Home > Uncategorized > Ideology, pseudo-science and the closed marketplace of economic ideas

Ideology, pseudo-science and the closed marketplace of economic ideas

from Claude Hillinger

Federico Fubini has published a highly relevant article The Closed Marketplace of Economic Ideas regarding the remarkable stability of the rankings of top economists in the face of the evident failure of their theories.

Fubini compares this stability with the greater variability in the rankings of the largest corporations. This comparison is irrelevant since the two fields are entirely different. More relevant would be a comparison with a ranking in natural science.  I don’t have such a ranking comparison, but it is obvious that if it were made say in physics, the ranking would be even more stable going back to Newton, or Galileo, or even Archimedes.  The physicists discovered lasting truths and there is no reason for ever reducing their fame.  So, is all well with economics?  Does not any successful science produce a stable list of its greatest contributors?  A genuine science does, a pseudo-science unfortunately does also!

Those wondering how economics came to its present sorry state may wish to consult my recent e-Book on the subject: Unnatural science: The conflict between reason and ideology in economics and the other social sciences

  1. Alan
    January 13, 2016 at 6:55 pm

    Which economics are we discussing? Neoclassical, political economy or economic anthropology? Do you discuss economic anthropology in your ebook? I would argue that the strongest critique of neoclassical economics comes from economic anthropology, a field that is almost entirely ignored by the disciple of Economics (closed market indeed!). See my my earlier comments. And if you discuss political economy, have you revised your take on Adam Smith since your exchange with Kennedy in which you appear to adopt a neoclassical misreading of Smith? Aside from Kennedy, your earlier reading strikes me as largely inconsistent with most modern Smith scholarship. Again, another symptom of the closed market in neoclassical economics is the discounting of the value of the intellectual history of the discipline (and its teaching) and the gross misrepresentation of the works of earlier ‘economists’.

    • January 13, 2016 at 7:27 pm

      And the question is how can we even have a science of economics if it is going to ignore what, like, actually happened the last time their ideas were tested (i.e., economic anthropology)?

  2. Claude Hillinger
    January 13, 2016 at 8:25 pm

    This is a reply to Alan: Thank you for your comment. I had not been aware of the Kennedy Paper. Kennedy and I and I suppose you too have totally different mindsets from mine. He and I suppose you too, seem to think that one must read every thing Smith ever wrote, including such subjects as literary style, before one can understand a single plain sentence of his. He plainly said that because every entrepreneur endeavors to maximize the value of his output, the value of the total output will be a maximum also. That is the basic argument as to why a competitive equilibrium is efficient. The fact that Smith said that is enough for me.

    Regarding the rest of what he wrote, it also contains a lot of nonsense, such as his argument for an invisible hand in The Theory of Moral Sentiments.

    • Alan
      January 14, 2016 at 3:18 am

      I do not think that “one must read every thing Smith ever wrote, including such subjects as literary style, before one can understand a single plain sentence of his” but I do believe it is important to understand statements in their proper context.

      You wrote in your paper:

      It is unfortunate that Smith made his brief argument regarding the invisible hand in a chapter in which he argued for the protection of domestic industry – the one has nothing to do with the other. All firms in a given market, foreign or domestic, will strive to maximize their profit by producing an output that has the maximal value that can be attained with the given resources. Since this applies to all firms, the value of the aggregate product will be a maximum also. Since all consumers will have bought the products that they value most given prices and given their incomes, no further improvement is possible.

      There is no invisible hand argument. And he did not argue “for the protection of domestic industry”. The whole of Book IV is a frontal assault on protectionism, monopolies and the deleterious effects of merchants on the legislature. And he takes a good swipe at the big global corporation of the day in the process (He is generally skeptical of big institutions, government or otherwise). Mercantilism, which he is attacking, worked by discouraging imports and encouraging exports. The whole point of the passage is that there is no need for protections because merchants will be inclined to invest in domestic industry anyway when that is an option because that’s where they are likely to have greater security. He argues that this will benefit the home population as a whole. This is not the case when tariffs and regulations prevent foreign competition. Note that this latter benefit is unintended in this case but he’s not making a general argument. There’s no invisible hand of the market. Wealth is in fact full of examples of people pursuing their self-interests to the detriment of the public good. Book IV is an account of merchants maximizing their profits by having the legislature enact and maintain regulations that benefit their private interests against those of the public. Later in the same chapter he writes:

      To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the public, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it. Were the officers of the army to oppose with the same zeal and unanimity any reduction in the numbers of forces with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home-market; were the former to animate their soldiers in the same manner as the latter enflame their workmen to attack with violence and outrage the proposers of any such regulation, to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of them that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The Member of Parliament who supports every proposal for strengthening this monopoly is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.

      Collusion between legislatures and private interests? Reads a bit like our own corrupt economy, doesn’t it? Banking reform, anyone? (FYI: Smith was all for regulating banker’s “promissory notes” as the liberty of the few “might endanger the security of the whole society”.)

  3. Claude Hillinger
    January 14, 2016 at 7:13 am

    You are saying a lot, but as an argument against what I said it is completely illogical. I Never said that Smith claimed the real economy of his day to be completely competitive. Quite the contrary, as you point out. But that does not alter the fact that he gave the correct argument for the efficiency of an idealized competitive economy.
    Incidentally, in your first comment you say that my argument is “inconsistent with most modern Smith scholarship”. True enough, if it were otherwise, I would not write anything!

    • Alan
      January 14, 2016 at 5:19 pm

      You ignored that you do argue that “he argued for the protection of domestic industry” which he doesn’t and is a fundamental misunderstanding of that part of the text.

      But that does not alter the fact that he gave the correct argument for the efficiency of an idealized competitive economy.

      He doesn’t and this misses the point of the book.

      We don’t live in a perfect world. While he writes about an ideal system of perfect liberty he’s not Utopian and doesn’t believe a world of perfect liberty exists or will exist (see, for example, quote above). Perfect liberty is only possible if you have a perfect system of justice and a perfect institutional framework. One of the roles of government, we learn in Book V, is administration of the system of justice. But he’s just spent many pages telling us all the ways government and justice is bent to private interests against the general welfare. This is the social norm to different degrees. Significant parts of the book are taken up with contrasting the degrees of liberty in different countries (India, China, American, Britain, etc.) and how that impacts the general welfare of the population.

      Smith was a moral philosopher, not an economist, his central interest was in the nature of the social order and the practical basis of a social order that improves human welfare and happiness. He’s deeply concerned with politics and social relations. Modern economics, on the other hand focuses on rational self-interested individuals maximizing utility in an “idealized competitive economy”. This is a million miles from Smith. Everything that is of deepest importance in Smith (and for that matter in political economy and economic anthropology) is thrown out as an ‘externality’. Smith is a realist about human behavior and what is possible. Modern economics starts with a being, economic man, who doesn’t exist and creates a fantasy world.

      Wealth is a critique of the existing economic order and is directed at legislators to persuade them on how they might do a better job managing the institutional framework that provides for justice and fairness and in turn improve the general wealth of the population. He doesn’t appear to have been very successful in the UK. You could argue that he had greater success in America. Madison, for example, appears to have been greatly influenced by Smith’s analysis of factionalism and how one might limit it. Unfortunately, what that nice graph of growing wealth inequality that was published on this blog recently provides for is a measure of increasing factionalism and the decline of the personal ethics and liberal political values Smith espoused. Modern economics is, to use your words, the ideology and pseudo-science that rationalizes these changes.

  4. Claude Hillinger
    January 14, 2016 at 7:43 pm

    Dear Alan, let’s take a hint from the debate between Ricardo and Malthus and agree to disagree. Good luck! Claude

    • Alan
      January 24, 2016 at 2:02 am

      Dear Claude, this is par for the course in modern economics. There is no debate with anthropologists, historians, philosophers etc. as neoclassical economics can only survive as a “closed market of ideas”. The discipline has wealthy and powerful clients so can well afford to ignore the rest–as long as it’s clients survive.

  5. Fred Zaman
    January 15, 2016 at 6:59 pm

    The Newtonian “Immanent Dynamic” in Political Economy:
    Nash Dynamics of the Wealthy, Powerful, and Privileged

    L. Frederick Zaman III

    For those economists that might be interested, it was the Newtonian “immanent dynamic” summarized below that was the implicit theoretical ground on which the RWER paper the “Nash dynamics of the wealthy, powerful, and privileged: America’s two-player, Darwin metaeconomy” was grounded. The framework of neoclassical economics, considered at the same level of abstraction regarding Newtonian theory in economics, by way of contrast, is the economy’s Newtonian “surface [i.e. superficial] dynamic.” The diagram in “Nash Dynamics…” is a historical pictograph of the Newtonian “immanent dynamic” of American political economy.

    Summary. Human beings are held to possess consciousness that is aware, mind that thinks, and soul that defines inner being non-mechanistically. Everything that exists physically, however, is a composite of matter and energy that seemingly is mechanistic in causation, and thus possess no consciousness, no mind, and no soul that is causal physically. So, how are we to connect the two so that both realities work together, as apparently they do in reality? Newton’s laws of motion and gravitation, along with Coulomb’s law, seemingly govern the latter domain mechanistically, without purpose blindly through externally impressed forces. So, how can it be possible that consciousness, mind, and soul, even though they are causally non-mechanistic, nonetheless could be “Newtonian” in principle.

    A step forward in this direction might be available through the following postulates: matter is incorporeal (rather than corporeal), energy is physical intelligence (an identity), and force is immanent in matter (and thus externally evoked by stimuli), rather than externally impressed blindly without purpose. In which transfiguration of Newtonian physics matter, energy, and force then would be non-mechanistic and “relational” rather than mechanistic and “objectified.” Such causation certainly would be paramount in the biological and social sciences; but can such a transfiguration, and seemingly counterfactual, of nature – here called the Newtonian immanent dynamic – be physically possible?

    It is a fact that Newton’s laws of motion and gravitation determine neither the physical origin nor the causal mechanisms of the forces calculated. This in principle opens the door to an alternative, non-mechanistic account of matter, energy, and force; one in which the forces calculated, rather than being externally impressed on insensible, inert bodies, are immanent within and evoked by external fields which are physical intelligence—the resultant causality then being what de facto is the immanent dynamic of incorporeal matter, whose forces work empirically unseen within an incorporeal inner sanctum. In this physics – wherein matter is incorporeal, energy is physical intelligence, and force is immanent and evoked – nature is an elemental fusion of mass and consciousness (innate sensibility), energy and mind (innate intelligence), force and soul (innate purposefulness). And within the inner sanctum thereof, materially encoded immanent forces link outgoing physical intelligence “fields” to incoming physical intelligence “fields.”

  6. Fred Zaman
    January 17, 2016 at 5:19 pm

    Economics: Post-Autistic and Post-classical

    Continuing on, the theoretical framework of consciousness studies, considered at the level of abstraction provided by Newtonian theory in physics and biology, is what could be called the Newtonian “surface dynamic” of external forces mechanistically impressed. However, there is a metaphysical alternative—the Newtonian “immanent dynamic” of consciousness, mind, and soul summarized below; which was the implicit theoretical ground of the RWER 61 paper “Nash dynamics of the wealthy, powerful, and privileged: America’s two-player, Darwin metaeconomy”; reviewed by Edward Fullbrook in “Adam Smith, F. Zaman’s Real-World Economic Review 61paper and the 99% Movement at https://rwer.wordpress.com/2012/11/08/adam-smith-f-zamans-rwer-paper-and-the-99-movement.

    Economists desiring to provide essential correctives to neoclassical economic theory and practice will fail to do so unless and until they are successful in attacking and destroying the current mechanistic foundation thereof in Newtonian physics, its de facto ideologically-grounded “surface dynamic”; and replace it with non-mechanistic “immanent dynamics” incorporating an alternative to the current interpretation of Newton’s mathematical laws of motion and gravitation that in principle they apply directly to human behavior and activity as indicated in the “Nash Dynamics of the Wealthy, Powerful, and Privileged.” So that economics then truly becomes both “post-autistic” and “post-classical”; wherein economic actors in both micro and macro economics possess physically causal consciousness, mind, and soul. I am confident that, if they choose to do so, RWER economists will be up to this task.

  7. Fred Zaman
    January 17, 2016 at 10:17 pm

    Economic Anthropology:

    It is understandable that economists thinking about doing this will feel they are moving onto very shaky ground. Attacking Newtonian physics per se as the ideological source of failure in economics? How absurd! But the truth remains that Newton’s laws of motion are mathematical only and in no way unequivocally establish the origin and causality of the forces calculated. The current mechanistic interpretation thereof in classical physics should not be considered by scientists in general – in particular including the life sciences, which here especially must include economics – as the only possibility in science. “Economic anthropology” in particular should, and perhaps ultimately must, transfigure Newtonian mathematical principles anthropologically, so that economic actors both micro and macro become physically real in what they think and do. In this approach, a physical anthropology of banking, finance and the stock market becomes entirely possible.

  8. Fred Zaman
    January 18, 2016 at 6:40 pm

    Trickle-down Economics:

    The immanent forces of modern banking, finance, and the stock market are of two fundamentally different kinds: One is the economic elite, whose political economy to the extent possible minimizes all trickledown of the economy from the nation’s most wealthy to those economically marginalized and disenfranchised, the politics of which is a republic of the wealthy, by the wealthy, and for the wealthy. The second then being those economically marginalized and disenfranchised by the economic structure, who politically seek a more just distribution of wealth by increasing the trickle-down of the nation’s wealth to achieve a more equitable balance of the nation’s wealth between the different sectors of society; the politics of which thus is a democracy of the people, by the people, and for the people. The immanent forces of the wealthiest 1%, on Wall Street and in Washington, thus are fundamentally anti-democratic.

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