Home > Uncategorized > The model of all economic models (wonkish)

The model of all economic models (wonkish)

from Lars Syll

Economics is perhaps more than any other social science model-oriented. There are many reasons for this — the history of the discipline, having ideals coming from the natural sciences (especially physics), the search for universality (explaining as much as possible with as little as possible), rigour, precision, etc.


Mainstream economists want to explain social phenomena, structures and patterns, based on the assumption that the agents are acting in an optimizing (rational) way to satisfy given, stable and well-defined goals.

The procedure is analytical. The whole is broken down into its constituent parts so as to be able to explain (reduce) the aggregate (macro) as the result of interaction of its parts (micro).

Building their economic models, modern mainstream (neoclassical) economists ground their models on a set of core assumptions (CA) — describing the agents as ‘rational’ actors — and a set of auxiliary assumptions (AA). Together CA and AA make up what I will call the ur-model (M) of all mainstream neoclassical economic models. Based on these two sets of assumptions, they try to explain and predict both individual (micro) and — most importantly — social phenomena (macro).

The core assumptions typically consist of:

CA1 Completeness — rational actors are able to compare different alternatives and decide which one(s) he prefers

CA2 Transitivity — if the actor prefers A to B, and B to C, he must also prefer A to C.

CA3 Non-satiation — more is preferred to less.

CA4 Maximizing expected utility — in choice situations under risk (calculable uncertainty) the actor maximizes expected utility.

CA4 Consistent efficiency equilibria — the actions of different individuals are consistent, and the interaction between them result in an equilibrium.

When describing the actors as rational in these models, the concept of rationality used is instrumental rationality – choosing consistently the preferred alternative, which is judged to have the best consequences for the actor given his in the model exogenously given wishes/interests/ goals. How these preferences/wishes/interests/goals are formed is not considered to be within the realm of rationality, and a fortiori not constituting part of economics proper.

The picture given by this set of core assumptions (rational choice) is a rational agent with strong cognitive capacity that knows what alternatives he is facing, evaluates them carefully, calculates the consequences and chooses the one — given his preferences — that he believes has the best consequences according to him.

Weighing the different alternatives against each other, the actor makes a consistent optimizing (typically described as maximizing some kind of utility function) choice, and acts accordingly.

Beside the core assumptions (CA) the model also typically has a set of auxiliary assumptions (AA) spatio-temporally specifying the kind of social interaction between ‘rational actors’ that take place in the model. These assumptions can be seen as giving answers to questions such as

AA1 who are the actors and where and when do they act

AA2 which specific goals do they have

AA3 what are their interests

AA4 what kind of expectations do they have

AA5 what are their feasible actions

AA6 what kind of agreements (contracts) can they enter into

AA7 how much and what kind of information do they possess

AA8 how do the actions of the different individuals/agents interact with each other.

So, the ur-model of all economic models basically consist of a general specification of what (axiomatically) constitutes optimizing rational agents and a more specific description of the kind of situations in which these rational actors act. The list of assumptions can never be complete, since there will always unspecified background assumptions and some (often) silent omissions (like closure, transaction costs, etc., regularly based on some negligibility and applicability considerations). The hope, however, is that the ‘thin’ list of assumptions shall be sufficient to explain and predict ‘thick’ phenomena in the real, complex, world.

These economic models are not primarily constructed for being able to analyze individuals and their aspirations, motivations, interests, etc., but typically for analyzing social phenomena as a kind of equilibrium that emerges through the interaction between individuals. Employing a reductionist-individualist methodological approach, macroeconomic phenomena are, analytically, given microfoundations.

Now, of course, no one takes the ur-model (and those models that build on it) as a good (or, even less, true) representation of economic reality (which would demand a high degree of appropriate conformity with the essential characteristics of the real phenomena, that, even when weighing inn pragmatic aspects such as ‘purpose’ and ‘adequacy’, it is hard to see that this ‘thin’ model could deliver). The model is typically seen as a kind of ‘thought-experimental’ bench-mark device for enabling a rigorous mathematically tractable illustration of how an ideal market economy functions, and to be able to compare that ‘ideal’ with reality. The model is supposed to supply us with analytical and explanatory power, enabling us to detect, describe and understand mechanisms and tendencies in what happens around us in real economies.

Based on the model — and on interpreting it as something more than a deductive-axiomatic system — predictions and explanations can be made and confronted with empirical data and what we think we know. If the discrepancy between model and reality is too large — ‘falsifying’ the hypotheses generated by the model — the thought is that the modeler through ‘successive approximations’ improves on the explanatory and predictive capacity of the model. 

When applying their preferred deductivist thinking in economics, mainstream neoclassical economists usually use this ur-model and its more or less tightly knit axiomatic core assumptions to set up further “as if” models from which consistent and precise inferences are made. The beauty of this procedure is of course that if the axiomatic premises are true, the conclusions necessarily follow. The snag is that if the models are to be relevant, we also have to argue that their precision and rigour still holds when they are applied to real-world situations. They often don’t. When addressing real economies, the idealizations and abstractions necessary for the deductivist machinery to work simply don’t hold.

If the real world is fuzzy, vague and indeterminate, then why should our models build upon a desire to describe it as precise and predictable? The logic of idealization, that permeats the ur-model, is a marvellous tool in mathematics and axiomatic-deductivist systems, but, a poor guide for action in real-world systems, in which concepts and entities are without clear boundaries and continually interact and overlap.

Being told that the model is rigorus and amenable to ‘successive approximations’ to reality is of little avail, especially when the law-like (nomological) core assumptions are highly questionable and extremely difficult to test. Being able to construct “thought-experiments,“ depicting logical possibilities, doesn’t — really — take us very far. An obvious problem with the mainstream neoclassical ‘ur’-model — formulated in such a way that it realiter is extremely difficult to empirically test and decisively evaluate if it’s ‘corrobated’ or ‘falsified.’ Such models are from an scientific-explanatory point of view unsatisfying. The ‘thinness’ is bought at to high a price, unless you decide to leave the intended area of application unspecified or immunize your model by interpreting it as nothing more than two sets of core and auxiliary assumptions making up a content-less theoretical system with no connection whatsoever to reality.

Seen from a deductive-nomological perspective, the ur-model (M) consist of, as we have seen, a set of more or less general (typically universal) law-like hypotheses (CA) and a set of (typically spatio-temporal) auxiliary conditions (AA). The auxiliary assumptions give “boundary” descriptions such that it is possible to deduce logically (meeting the standard of validity) a conclusion (explanandum) from the premises CA and AA. Using this kind of model economists can be portrayed as trying to explain/predict facts by subsuming them under CA given AA.

This account of theories, models, explanations and predictions does not — of course — give a realistic account of actual scientific practices, but rather aspires to give an idealized account of them.

An obvious problem with the formal-logical requirements of what counts as CA is the often severely restricted reach of the ‘law.’ In the worst case it may not be applicable to any real, empirical, relevant situation at all. And if AA is not ‘true,’ then M doesn’t really explain (although it may predict) at all. Deductive arguments should be sound — valid and with true premises — so that we are assured of having true conclusions. Constructing models assuming ‘rational’ expectations, says nothing of situations where expectations are ‘non-rational.’

Most mainstream economic models — elaborations on the ur-model — are abstract, unrealistic and presenting mostly non-testable hypotheses. How then are they supposed to tell us anything about the world we live in?

And where does the drive to build those kinds of models come from?

I think one important rational behind this kind of model building is the quest for rigour, and more precisely, logical rigour. Formalization of economics has been going on for more than a century and with time the it has become obvious that the preferred kind of formalization is the one that rigorously follows the rules of formal logic. As in mathematics, this has gone hand in hand with a growing emphasis on axiomatics. Instead of basically trying to establish a connection between empirical data and assumptions, ‘truth’ has come to be reduced to, a question of fulfilling internal consistency demands between conclusion and premises, instead of showing a ‘congruence’ between model assumptions and reality. This has, of course, severely restricted the applicability of economic theory and models.

Not all mainstream economists subscribe to this rather outré deductive-axiomatic view of modeling, and so when confronted with the massive empirical refutations of almost every theory and model they have set up, many mainstream economists react by saying that these refutations only hit AA (the Lakatosian ‘protective belt’), and that by ‘successive approximations’ it is possible to make the theories and models less abstract and more realistic, and — eventually — more readily testable and predictably accurate. Even if CA & AA1 doesn’t have much of empirical content, if by successive approximation we reach, say, CA & AA25, we are to believe that we can finally reach robust and true predictions and explanations.

But there are grave problems with this modeling view, too. The tendency for modelers to use the method of successive approximations as a kind of ‘immunization,’ implies that it is taken for granted that there can never be any faults with CA. Explanatory and predictive failures hinge solely on AA. That the CA used by mainstream economics should all be held non-defeasibly corrobated, seems, however — to say the least — rather unwarranted.

Confronted with the empirical failures of their models and theories, even these mainstream economists often retreat into looking upon their models and theories as some kind of ‘conceptual exploration,’ and give up any hopes/pretenses whatsoever of relating their theories and models to the real world. Instead of trying to bridge the gap between models and the world, one decides to look the other way. But restricting the analytical activity to examining and making inferences in the models is tantamount to treating the models as a self-contained substitute systems, rather than as surrogate systems that the modeler uses to indirectly being able to understand or explain the real target system.

Trying to develop a science where we want to be better equipped to explain and understand real societies and economies, it sure can’t be enough to prove or deduce things in model worlds. If theories and models do not — directly or indirectly — tell us anything of the world we live in, then why should we waste time on them?

  1. Larry Motuz
    December 5, 2015 at 9:18 pm

    The equant was invented by Ptolemy and, insofar as it was logical and mathematically ‘sound’ it was deemed to exist. So also are preference and isoquant functions.

    Naturally, they have nothing to do with any reality they purport to ‘explain’.

    Excellent post, Lars Syll. Thank you.

  2. Peretz
    December 6, 2015 at 10:06 am

    Of course, rationalism never goal a human choice. Exactly what I said in my book. I proof that if A= B, if C= B usually you say A = C, but in a dynamic system it is wrong. There is a difference beetwen A and C. That is the reason why you cannot predict anything with an economic model on the long time. Money which translate values of anything makes it with a wrong value, though it is wery little, almost invisible, each time the choice (buying) is made. That is also why money loose its own value ont the long time

  3. Dave Raithel
    December 6, 2015 at 3:27 pm

    It is still never clear enough to me exactly what is the object of Lars Syll’s critique: False premises (the axioms) or the very effort to construct nomological deductive theories/models. Sometimes I am not even sure if he believes we ever find the cause of anything, since he regularly reminds us that the future is always uncertain…or rather, we are always uncertain about it?

    • December 6, 2015 at 3:59 pm

      If constructing deductive nomological models is to be considered valuable, is basically an ontological question. If reality is fundamentally open (in a critical realist meaning) it doesn’t seem to be a project worth pursuing. And then, of course, the epistemological valuation of the axioms constituting the building-stones of the model is, though interesting in itself, secondary.

      • Larry Motuz
        December 7, 2015 at 8:18 pm

        Deductive nomological models are useful/valuable in allowing one to construct hypotheses which then can be verified or falsified by inductive inference from evidence/statistical data or by making a prediction that ‘proves’ the hypothesis or hypotheses.

        Economics contains neither verifiable hypotheses nor valuable predictions. That is because it has remained at the level of ontological ‘discovery’, one wrapped in axioms, hypotheses, and mathematics none of which can be ‘proved’.

        We need to do two things. Re-introduce value-in-use and show how this differs from value-in-exchange. The former is always a measure of benefit obtained. The latter, in a monetary system, implies that market equivalent baskets of goods have the form Y/X = px/py which means that the market compositional equivalent basket must be [X, Y = px/py*X]. for any given px/py.nominal price regime. {You can easily expand this.}

        Doing these two things shows that obtaining benefits requires budget formation out of income/assets/ability to borrow monies. This means that the distribution of income within society clearly matters as it affects budget formation decisions. To the extent that affordability is affected when nominal prices change, then so also is the diversity or range of consumption to obtain benefits.

        Some day soon, I hope to post an essay about this. Money is certainly not neutral in a monetary economy. And price substitution is not equal to benefits substitution … which may be impossible.though price substitution is always possible.

  4. December 6, 2015 at 5:23 pm

    Scientific cave men with a daunting message
    Comment on ‘The model of all economic models’*

    Let us call the fatal methodological fault of both orthodox and heterodox economists the social science delusion. The fundamental crux of the social sciences has been identified precisely by Richard Feynman.

    “By having a vague theory it is possible to get either result. … It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can’t be defined so precisely’. Yes, but then you cannot claim to know anything about it.” (1992, p. 159)

    Exactly because of this there is no such thing as a behavioral axiom. There is no elementary and almost self-evident proposition about human behavior, except that it is target-oriented. However, from this statement follows nothing as long as one cannot ascertain what the target is.

    Exactly this is the embarrassment of the so-called social sciences: the vacuous speculation about other peoples’ goals/motives/intentions/hopes/wishes/expectations. For a genuine scientist like Feynman it is obvious at first glance that this is not the way to scientific knowledge.

    From this follows that every economics paper or textbook that contains the words utility maximization, profit maximization, rationality, bounded rationality, animal spirits, or expectation can be treated in the same way as any yellow-press gossip.

    The vacuousness of the constrained optimization axiom, clearly, is not the fault of the axiomatic-deductive method. The success of this method depends on the choice of axioms. The content of every theory resides in the axioms, deduction neither increases or decreases content.

    The correct conclusion for a heterodox economists who is worth his scientific salt is therefore that NO behavioral proposition whatever can be part of the foundational propositions, aka axioms, of economics. Just because of this, the neoclassical axiom set is forever inadmissible. This crashes uno actu the whole theoretical superstructure from employment to distribution theory (which has always been the worst scientific junk).

    The fault of the economist-as-social-scientist, i.e. the sorta-kinda maximization-and-equilibrium guy, is that he subscribes to a research program that has an unsurpassed track record of failure: “… there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman, 1992, p. 320), (Rosenberg, 1980, pp. 2-3)

    Certain knowledge about human behavior is impossible, but certain knowledge about the economic system is possible. This, clearly, presupposes a change of the axiomatic foundations of economics. There is no other way to ‘throw over’ Orthodoxy. As Keynes famously put it “Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (1973, p. 16)

    As long as the social science delusion prevails economics will be caught in Plato’s proto-scientific Cave** with both orthodox and heterodox economists waffling about economic policy without a sound theoretical foundation aka scientific knowledge.

    In more than 200 years economists have not produced scientific knowledge. How can this be? It is because economists are not the most enthusiastic missionaries of knowledge — rather the opposite.

    “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” F.A. Hayek

    Egmont Kakarot-Handtke

    Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
    Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge:
    Cambridge University Press.
    Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
    Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford:

    * See also the preceding post ‘The ur-blunder of economics and its rectification’
    or here
    ** Wikipedia

    • Larry Motuz
      December 8, 2015 at 1:42 am

      I’d say that human behavior is TARGETS-oriented. Specify those targets. Define them and measure them.

      If I have two goods that provide grams of protein intake :: say a unit X provides 8 grams of a specific protein and Y provides 16 grams of that protein :: and if, on average, a person uses 80 grams per day that need replenishment, then a basic requirement can be expressed as 80 – 8X – 16Y which reduces to 5 – .5X – Y = 0.

      Consumption anywhere along this Exigency line in Y-X co-ordinate space will provide the needed benefit. Below is a deficiency leading in time to disease and early death. {Too far above carries its own hazards.}

      In any nominal price regime for X and Y with a constant px/py ratio, one can extend a ray from the origin wherein Y = px/pyX. This ray, cutting the above Exigency line, shows the unique bundle that is the market price equivalent in composition. It is self-evident that the budget cost changes as nominal prices change. If one begins, for instance, with px = S.50 and py = $$1.00, the unique price equivalent bundle is [5,2.5]. But, if px rises to $.60, the market equivalent bundle [X,Y] becomes [X, Y =px/pyX] which is 4.5, 2.75 and the budget needed to buy this bundle has risen to $5.40 {whereas the amount needed to purchase the original bundle has risen to $5.75}.

      Any amounts budgeted above $5.40 show a preference for a bundle that is not the market price equivalent bundle. Any amounts allocated below might show that, but they are more likely to show ‘affordability’ constraints. Only detailed statistical analysis based on real benefits and actual income groupings could ‘reveal’ what is a preference if less than $5.40 is being spent.

      I say to you and others quite bluntly that the above is qualitatively different from any mainstream economics. By distinguishing between value-in-use and value=-in-exchange it does not conform to any existing theoretic. Nor is it deducible from any existing paradigm.

      It, however, allows one to get rid of notional utility, indifference curves, and isoquants, while also permitting a construction of aggregates on empirical foundations. It does not permit a ‘representative consumer’, ‘representative ‘firm’, nor a ‘representative commodity’ to be consider useful notions for any practical economic analysis.

      • Larry Motuz
        December 8, 2015 at 1:44 am

        Pardon the typos.

      • Larry Motuz
        December 8, 2015 at 1:50 am

        $5.75 should have been $5.50, and consider should have been considered. Sometimes I type too fast.

      • December 8, 2015 at 1:00 pm

        “I’d say that human behavior is TARGETS-oriented. Specify those targets. Define them and measure them”.

        I’d say that human behaviour is GOAL-oriented: analogically a football goal-mouth being a much wider space than an archer’s bulls-eye. The goal of humans as animals is to survive; their instrumental goal as humans enabling them to do that is to grow up. In the process of doing that they have to learn to use the four parts of their brains: successively to sense, coordinate actions, reason linguistically and judge sensibly, Their immediate “targets” (which can be anywhere within the “goal-mouth”) are instrumental to their doing that, but develop from just getting over the goal-line to preference for right or left to seeking the spots open at a given moment anywhere within the goal. In short, the targets of humans are not specifiable, but they do vary predictably (if “fuzzily”) with age, sex, personality and opportunities for learning. These last may be denied not so much by lack of consumables as by the isolation and undervaluing of humans.

  5. December 7, 2015 at 3:39 pm

    Dave Raithel’s question as to whether Lars was attacking economists’ axioms or the ‘deduction from names’ method itself received the answer: in a changing world, both! Which rather undermines Egmont’s taking the axiomatic-deductive method as itself axiomatic. I greatly respect Egmont and often agree with him, but not on this. (C.f. dynamic PID logic).

    Egmont’s very interesting appeal to Feynman’s “The Character of Physical Law” p.159 falls down when Feynman claims “you cannot know ANYTHING”. If this is not rhetorical overstatement it is taking as axiomatic a nomological “either/or” definition of knowledge, to the exclusion of the partial, probabilistic and fuzzy (i.e. bounded or toleranced), the advancement of the instrumental and ongoing compensation for PID errors arising.

    In view of Egmont’s insistence on the need for structural axioms in the form of equations, I think he would do well to read what Paul Davis says of Feynman on p.10 of the op. cit.

    “To place QED on a sound basis it was necessary to make the theory consistent not only with the principles of quantum mechanics but with those of the special theory of relativity too. These two theories come with their own distinctive mathematical machinery, complicated equations which can indeed be combined and reconciled to yield a satisfactory description of QED. This was the approach followed by Feynman’s contemporaries. Feynman himself, however, thought about the problem in a radically different way – so radical, in fact, that he was more or less able to write down the answers straight away without using any mathematics!

    “To aid this extraordinary feat of intuition, Feynman invented a simple system of diagrams that still bear his name. Feynman diagrams are a symbolic but powerfully obvious way of picturing what is going on when electrons, photons and other particles interact with each other. Today they are a routine aid to calculation, but in the 1950’s they marked a startling departure from the traditional way of doing science”.

    James Gleick, on p.275 of “Genius: Richard Feynman and Modern Physics”, says “Each diagram could replace an effective lifetime of Schwingerian algebra”. From p.17 one learns how Feynman began his physics by playing with pre-transistor radio: “loving diagrams and maps, [he] could see that the radio was its own map, a diagram of itself. Its parts expressed their function, once he learned to break the code of wires, resistors, crystals, [inductors] and capacitors”.

    That’s where I started, too, Egmont, and by chance I found that if one goes back to primitive household relationships, the same is true of economic capabilities and functions. A diagram expressing the observable relationships between children, parents and elders is “a symbolic but powerfully obvious way of picturing what is going on when” human nature, money, commodities and services interact with one another and bankers claim to own the communal surplus and seed corn needed to see us through the winter and the coming years.

    • December 7, 2015 at 11:01 pm

      “… bankers claim to own the communal surplus and seed corn needed to see us through the winter and the coming years.”Quote from above.

      However, presently “bankers” will not claim they own all the communal surplus and seed corn
      because they do not want it to be made known.
      As Soddy stated,
      “” So elaborately has the real nature of
      this ridiculous proceeding been surrounded with
      confusion by some of the cleverest and most
      skillful advocates the world has ever known, that
      it still is something of a mystery to ordinary
      people, who hold their heads and confess they
      are ” unable to understand finance “. It is not
      intended that they should.”
      FREE DOWNLOAD: “The Role Of Money”

      “Reverse “ an economic recovery program that has privileged the recovery of financial markets and corporate profits has fueled the increase in wealth inequality, in the United States and across the world.”, reverse that program, make it fund “…a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”
      “Capitalism is the “best” system to date devised by mankind. As it is administrated, perhaps, is where the “flaw” is manifested. If capitalism used its Central Bank properly,that is for the betterment of the common good, with equality and justice for all, capitalism would be the best ways and means to help “form a more perfect union….”, Pontifical Council.
      Create an honest Central Bank that shall fund-
      ““We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…””
      When a honest Central Bank uses “QE” for the betterment of the community in a capitalistic economy, it will be the greatest system ever devised by mankind.” Justaluckyfool.

    • Larry Motuz
      December 8, 2015 at 3:13 pm

      Goods use is instrumental to achieving/obtaining benefits of any kind. Much of the time, such benefits are definable and empirically measurable (e.g., grams of protein, watts of energy, money profits, time savings, et cetera). Value-in-use is instrumental value in a given defined use. Value-in-exchange is an instrumental value when goods are being exchanged.

      Thus, instrumental goals can be specified over the range of ‘economic’ activity.

  6. Ctesias62
    December 7, 2015 at 8:59 pm

    My name is Egmont Kakarot-Handtke.
    I revile you economists manqué.
    I’ll refute each stupid clique.
    And cite Joan Robinson twice a week.

  7. December 8, 2015 at 8:44 am

    Whatever one’s ontology is, as an economist at some point one starts to make statements about how one thinks the economy works, how certain phenomena are related, and what the actual state of the economy is. These statements have to be (i) logically coherent and (ii) in principle directly or indirectly comparable with facts. This is the general characteristic of science as opposed to storytelling.

    People never had any difficulty telling stories about the various aspects of reality and how the phenomena fit together and, lo and behold, this has been the easiest thing in the world as all myths and religions testify, and, best of all, this has been quite satisfactory for 99,9 percent of mankind 99,9 percent of historical time.

    Non-scientific explanations have the same basic structure: there is an entity beyond normal perception which can do everything and this entity produces the observable phenomena. In economics this entity is called the Invisible Hand. This type of statements is not logically false if one accepts the premises, but empirically irrefutable. A perfectly rational debate about angels-on-a-pinpoint is possible if one accepts the premise that angels exist.

    Between science and non-science there is the large zone of statements which could be true but are neither sufficiently corroborated nor clearly refuted. This is the realm of everyday commonsensical communication.

    To say that economics cannot — in principle — satisfy the conditions of logical and material consistency is to say that economics cannot be a science and never rise above storytelling. As a practical consequence this implies that economics is relabeled as showbiz/entertainment/politics and that economics professors give back their venia legendi and become talk show hosts or journalists or politicians.

    An academic who tells the world that his discipline cannot be a science states a logical paradox like Epimenides’s Cretian Liar.* More, a single academic can only speak for himself and by no stretch of the imagination ‘know’ whether his colleagues can produce now or in the future a theory that satisfies the scientific criteria of material and formal consistency. The assertion that economics cannot apply the axiomatic-deductive method because the economy is an open system is in any case methodological nonsense. It falls into the same category of logical fallacies as “human beings cannot fly because they are heavier than air.”

    G. B. Shaw nicely put it thus: “People who say it cannot be done should not interrupt those who are doing it.”

    Egmont Kakarot-Handtke

    * https://en.wikipedia.org/wiki/Epimenides_paradox

    • Larry Motuz
      December 8, 2015 at 6:03 pm

      Saying that economics is not yet a science is not equivalent to saying that it cannot become scientific in its methods and approaches to different economic problems. It might not become what is has parodied: namely, ‘deterministic’ classical physics. That said, classical physics has abandoned causality and determinism, favoring instead the law of large numbers.

      I say that if we re-introduce instrumental use for benefits back into economics, and if we then use statistical sampling, we can reconstruct a sensible and practical economics without in-built determinism.

    • December 9, 2015 at 9:19 am


      I would like to complete the statement “The assertion that economics cannot apply the axiomatic-deductive method because the economy is an open system is in any case methodological nonsense.” as follows.

      The economy is INDEED an open system and from this follows that the concept of equilibrium is inapplicable. This concept, though, is one proposition of the neoclassical axiom set (Krugman: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”).

      Therefore: because the economy is an open system, the equilibrium axiom is forever inadmissible and from this follows that the neoclassical axiom set as a whole is inadmissible and this explodes the whole theoretical superstructure of Orthodoxy. And from this follows in turn that all of what Krugman and the other sorta-kinda maximization-and-equilibrium wannabe scientists have ever peer-reviewed published is scientific junk.

      The application of the axiomatic-deductive method is the very precondition for the refutation of Orthodoxy. From the fact that the economy is an open system follows that the equilibrium axiom is false and NOT that the axiomatic-deductive method is inapplicable in economics. That is the methodological nonsense many heterodox economists are still stuck with.

      Egmont Kakarot-Handtke

      • Larry Motuz
        December 9, 2015 at 10:19 pm

        Yes, economies are open systems to which the mechanics of equilibrium do not apply. That said, even in closed systems, equilibria are not necessarily possible.

      • Larry Motuz
        December 9, 2015 at 10:19 pm

        Yes, economies are open systems to which the mechanics of equilibrium do not apply. That said, even in closed systems, equilibria are not necessarily possible.

  8. December 8, 2015 at 5:34 pm

    Egmont, your G B Shaw quip applies to you, not people like me, who are trying to rephrase half-baked intuition so that (for those willing to listen to others rather than themselves) it becomes possible to see it in a form in which it CAN be materially and formally consistent.

    In the case of the Invisible Hand, that is as information, invisibly piggy-backing on material energy: directing and correcting the direction of actions throughout time, which by means of information theory and technology can be empirically studied in communications science and PID control systems.

    The point of “angels dancing on a pinpoint” was that it is a joke, illustrating the point that the theological concept of angels, unlike material objects but like what we now call information, are not extended. Indeed, like the harmonies which make up a musical tone, or the different aims of globally distributed economic agents, they can co-exist at a point in time.

    • December 10, 2015 at 10:40 am

      one problem with studying the invisible hand, or economy, or however one chooses to label what one is studying or claim to be, is that there are many formalisms of information theory. (people still debate whether shannon’s entropy is the same as or convertible to gibbs/boltzmann—a sort of ‘angels dancing on a pin’ theological debate to me—i’m not sure if they have gotten to details like whether the angels are apprpriately dressed or had wardrobe failures, and whether they can really dance well. . Perhaps dancing angels could have their own place i the olympic competitions. Even math formalisms, or economic theories —these games could replace the noble prize. (They could be ‘fixed too’ by bribing judges,. or using propoganda to sway public opinion—eg using dirac’s ‘prettiest equation’ criteria if not occam’s razor or the most formidable and impressive and confusing equation so unreadable people are convinced (brainwashed) to support it like apparnety people in isis or daesch are.). I tend to think any worthwhile theory should be explainable intuitively in an abstract. (Both relativity and quantum theory are). Dynamics of infiormation in society also can be i think—and has been done. .

      • December 10, 2015 at 7:48 pm

        As Soddy stated,
        “” So elaborately has the real nature of
        this ridiculous proceeding been surrounded with
        confusion by some of the cleverest and most
        skillful advocates the world has ever known, that
        it still is something of a mystery to ordinary
        people, who hold their heads and confess they
        are ” unable to understand finance “. It is not
        intended that they should.”
        FREE DOWNLOAD: “The Role Of Money”

        justaluckyfool said: December 8, 20154:09 pm

        Why deny Frederick Soddy his just due?
        “There never was an idea stated
        that woke men out of their stupid indifference
        but its originator was spoken of as a crank.”
        — Oliver Wendell Holmes, Sr.
        (1809-1894) American Poet
        .*** BUT, why not read and challenge a Noble Laureate for Physics and challenge ? ******Excerpt from http://en.wikipedia.org/wiki/Frederick_Soddy
        “In four books written from 1921 to 1934, Soddy carried on a “quixotic campaign for a radical restructuring of global monetary relationships”[this quote needs a citation], offering a perspective on economics rooted in physics—the laws of thermodynamics, in particular—and was “roundly dismissed as a crank”[this quote needs a citation]. While most of his proposals – “to abandon the gold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort” – are now conventional practice, his critique of fractional-reserve banking still “remains outside the bounds of conventional wisdom”[this quote needs a citation]. Soddy wrote that financial debts grew exponentially at compound interest…”
        ***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC),
        Read and challenge:
        Frederick Soddy writings, namely “The Role Of Money”
        (Entire book as a free download) http://archive.org/details/roleofmoney032861mbp

    • December 11, 2015 at 5:58 pm

      Ishi (above), you say “one problem with studying the invisible hand, or economy, or however one chooses to label what one is studying or claim to be, is that there are many formalisms of information theory. (people still debate whether shannon’s entropy is the same as or convertible to gibbs/boltzmann …”

      People who don’t understand that Shannon’s “neg-entropy” is using the Gibbs/Boltzman measure of information capacity in a contrary context are probably the same people who (if they have had the courage to read Shannon at all), haven’t understood what his theory was trying to do (i.e. show how it is possible to eliminate a bit of chaotic noise from a lot of intelligible information, as against find something intelligible in a lot of chaos. That is seeing reliable communication as good where power-seekers think of the universe becoming static as bad). Think of the negatives and positives of a photo containing the same information, or the same measure (e.g. a ruler) being applicable to measurements in either direction, or a hand being able to direct power directly and information from a [moral] compass indirectly.

      Like the “angels dancing on a pin”, Adam Smith’s casual remark about the Invisible Hand looks in context like a joke lightening an argument: ludicrous from one point of view but tellingly apt from another. I’d like to know more about those “many formalisms of information theory”, but arguments develop (e.g. Weiner’s Cybernetics added [information-embodying] things directing each other) and the steering analogy in this title lead to PID navigational logic. But these are developments of and additions to what Shannon achieved, while other formalisms like verbal language, analogy, physical examples and schematic diagrams are necessary because not every type of mind can comprehend an argument in mathematical short-hand, or review its conclusions quickly enough to see how they apply to immediate problems. So you joke in the hope of lightening my arguments, but the only thing ludicrous here is me is me having to make them.

      • December 12, 2015 at 8:42 am

        dave taylor—i actually have not read alot of shannon tho i did slog through his original book on information theory. the basic idea i got was to communicate effectively you might need a certain amount of redundancy given that there is a certain amount of error in the communication channel. he quantified that. he also had his formula—shannon entropy—i think norbert weiner said call it entropy. (since noone knows what it is—i think its very easy and i got this from ted woodcock —he has books on chaos theory and catastrophe theory–lecture on chaos theory (and he didnt like me since he was hooked up to the military industrial complex) but i simplified it —it has to do with addition and multiplication, and primes, and standard calculus of variations.

        see ‘landauer’s principle’ for physics of information on wikipeida (sems sort of trivial to me but it is quite popular).

        (weiner also had an old book trying to use brownian motion to model quantum mechanics—that failed like edward nelson’s (princeton) stochastic mechanics or many others. (nelson also tried to prove arithmatic was inconsistant—didnt get to far—terry tao—fields medalist showed the error)..

        the other formalisms of information theory i mentioned include, at a very basic level ‘tsallis entropy’ (a variant of renyi entropy), superstatistics, and then if you want to go hardcore various alternative axiomatizations which rely on higher set theory (large cardinals, after cantor)–i have no opinions on tihs except my own. .

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