Home > Uncategorized > On the irrelevance of formal logic in economics

On the irrelevance of formal logic in economics

from Lars Syll

aIn the case of substantial arguments, however, there is no question of data and backing taken together entailing the conclusion, or failing to entail it: just because the steps involved are substantial ones, it is no use either looking for entailments or being disappointed if we do not find them. Their absence does not spring from a lamentable weakness in the arguments, but from the nature of the problems with which they are designed to deal. When we have to set about assessing the real merits of any substantial argument, analytical criteria such as entailment are, accordingly, simply irrelevant … ‘Strictly speaking’ means, to them, analytically speaking; although in the case of substantial  arguments to appeal to analytic criteria is not so much strict as beside the point … There is no justification for applying analytic criteria in all fields of argument indiscriminately, and doing so consistently will lead one (as Hume found) into a state of philosophical delirium.

The mathematization of economics since WW II has made mainstream — neoclassical — economists more or less obsessed with formal, deductive-axiomatic models. Confronted with the critique that they do not solve real problems, they  often react as Saint-Exupéry‘s Great Geographer, who, in response to the questions posed by The Little Prince, says that he is too occupied with his scientific work to be be able to say anything about reality. Confronting economic theory’s lack of relevance and ability to tackle real probems, one retreats into the wonderful world of economic models. One goes into the “shack of tools” — as my old mentor Erik Dahmén used to say — and stays there. While the economic problems in the world around us steadily increase, one is rather happily playing along with the latest toys in the mathematical toolbox.

Modern mainstream economics is sure very rigorous — but if it’s rigorously wrong, who cares?

Instead of making formal logical argumentation based on deductive-axiomatic models the message, I think we are better served by economists who more  than anything else try to contribute to solving real problems. And then the motto of John Maynard Keynes is more valid than ever:

It is better to be vaguely right than precisely wrong

  1. October 15, 2015 at 1:11 pm

    It is better to be right than wrong. It is better to be precisely right than vaguely right. But it is better to be precisely wrong than vaguely wrong. All of economics is wrong. Mainstream economics is precisely wrong while everything else is vaguely wrong.

    • October 15, 2015 at 7:01 pm

      “But it is better to be precisely wrong than vaguely wrong.”

      Don’t be ridiculous. In the case of wrongness, the illusion of precision simply feeds hubris. To be “precisely wrong” is also to be vaguely wrong — but with attitude.

      • October 15, 2015 at 11:50 pm

        Erudite and funny, too.

      • October 16, 2015 at 12:19 am

        Precise is not vague (not in my dictionary). Being precisely wrong means you know exactly what’s wrong – no illusion or misunderstanding, but a potential to correct what’s wrong. Being vaguely wrong means yo have only a vague idea what to fix – endless debate about what Marx or Keynes or whoever actually said, let alone making progress in economics.

      • October 16, 2015 at 1:57 am

        “Being precisely wrong means you know exactly what’s wrong…”

        No, it doesn’t. It refers to a mistaken aim at unattainable precision. You are precisely wrong about what it means to be precisely wrong! The “precision” is pretence — or self deception — and is only referred to ironically as “precise.” Carveth Read (not Keynes) wrote:

        Even in reasoning upon some subjects, it is a mistake to aim at an unattainable precision. It is better to be vaguely right than exactly wrong. In the criticism of manners, of fine art, or of literature, in politics, religion and moral philosophy, what we are anxious to say is often far from clear to ourselves; and it is better to indicate our meaning approximately, or as we feel about it, than to convey a false meaning, or to lose the warmth and colour that are the life of such reflections. It is hard to decide whether more harm has been done by sophists who take a base advantage of the vagueness of common terms, or by honest paralogists (if I may use the word) who begin by deceiving themselves with a plausible definiteness of expression, and go on to propagate their delusions amongst followers eager for systematic insight but ignorant of the limits of its possibility.

      • October 16, 2015 at 5:39 am

        Carveth Read is vaguely right or vaguely wrong. I don’t really know what he’s talking about, because he is too vague. Unless terms can be clearly defined, there is no use in discussing.

  2. Dave Raithel
    October 15, 2015 at 1:11 pm

    “When we have to set about assessing the real merits of any substantial argument, analytical criteria such as entailment are, accordingly, simply irrelevant.” Right. Why should anyone be held accountable for their beliefs? Consistency, foolish or not, is way over rated….

  3. October 15, 2015 at 1:57 pm

    Okay. I believe you and accept your interesting point. Would you consider asking this awesome blog assembly if anyone has actual profit figures for social investments in social security, free education and medicare for all type health care?

  4. paul davidson
    October 15, 2015 at 5:36 pm

    but Keynes insisted that classical economists are like Euclidean geometers living in anon-Euclidean world and observing straight lines, apparently parallel, clashing– and blaming the lines for not avoiding such crashes. Keynes said the resolution was to throw out the axiom of parallels and then work out a non Euclidean geometry and the same thing was needed in economics

    I have demonstrated that Keynes specifically threw out three classical axioms: (1) the neutral money axiom, (2) the gross substitution axiom involving liquid asset vs. real producible assets, and (3) the ergodic axiom which permitted the future to be “actuarial certain” known from analyzing past probability distributions. With these three axioms thrown out, Keynes’s general theory of employment, interest and money becomes a theory relevant to the world of experience d policies can be developed to rid the capitalist entrepreneurial economy of its two major flaws– its failure to provide persistent full employment and its arbitrary and inequitable distribution of income and wealth. For an analysis see my new book POST KEYNESIAN THEOORY AND POLICY; A REALISTIC ANALYSIS OF THE MARKET ORIENTED CAPITALIST ECONOMY.

  5. October 15, 2015 at 7:42 pm

    The irrelevance of economics
    Comment on ‘On the irrelevance of formal logic in economics’

    (i) Since the ancient Greeks it is known that science is about knowledge and that politics is about opinion/belief/second guessing/filibustering. “There are always many different opinions and conventions concerning any one problem or subject-matter …. This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides … was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion (hearsay, plausible myth) on the other …” (Popper, 1994, pp. 39-40)
    Accordingly, there is political economics and theoretical economics. The political economist cranks out opinions, the theoretical economist contributes to knowledge.

    (ii) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works. In political economics anything goes, in theoretical economics scientific standards are observed.

    (iii) Scientific standards are well-defined: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

    (iv) Most economists are political economists: “However much economists may evoke their purity, they want to change the world. They want to contribute to the solution of urgent practical problems. … Of course, they also pursue the consistency of the theories they make, for he who contradicts himself proves nothing.” (Klant, 1988, pp. 112-113)

    (v) As Klant makes it clear, to be a political economist does not involve a license to suspend the rules of logic. Toulmin is utterly wrong when he speaks of the irrelevance of formal logic. He is right only insofar as formal logic is vacuous if the basic/primitive/elementary concepts have no empirical content. Formal logic is necessary, but not sufficient.

    (vi) It is important to distinguish between method and actual application. Spinoza, for example, used the axiomatic-deductive method to rigorously prove the existence of God. This, obviously, is a misapplication. In general terms, the methodological blunder consists in applying formal logic to nonentities.

    (vii) This is the correct understanding of the scientific method: “When we assemble the facts of a definite, more-or-less comprehensive field of knowledge, we soon notice that these facts are capable of being ordered. This ordering always comes about with the help of a certain framework of concepts …. The framework of concepts is nothing other than the theory of the field of knowledge. … If we consider a particular theory more closely, we always see that a few distinguished propositions of the field of knowledge underlie the construction of the framework of concepts, and these propositions then suffice by themselves for the construction, in accordance with logical principles, of the entire framework. … The procedure of the axiomatic method, as it is expressed here, amounts to a deepening of the foundations of the individual domains of knowledge – a deepening that is necessary for every edifice that one wishes to expand and to build higher while preserving its stability. (Hilbert, 2005, pp. 1107-1109)

    (viii) Neither Orthodoxy nor Heterodoxy has hitherto produced an economic theory that fits Hilbert’s description. Economics is a failed science. We are left with political economics, which is scientifically worthless.

    (ix) The first step of the student of economics is to realize that all theories/models are false that are built upon the following concepts: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/prices, and ergodicity. All these items are economic nonentities. The second step is to replace nonentities with concepts that have a counterpart in reality (2014).

    (x) Economics is not even a plausible myth; the fundamental defect is that it deals with nonentities. Because of this, all formalization has hitherto been without effect. This is not the fault of formalization but of the scientific incompetence of the representative economist.

    Egmont Kakarot-Handtke

    Hilbert, D. (2005). Axiomatic Thought. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, volume II, pages 1107–1115. Oxford, New York, NY: Oxford University Press. (1918).
    Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
    Klant, J. J. (1988). The Natural Order. In N. de Marchi (Ed.), The Popperian Legacy in Economics, pages 87–117. Cambridge: Cambridge University Press.
    Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
    Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality. London, New York, NY: Routledge.

  6. Paul Schächterle
    October 15, 2015 at 10:13 pm

    Neoclassical economics is only rigorous in the sense that they will defend their core political beliefs with any means necessary.

    Neoclassical economists are *not* rigorous in any positive or scientific sense. They gloss over inconsistencies, use falsified assumptions and models ruled out by their own theorems and cherry-pick assumptions. How can you call that “rigorous”?

  7. October 16, 2015 at 10:00 am

    As I worked with the [Shannon/cybernetic] logic of error correction, I am sympathetic to both Sylwyson’s focus and Keynes’s [probability-based] judgement and geometric insight. I’m sorry, Gareth, if this is only “erudite”, but with Kipling’s “insatiable [scientific] curiosity” I’ve inevitably learned a lot during my 78 years. I agree: what we have now is not funny.

    Where I’ve ended up myself on all this is in Bacon’s [dynamic rather than linguistic] version of science [taking things to bits and in practice inventing technologies like telescopes and microscopes to see how they work]. I’ve taken the universe to bits [reverse-engineering its evolution] to see [by repeated abstraction of everything which can be seen at a given level of evolution] what has been the conclusion of science [the Big Bang and Newton’s Laws of Motion], what implication [invisible energy and Hubble’s Bubble separating real space from nothingness] and what definition [not quantification as there was not then anything to count, but Keynes’s non-linear geometry], i.e. circularity and lines of latitude and longitude [invented to differentiate positions, spaces and meandering channels on the surface of the earth, but equally applicable inside the expanding surface of Hubble’s bubble].

    The build-up of things from the self-capture of energy in local circulation can then be known [i.e. memorably distinguished] in terms of progression through the four geometric spaces marked out by their latitude and longitude, revealing four phases of evolution of complexity at every level from

    [stable] sub-atomic particles [electrons, protons, neutrons, atoms] to life [cells, plants, animals, humans];

    their languages [nouns, verbs, adjectives, adverbs, i.e. in Algol68 scientific terms data, references to it, references to both it and what it does and references programming what we are doing to it];

    their information technology [directed motion, and immediate, past and anticatory corrective feedbacks] and hence in

    their biological economy [children/consumers, fathers/producers, mothers/ distributors, elders/developers] and its monetary shadow [banks, insurance, stock exchanges and derivatives], in which biological/human well-being has given way to money making.

    What is rigorously derivable in all this is not the substantial content but the geometry. As in geographical maps, rigorous theory doesn’t tell us what things (e.g. cities) are, but where to look for them so we can see for ourselves Bacon’s “what they do”. This does not require exactitude, but getting us “near enough” for us to be able to see them if we bother to look.

    If we look at what is in current economic texts, or even at what is learned in our schools from primary to post-graduate levels, most of us will learn to look in books rather than at reality. The real pedagogical challenge here is the need to re-educate teachers whose authority derives from knowledge acquired from books rather than understanding of language and communication with reality.

    • JdeV
      October 16, 2015 at 9:22 pm

      I’m interested in reading more Joop Klant (in english) as cited above by EKH. Any others available?
      JdeV (53yrs)

      • October 17, 2015 at 12:50 am

        Thanks, I check in at 72. (Hoping to learn a bunch in the next six years).

  8. October 17, 2015 at 11:19 am

    Thank you for that, Garrett, and JdeV for drawing my attention to EKH, whose masterful contribution (would I could write so precisely and fluently) snook in while I was responding to Sylwyson. Egmont on I at least totally agree on the need to “scrap the lot and start again”.

    Contrasting what he and I are saying here brings out particulry clearly our different [restarting] points. He starts with formal logic (the value of which, updated as in Algol68, I accept for keeping definitions distinct and consistent). I start with the conclusion of analytic science to date (the energy of the Big Bang), and how in formal logic it is possible for particles to emerge from it. My formal theory is of circular motion induced by turbulence. Not the vortex of Leibniz and Newton’s time but more like a dynamic version of ocean spray formed by surface tension: a perpetual circular motion like the superconductive currents at low temperatures I happen to have worked with. That necessitates the formal refutation of the current assumptions in particle physics, on the grounds that the transient “particles” formed by smashing existing particles are neither necessary nor available for the construction of stable ones.

    Ceding the emergence of particles and things made from them does not undermine formal logic, but it reveals the possibility of imperceptibly incomplete and damaged forms, such that formal argument does not work out exactly as expected. Insofar as it is necessary for future our activities or calculations that it does, we are into the real world of Zadeh’s fuzzy (toleranced) and Shannon’s error-correcting (cybernetic) logics: both formal, but like the mathematics of arabic number form, only EVIDENT in physical forms which work, like Pythagoras’s circular triangles, Boolean algebraic truth notation, Zadeh’s overlapping sets, order preserving topological loops, Shannon’s switching circuits forming binary digits and the scientific method of demonstrative or experimental simulation [as against measurement of the not yet or actually existing].

    I do wish Egmont would spend time getting his head round what I am trying to say, as he would be able explain it much better than I can. The issue in economics is not the irrelevance of formal logic but the outdated understanding of its physical forms and scope.

    I have previously argued that Keynes’s macro-economics anticipated the universal cybernetic form which emerged from Shannon’s work. Here I’ve argued that his “non-Euclidian geometry” hint was spot on, leaving micro-economic forms (where, c.f. Tom Watson’s Carveth Read quote above, they are not sophisticated lies getting us to look in the wrong places) derivable as approximations to parts of macro-economics. However, if we “Heterodox” are ever going to do what Egmont rightly urges us to do, we need to replace the current self-righteous “Orthodoxy” with the seriously funny form in Chesterton’s 1908 book “Orthodoxy” (all-embracing and orthogonal, i.e. with the partial truths revealed by the different forms and roles of brain logic not obscuring each other). We need to commit to an active (evolving but also decaying) framework of real axioms (Poincare’s “hooks to hang ideas on”) and not just to Egmont’s formal ones.

    • October 17, 2015 at 11:32 am

      Apologies for many irritating typos in the above; I’m beginning to wonder whether my message gets garbled (decays) – then wrongly reconstructed – in transmission! Would that we could edit our comments, as in some other blog formats one can.

      • October 21, 2015 at 3:54 am

        No. Not in the transmission. It’s coffee and donuts under the keys.

      • October 21, 2015 at 3:58 am

        Maybe pancakes and syrup.

      • October 21, 2015 at 11:30 am

        No! But possible porridge and syrup?

      • October 21, 2015 at 11:47 am

        There we go again, “possibly”!

        But seriously, ditial internet traffic is chopped into small “packets”, timeshared between users, “posted” down the first available frequency-multiplexed channel of many (c.f. radio program channels) and reassembled at the receiving address. Also, Google just informed me that it monitors what I am doing and tries to correct my spelling. My point was not to excuse my waning competence but to suggest the value of the self-editing capabilities one sometimes finds elsewhere.

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