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Project: A heterodox macro textbook

from Asad Zaman

After having examined a lot of relevant, useful and insightful material on the failure of orthodoxy, some of which that came up in the responses to my post, I have come to a conclusion that there is a viable project we could undertake together, which has the chance of creating a revolution. There are several points that need to be taken in consideration to shape the project.

Insight Number 1:

The first point comes from Edward Fullbrook’s remark that:

If Samuelson had any claim to genius it was that he understood better than anyone else that nothing in economics is nearly as important as Economics 101. Marshall, Samuelson’s target, understood it also.

Samuelson’s was the textbook which defined economics in the twentieth century. I propose that we work together on writing the textbook which will define economics in the twenty first centuryRead More


  1. Peretz
    February 6, 2016 at 3:40 pm

    Yes, Good idea., J.M Keynes will be usefull for your proposition. But you will complete its theory in a new way. I mean first whith the aid of systemic theory like thermo dynamic system.

  2. February 6, 2016 at 3:40 pm

    that is a good idea but difficult to realize in practice. even on this little blog rwer noone agrees with each other. i did see steven marglin of harvard checked in (what do bosses do scholar.harvard.edu/marglin.home ) i also read econospeak ( j b rosser—chaos and catastrophes in economics and economists’view and marginal revolution (tyler cowan of gmu going to be interviewing nate silver of 538) . i dont think you can constrain economics to just the last century. i’m pretty much strait up econophysics school except i disagree with that orthodoxy.. http://www.arxiv.org/abs/0905.1518 paul sameulson’s last paper in AER said basicallt the stolper-samuelson theorem (used by kurgman) was inappicable to the presetn world

    • February 6, 2016 at 11:36 pm

      Can you tell us how econophysics helps in adding to the explanation provided by Mian and Sufi for the GFC? Does it add to their analysis, or does it suggest that some portion of it is wrong? SAME question for PERETZ — how can we use systemic theory or thermodynamics to help explain the GFC

      • March 16, 2016 at 2:37 pm

        I just came across this old question when googling. My view is that econophysics (which is basically just a version of a ‘system theory’ as you call it — ‘statistical thermodynamics’) might help in ‘adding to the explanation provided by Mian and Sufi’ basically through ‘efficiency’ (Occam’s razor). In other words one can say a whole lot of tjhings about the GFC and GR (i assume this is the ‘great recession’ though i couldnt see the term) in a very succcint way.

        Also its very general—the exact same formalism can be applied to biological dynamics including biodiversity and human evolution, the physics of phase transformations, sociological phenomena like urbanization and economic geography, even psychology and the sociology of philosophy and religion.

        This way you can use one universal language to get a fairly deep understanding of many fields without having to get multiple PhDs each using its own dialect. You can just get one generic PhD and then you can basically get the gist of population genetics, theoretical physics, economics and even econometrics, etc . (Statistical thermodynamics is actually basically ZFC (zermelo fraenkel set theory ) but written differently—in the language or dialect of physics rather than as done in the tradition of principiea mathematica (russell and whitehead—ie math or mathematical logic).

        Of course in any given field one still has to get the appropriate data –biological evolution has different data than economic evolution—but fitting a curve is fitting a curve whatever the origin and interpretation of the data.

        If one uses this approach almost no pheneomena is a ‘surprise’. Papers from the 80’s theoretical economics lit(t)erature predicted the GFC —great financial crisis —way before it showed up. JUst as the inequality increases discussed by Piketty was really just a confirmation of the theory.

        There are 2 problems with this approach. First, given that there are plenty of academics and think tank researchers so committed to their own dialect, their professsions would be threatened if it turned out everything they teach and write about is just a variant of the same theory taught redundantly in other academic departments or think tanks. E.G. how many languages do you need to know the understand the ‘golden rule’. Currently one can learn the golden rule in multiple languages and religions and each one says it needs its own set of experts and resources.

        The other problem is that even though this approach is quite efficient , to learn it, there is a fairly steep learning curve (though less steep than people imagine, like learning a second languag–which is what it is). Driving a car or riding a horse are in a sense a more efficient way of travel than walking, but they require more ‘learning and skills’. Babies can learn to walk fairly easily, but they can’ drive or use a computer. Statistical thermodynamics is like google—if you have it you have the whole world at your footsteps or in reach of a computer mouse, if you have a computer (which many people in the world still do not have , and that might even be a good thing given that the web has not been a total blessing). Also the computers still need to be made, and involve natural resources (so one may need to think about how many are needed to have a ‘good life’ —cars are great (i dont have one) but when there are too many they can become a social problem).

        Another problem is that this approach is still in a fairly version 1.0 or ‘infantile’ stage. It needs debugging. A paper from 2015 (still unpublished, co-written by someone in my area who I have talked about working with) goes a long way towards version 2.0. When computers started back in 40’s and fifties, only a few people knew how to use them (see FPU experiments–eniac). Now even small children can use them.

        Also, most people don’t need or want a PhD; they don’t need to know how to build a stop light on the highway which is quite complex—but they can learn the basics of understanding what a stop light means just by getting a basic education about what a stop light means. One should (in my view get that basic education, and then decide if you want to learn how to build a stop light, or do something else. THere are plenty of things to do besides building roads, stoplights, having traffic accidents during commutes, hospitals to treat car accident victims.

  3. February 6, 2016 at 4:48 pm

    Excellent suggestion, hopeful, very engaged and, perhaps, presaging a new future. The work has to be done. Certainly, every day, every one contributes to this but “We” must also collectively and explicitly cross the T’s and dot the I’s to moor our heterodoxy ship in order to stabilize and strengthen things to progress in this struggle.
    I think that even if there is no general consensus on different topics and approaches (that’s life!), we could be able to work together and frame a -more or less- common theoretical and economic policy position since the “common position” does not need to be uniform or homogeneous but relevant with regard to the major issues of our societies and consistent with the major principles of the heterodoxy. Because, to date, the (dominant) economics became a mere ideological plateforme to preserve an ill-system and does not provide us with wise and intelligent (and scientific) analyses.
    I agree with this project and am ready to contribute, especially on topics related to the monetary nature of capitalist economies and to monetary/financial regulation (for instance: when money is endogenous -as it is the case within a market-based capitalist economy-, regulation must be exogenous AND publicly/collectively orgaized and managed, etc.).
    Thanks a lot for your attention and for this beautiful suggestion.

    • February 6, 2016 at 11:29 pm

      Thanks — Monetary aspect is sorely needed, and I think your help would be very useful. I have mentioned the failure of QTM, and I have discussed endogenous money in many articles related to Islamic Banking. Private Money creation by banks plays a crucial role in the GFC, not sufficiently highlighted in my current exposition. A good place to start would be to show the COMPLETE failure of QTM, and then discuss the alternative theories of money which have emerged in response to this complete failure, and in particular which of these alternatives is MOST useful in understanding the GFC and GD. In my view, the Quantity theory of credit of Richard Werner as an alternative to the QTM is excellent, and would be a key to the explanation of the GFC. A review of theories of money, and which ones are most useful for explaining the GFC would be an essential component of the proposed macro text.

  4. February 6, 2016 at 5:27 pm

    Excellent idea! Would be happy to help.

    • February 6, 2016 at 11:34 pm

      Thanks for the offer. I think a good starting place is to explaln how conventional Macro theories fail to explain the GFC. This would justify our search for a new explanation. I dont know your own areas of expertise, so you would have to choose your area. Also, I am not sure what is the best format — internet & computer wise — to create this collaboration. Perhaps a google website where we can add pages and suggested chapters?

      • February 7, 2016 at 5:33 pm

        I would like to start with ‘grounding’ micro-economics by illustrating the differences between value-in-use as it affects choices in an economy wherein value-in-exchange differs from benefits arising from exchange. Among other matters, this allows us to examine how ability to pay and incomes inequalities actually affect “consumption”. This does not mean that preferences :: as likes or dislikes :: don’t matter; but it does highlight that needs for specific and measurable benefits underpin what is misleadingly called consumer choice.

        I think a google website is a very good idea.

      • David Chester
        March 18, 2016 at 10:31 am

        I think that my explanation about how our social system works, Consequential Macroeconomics”, is as heterodox as one gets, because it covers all of the system in the most general and seamless way. By looking at the Big Picture as a system and logically connecting the various parts of the system with the minimum necessary kind of exchanges of money for goods, services, access rights, valuable documents, etc., the model that is built up (Wikipedia, commons, macroeconomics: DiagFuncMacroSyst.pdf ) cannot be bettered in terms of comprehension ability and simplicity. Can you do better?

  5. February 6, 2016 at 5:49 pm

    See the draft copy of Bill Mitchell and Randy Wray’s forthcoming MMT-based intro to macro textbook.


    • February 6, 2016 at 11:18 pm

      I went to the website and looked. It seems very interesting. But there is too much material for me to read and digest. What I would like to focus on is: How does MMT help us in understanding the Global Financial Crisis? Or in understanding the Great Depression? For the purposes of the textbook I am proposing, these are the key questions. If you are familiar with the materials, I would like to see an exposition of the following points:
      A: A brief description of MMT and how it differs from alternative theories
      B: What are the strengths of MMT in terms of How it can help explain the Great Depression or the Global Financial Crisis, where alternatives FAIL to do so.
      C” Please look at my summary explanation of GFC [Review of “House of Debt”], and tell me where I can strengthen this explanation by adding MMT view of role of money.

      If the MMT theory is useful in understanding how money functions within an economy, but not particularly helpful in understanding the GD or the GFC, then we need not worry about it, for our current purposes

  6. February 6, 2016 at 6:09 pm

    For economic analysis the Great Depression and the recent Financial Crisis are two distinct events.

    During the Great Depression is the underlying weakness in the Industrial Sector and the Agricultural Sector that persists because of economic behavior and policy that restricts economic activity and results in a prolonged deflationary spiral. Also, for historical analysis, with the New Deal you finally have a government at the national level that will view the economy of a great continential nation as an integral whole, something that was missing prior to 1932. We have never gone back to the old ways since.

    The Financial Crisis is a case where the influence, both economically and politically, of concentrated wealth failed to serve the greater society. You had good financial instruments that were misused — money going into a sector that should have been earmarked for investment, but a sector that was not big enough nor had the turnover of economic activity to handle that much money for investment and instead it went for speculative activity that eventually collapsed. Trillions of dollars were needed to bolster this sector to halt the collapse. You cannot take trillions of dollars from the general economy to bolster a small sector of the economy that is populated by the financial elites and not expect it to negatively affect the broader economy and society in general — the persistent anemic growth since 2008.

    The decline in growth since the 1960s is another problem which I will not go into here. I do not buy the argument forwarded by Robert Gordon.

    • February 6, 2016 at 11:40 pm

      This is the crucial issue — to balance historical specificity with a certain amount of theoretical generality. The common elements of the explanation for GFC and GD are simple. MASSIVE expansion of CREDIT via money creation, leading to asset price bubble, leading to collapse. This has to be focus of the explanation. How it worked out in particular details would be different in GFC and GD, We need to pay attention to both sides — SIMILARITIES and DIFFERENCES — to come up with a good explanation.

  7. February 6, 2016 at 6:38 pm

    Okay. Here’s my two cents worth. A logical introductory economics text will be mostly verbal and will avoid looking at diversions like ISLM.

    Growth? Must be defined and not a merely nice word. Anyone pushing for economic growth must connect with a world economy operating at a 1.5 Earth pollution recycling service level. The topic of growth is one to include with clear-headed understanding that specie diversity made the atmosphere we breath and specie diversity is crashing form poisonous economic growth, overpopulation and very short-lived period corporate agriculture.

    A chapter on growth will be very important for reclaiming the eco portion of economics.

    A chapter on democracy and a democratic economy will be essential.

    This will be a revolutionary book. Very important for a future generation with its own personalities like Greenspan and Krugman.

    • February 6, 2016 at 10:55 pm

      Garrett: One of the key ideas is to analyze theories as responses to history. Thus my hope is to discuss IS-LM as an attempt to understand the Great Depression. This is an IMPORTANT part of history, because that BECAME the dominant understanding of Macroeconomics. THEREFORE economic policies were SHAPED by the IS-LM theory. If we want to understand economic history of the 20th century, then WE MUST understand IS-LM, Because it was in the light of IS-LM that Governments undertook macro policy.
      ALSO, in order to COMPETE with Samuelson, we need to explain HOW IS-LM explains the Great Depression, and WHY this is not a correct explanation. Indeed, I think that would be the place to START — Unless we can show that conventional macroeconomic theories are failed projects to understand the Great Depression, we cannot succeed in garnering attention to our alternative, which succeeds where conventional macroeconomics fails.

  8. charlie
    February 6, 2016 at 6:38 pm

    economists have to engage the ecologists … the hubris of thinking humans are somehow outside the ecosystem has to be overturned .
    only then will it be possible to have a ‘scientific economics’ imho

    • February 6, 2016 at 11:06 pm

      Please see my post on “Markets and Society” which also provides a link to the full article, which is to be published in the forthcoming  Routledge Handbook of Ecological Economics: Nature and Society

  9. Geoff Davies
    February 7, 2016 at 4:05 am

    Steve Keen’s account of the GFC and its precursor states is quantitative and plausible.
    Keen, S., A monetary Minsky model of the Great Moderation and the Great Recession. Journal of Economic Behavior & Organization, 2012. 86: p. 221-235.
    Keen, S., Debunking Economics: The Naked Emperor Dethroned? Second, revised and expanded ed. 2011: Zed Books.

  10. February 7, 2016 at 8:04 am

    Thanks for this lead — I will look into it and also into the MMT Macro Text suggested by Tom Hickey. We need to put together all the explanations into one package. Then we need to extract a macro theory from it which will make it the explanation appear as a straightforward application of the principles taught. The principles should have sufficient simplicity and generality to be able to explain a large number of historical events of importance in the economic arena.

  11. merijnknibbe
    February 7, 2016 at 10:56 am

    1) You might also consider the book by Piet Keizer: https://rwer.wordpress.com/2015/09/02/two-books-which-i-havent-read-yet/

    2) Many textbooks have the production formula Y=A.f(K,L) at their core.An adapted version of this formula might me usefull for a new textbook. The next adaptions spring to mind:

    A) Fixed capital has to be divided (consistent with economic statistics and classical economists) into produced and unproduced capital (land, oil. clean air and the like).
    B) Capital has to be understood using both sides of the balance sheets: liabilities as well as assets. Liabilities show who’s boss and who gets the spoils.
    C) A distinction has to be made between financial and real capital.
    D) The ownership of capital as shown on the liability side of the balance sheet (and therewith a lot of the distrubution of Y) has to be explained using a historical, institutional approach. Example: thanks to Napoleon, natural gas in the soil of the Netherlands is owned by the Dutch state, as far as I know oil in Texas is owned by the owner of the plot.
    E) Y is GDP which is income, production and expenditure. All of these are monetary variables, in alle cases sectoral developments influence aggregate outcomes (which are important in their own right, see below). Example: the decline of productivity in the UK is to a large extent not a mysterious post crisis event but caused by the decline of high productivity oil production and high end finance in combination with the rise of medium productivity tourism and other services: monetary developments (less predatory lending), production developments (less oil production) and demand side changes (more tourism) combine to influence productivity.
    G) Which brings us to money. You already mention the credit multiplier. This multiplier is, by the way, fully consistent with monetary statistics. Using it means that Y is understood as a fundamentally monetary variable, Godley of course published a lot about this: http://www.levyinstitute.org/pubs/sevenproc.pdf. These ideas are consistent with the national accounts statistics/flow of funds.
    H) All kinds of fallacies of composition and the like have to take center stage – the decline of productivity and decrease of high incomes (finance) and profits (oil) do influence total income and therewith spending.
    I) Which brings us to ‘L’, Labour. Modern ideas about flows of labour into and out of employment, unemployment and the labour market have to be incorporated. The fallacy of composition: when search activity of an individual person increases, his or her chances to find a job increase. When everybody starts to increase search activities, this does not lead to a higher amount jobs.
    J) In the formula above, ‘A’ is technology. This has variable to be complemented by a number of variables which describe the utilisation rate of labour and capital (these exist, like unemployment, the point is they have to be incorporated in the central formula). A distinction has also to be made between household technology (washing machines, cars, computers, sewer systems), government technologies (roads, undergrounds, coastal defences, ebola fighting campagins,…) and business technologies (buildings, machines, trucks, medical equipment,…).
    K) When it comes to consumption more attention has to be given to government consumption (consumption by households provided by the government) as well as leisure
    L) All kind of NPISH (Non Profit Institutions Serving Households) are not too important in a monetary sense, i.e. GDP wise. These churches, unions, soccer clubs and whatever are however often central to the lives of people.
    M) Average price levels are important – as these define the purchasing power of income. It is however not enough to restrict our attention to the consumer price index. Investment and government expenditure are large chunks of total expenditure which means that those price indexes are important too (when, as happened, decreases in wages of government employees drive down the price index of the government this means that a lower government budget might produce more education and health care. And war). Which also brings us to capital, as a lot of investments are investments in buildings, which are built upon: land. An unproduced asset (just visited London – Buckingham palace is the ideal place for the most beautiful zoo of Europe).

    Well, these are some ideas. They will lead to a macro economics which is closer to real life, more consistent with (macro)economic statistics, more naturally wedded to distrubution and which will turn up a better fit between meso and macro.

  12. Grazia Ietto-Gillies
    February 7, 2016 at 11:15 am

    Dear Asad and Edward
    this is a good idea but the project needs a lot of thinking and work to become viable and successful. I still remember in the 1970s the flop that – unfortunately – became the book by Robinson and Eatwell. I support your project and I think that Asad is an excellent researcher to develop it. I suggest working on it for a little while and then circulating proposal(s) for comments.
    Best wishes

  13. Grazia Ietto-Gillies
    February 7, 2016 at 11:21 am

    Another thought on this project. A heterodox macro textbook is a bad title and bad start to the project. There is no such thing/theory as heterodox economics. But there are several theories that are NOT heterodox. Talking of a heterodox text can mean either: (a) a text that presents various non neoclassical approaches, more like an economic thought perspective on macroeconomics; or (b) a hotchpotch of a textbook. I propose a macro text based on real world, non-neoclassical economics and finding a title appropriate to it.

  14. February 7, 2016 at 1:14 pm

    Thanks to merijnknibb for assorted leads. And thanks to Grazia Ietto-Gillies for both the warnings and the encouragement. I am well aware of the Robinson & Eatwell fiasco. That was a tremendous opportunity that was lost — If they had done a better job, it would have been possible for them to oust Samuelson. Not anything can be put on the table, a textbook has to have substance, appeal, and pedagogical merit.

    I would like to focus the discussion on ONE starting point:

    What is the single best explanation of the GFC?

    I have provided a sketch based on the Mian & Sufi book. Is it adequate, acceptable to all, should we move forward?

  15. blocke
    February 7, 2016 at 2:55 pm

    Edward and Asad, where are the East Asian scholars involved in this project. If Asia has been the dynamic economic area in the past 30 years, then why select the 2008 financial crisis as the focus of your textbook. Would scholars in China, i.e., in East Asia agree to this focus?

    • blocke
      February 7, 2016 at 3:55 pm

      Please google “A ‘Third Culture” in Economics? An Essay on Smith, Confucius and the Rise of China,” by Carsten Hermann Pillath, of the Frankfurt School of Finance and Management, Working Paper No 159, for an instance of the sort of scholarship in which we should be taking an interest when writing an economics textbook for our times.

  16. February 7, 2016 at 3:09 pm

    The problem is not that non-neoclassical Econ 101 textbooks have not been published or are not on their way to being published, but rather that their common fate is to be unused and ignored. So the question is: How do you go about creating and promoting an introductory economics textbook that escapes both the neoclassical straightjacket and overnight oblivion?

    Lists of dos and don’ts might help.

  17. February 7, 2016 at 4:08 pm

    Focus on GFC is because it shows dramatic failure of conventional theories’ also it is part of public experience, not a technical problem — We would like to show that our new ways of thinking about macro allows us to solve problems which conventional theories fail at.

    I have never had the time to go through it, but I understand that Giovanni Arrighi’s analysis is brilliant. From the blurbs of his books, especially the Long Twentieth Century, I got the impression that he says the economics is the history of money seeking higher returns. It seems that we can explain GD 1929, East Asian Crisis 1997, and GFC 2007 all three by this simple principle. If so, we have a powerful and simple explanatory principle which explains a lot of economic crises.

    What is missing from conventional economics is the human being. Everyone is a robot. If we put in actors intelligently seeking higher returns, then we have to consider historical situations facing them and strategies they devised to create higher returns. The intentionality permits a deeper level of analysis than is possible for homo economicus.

  18. February 8, 2016 at 10:22 am

    Very interesting post and comments.
    Here is how complex science answer this question:

    What is the single best explanation of the GFC?
    As it is said in this article:

    Click to access thesis_main_5.pdf

    “for example there have been 35 falls greater than 6% in the daily Dow Jones Industrial Average since its inception in 1896, about 110 years ago. If the changes in the (logarithm) of the index are normally distributed one would expect that 35 falls of this magnitude would take place about once every 600 million years.”

    So, power laws and fractality explain perfectly why markets are not efficient and have so many crisis.
    In a nutshell: self-organized systems tend to have the emergence of high magnitude effects in a very similar way like we see them with natural phenomena as earthquakes. So we could have a Richter kind measure to monitor our markets.

    We have statiscally proven that Fama was wrong and that markets need to be regulated inorder to minimize the impact of great magnitude falls.

  19. February 9, 2016 at 8:30 am

    Economists’ three-layered scientific incompetence
    Comment on ‘Project: A heterodox macro textbook’

    Economics is a failed science. This means more specifically for the history of economic thought: Orthodoxy has failed to produce anything of real scientific value and Heterodoxy has failed to develop a superior alternative. Thus, economics is stuck since its inception at the proto-scientific level “… we know little more now about ‘how the economy works,’ or about the modus operandi of the invisible hand than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations.” (Clower, 1999, p. 401)

    The failure of economics is provable and therefore not a matter of debate.

    1st layer: Wrong subject matter

    Since Adam Smith, economics claims to be a science. It started as a mixture/intersection of sociology and political science: “The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.” (Mill, 1874, V.39)

    Economics has been understood as Political Economy. Economists saw themselves as agenda pushers for some greater good and science as a means to that end. The idea of pure science, i.e. the completely independent pursuit of knowledge, never occured to the inventors of utility maximization.

    With respect to the subject matter there is no difference between Mill and Marx “My stand-point, from which the evolution of the economic formation of society is viewed as a process of natural history, …” (Marx, 1906, M.9)

    With Jevons/Walras/Menger the focus shifted to methodological individualism and economics became a mixture/intersection of psychology, sociology, and political science.

    Economics is NOT a science of individual/social/political behavior — this is the social science delusion* — but of the behavior of the monetary economy. Accordingly, the correct definition of the subject matter is objective/structural/systemic: “Economics is the science which studies how the monetary economy works.”

    As a consequence, the Copernican turn in economics consists in the methodological switch from behavior-centered bottom-up, i.e. microfoundation, to structure-centered top-down, i.e. macrofoundation of the world economy. All Human-Nature issues are the subject matter of other disciplines (psychology, sociology, anthropology, biology/Darwinism, political science, philosophy, etcetera) and are taken in from these by way of multi-disciplinary cooperation. To paraphrase J. S. Mill: ‘Economics as a system science presupposes all the physical and social sciences; it takes for granted all such of the truths of those sciences as are concerned with the working of the economic system.’ (Mill, 1874, V.29)

    Economists must first of all stop the dilettantish dabbling in the so-called social sciences and in politics and focus on their proper subject matter. What they have collectively produced so far in their own domain is scientific garbage.

    2nd layer: Wrong axiomatization

    Orthodoxy defines itself briefly as “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” (Krugman)

    More explicitly and formally, i.e. axiomatically, Orthodoxy has been defined as “The [neo-Walrasian] program is organized around the following hard core propositions:

    HC1. There exist economic agents.
    HC2. Agents have preferences over outcomes.
    HC3. Agents independently optimize subject to constraints.
    HC4. Choices are made in interrelated markets.
    HC5. Agents have full relevant knowledge.
    HC6. Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub, 1985, p. 109)

    The fact of the matter is that there is no such thing as an equilibrium in the economy. Methodologically, HC6 is what is known since antiquity as petitio principii. This is an indefensible methodological blunder. Likewise for HC3.

    HC6 and HC3 are methodologically unacceptable as axioms. Because of this the whole set of hard core propositions — the sorta-kinda starting point — breaks apart and with it the WHOLE theoretical superstructure of Orthodoxy.

    Keynes identified the pivotal methodological blunder correctly “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (1973, p. xxi)

    Consequently, Keynes formulated the foundational syllogism of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income – consumption. Therefore saving = investment.” (1973, p. 63)

    This elementary two-liner is conceptually and logically defective because Keynes did not come to grips with profit and therefore “discarded the draft chapter dealing with it.” (Tómasson et al., 2010, p. 12) As a result, all I=S models including the Keynesian multiplier are false (2014) and with it the WHOLE Post-Keynesian theoretical superstructure.

    To see the enormity of intellectual failure one has to let this sink in: Keynes had no idea of the fundamental concepts of economics, viz. profit and income. This did not hinder him to push his economic policy agenda. Keynes’s policy proposals never had a sound theoretical foundation but were at best commonsensical.

    So, we have two reliable indicators of the intellectual incapacity of present-day economists: Keynesians are since more than 80 years in the dark. Sorta-kinda neoclassicals are since more than 140 years in the dark. Because they have methodologically disqualified themselves neither Keynesians nor Walrasians can be taken seriously. The same holds for Marxism and Austrians. Economic policy advice has until this day no sound theoretical foundation because economic theory itself has no sound axiomatic foundation.

    3rd layer: Wrong formalization

    “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle, Posterior Analytics)

    Certain/true/primary premises are hard to come by “There is no more fertile source of error than apparently trivial premises.” (Schumpeter, 1994, p. 269)

    To state one’s hard core premises consistently is the indispensable methodological minimum, to formalize them correctly is an additional step. The pivot of formalization is “Formal axiomatic systems must be interpreted in some domain … to become an empirical science.” (Boylan et al., 1995, p. 198)

    Debreu in his axiomatization of Walrasianism did explicitly the opposite, that is, he disconnected “Allegiance to rigor dictates the axiomatic form of the analysis where the theory, in the strict sense, is logically entirely disconnected from its interpretations.” (Debreu, 1959, p. x)

    Debreu missed the crucial point: “From the axiomatic point of view, mathematics appears thus as a storehouse of abstract forms — the mathematical structures; and it so happens — without our knowing why — that certain aspects of empirical reality fit themselves into these forms, as if through a kind of preadaptation. … It is only in this sense of the word ‘form’ that one can call the axiomatic method a ‘formalism’.” (Bourbaki, 2005, p. 1276)

    NOT ALL mathematical structures incorporate ‘certain aspect of empirical reality’, which means, that there is a “whole crop of monster-structures, entirely without application” (Bourbaki, 2005, p. 1275, fn. 9).

    Debreu’s axiomatization of Walrasian General Equilibrium is a mathematical monster-structure that is due to Debreu’s misunderstanding of what formalization is all about. For parallel fatal mistakes with regard to the applicability of mathematical operations in the theory of value see (Barzilai, 2016).

    In sum: economists misapply on a regular basis what they take from the ‘storehouse of abstract forms’. The problem is not the application of mathematics per se but dilettantish application. Generally speaking, the economic content and the mathematical form do not fit together. Hence, the ultimate methodological blunder of what is widely criticized as mathiness has always been this “Knight lamented that there are many members of the economic profession who are ‘mathematicians first and economists afterwards.’ The situation since Knights time has become much worse. There are endeavors that now pass for the most desirable kind of economic contributions although they are just plain mathematical exercises, not only without any economic substance but also without mathematical value. Their authors are not something first and something else afterwards; they are neither mathematicians nor economists.” (Georgescu-Roegen, 1979, p. 317)

    A mathematical form which has no interpretation in the monetary economy is vacuous at best and misleading at worst. Because of this, no economic policy proposals can ever be derived from such a model, or, to put the other way round, all policy proposals derived from incorrectly formalized models are plucked from the air, that is, have no more scientific value than an elaborate horoscope.

    The cumulated three-fold blunder of orthodox and heterodox economics manifest itself in one of the greater embarrassments in the history of science, that is, that the representative economist cannot tell the difference between the elementary concepts income and profit.** This is like a physicist who cannot tell the difference between potential and kinetic energy. After more than 200 years of dilettantism and failure, there is no place for Walrasians, Keynesians, Marxians, and Austrians in the scientific community.

    Egmont Kakarot-Handtke

    Barzilai, J. (2016). Slutsky’s Mathematical Economics. Scientific metrics working paper, pages 1–5. URL
    Bourbaki, N. (2005). The Architecture of Mathematics. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, volume II, pages 1265–1276. Oxford, New York, NY: Oxford University Press.
    Boylan, T. A., and O’Gorman, P. F. (1995). Beyond Rhetoric and Realism in Economics.
    Towards a Reformulation of Economic Methodology. London: Routledge.
    Clower, R. W. (1999). Post-Keynes Monetary and Financial Theory. Journal of Post
    Keynesian Economics, 21(3): 399–414. URL http://www.jstor.org/stable/4538639.
    Debreu, G. (1959). Theory of Value. An Axiomatic Analysis of Economic Equilibrium. New Haven, London: Yale University Press.
    Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic Issues, 13(2): 317–328. URL http://www.jstor.org/stable/4224809.
    Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
    Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
    Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. Library of Economics and Liberty.
    URL http://www.econlib.org/library/YPDBooks/Marx/mrxCpA.html
    Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL http://www.econlib.org/library/
    Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.
    Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34.
    URL http://mpra.ub.uni-muenchen.de/20557/.
    Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, NY, etc.: Cambridge University Press.

    * For more details and references go to meta-/cross-references
    or to the search-field on the AXEC-blog
    ** See ‘How the intelligent non-economist can refute every economist hands down’

    • February 12, 2016 at 6:56 pm

      EKH “More explicitly and formally, i.e. axiomatically, Orthodoxy has been defined as “The [neo-Walrasian] program is organized around the following hard core propositions:

      HC1. There exist economic agents.
      HC2. Agents have preferences over outcomes.
      HC3. Agents independently optimize subject to constraints.
      HC4. Choices are made in interrelated markets.
      HC5. Agents have full relevant knowledge.
      HC6. Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub, 1985, p. 109)

      The fact of the matter is that there is no such thing as an equilibrium in the economy.”

      I agree.

      So let’s start with the following ‘hard core’ realities:

      1) There are economic agents. These are people acting individually or together.
      2) The economic activity of people is always aimed at providing something for themselves :: measurable outcomes, cardinal or ordinal. Subjective utility is not a measurable outcome and is like unobtainium.
      3) Economic agents do not optimize subjective preferences. They seek to meet their bio-psycho-social needs as human beings, and they do so acting individually AND together.
      4) Agents do not need to have full relevant knowledge to meet their needs. I.e., We eat without full knowledge of nutrients in the foods we eat, but, if we can afford it, we are naturally inclined to eat balanced diets. Talking about ‘optimization’ of what we eat is silly thinking if ‘ability to pay’ underlies what is available for us to eat.
      5) As individuals and communities we seek “balance” not equilibrium. Co-ordination, to the extent it occurs, occurs through our politics, not the price system.

      And, yes,equilibrium is a useless conceptual structure, totally irrelevant to economics in the small or in the large.

      Flow analysis at macro levels is important, but understanding the operations of the money-price system in terms of how and whether we can provide for ourselves is, IMO, more important, for this determines the ‘flows’.

      In other words, you cannot remove politics from economics though you can and should undertake structural analysis of the import of the mechanics of monetary exchange systems on our abilities to provide for ourselves individually and together.

    • February 12, 2016 at 9:11 pm


      I have replaced the neo-Walrasian axioms HC1 to HC6 with the objective-structural set of foundational propositions nHC1 to nHC3. See the post ‘Lars Syll creatively destructs Wren-Lewis’

      This is what a paradigm shift is all about. For more details see cross-references

      The objective-structural set of foundational propositions yields testable equations, e.g. for employment and profit. See the post ‘Have data, lack theory’

      You or anybody else can test the equations at any time. I will certainly accept an empirical refutation. This is how science works.

      You take as hard core proposition 4): “We eat without full knowledge of nutrients in the foods we eat, but, if we can afford it, we are naturally inclined to eat balanced diets.”

      Could it be that you have seen too much health channel advertising or do you really think this is heterodox economics?

      Egmont Kakarot-Handtke

      • February 12, 2016 at 10:02 pm

        Well, for one, I do not assume that markets clear. Your assumption that they do is every bit as bad as assuming equilibrium.

        And an infant, though not necessarily eating a balanced diet at any meal, will generally do so over an extended period; that is, if the parent or parents can afford to provide the range needed to provide a balanced diet. The issue in my mind s whether the parent or parents can so afford.

        And I don’t watch TV at any times.

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