics’) use the free market/competetion approach (even if they claim to be against it—like the economist who wanted me to program his computer).

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