Home > Uncategorized > Why ‘Economics and Reality’ is on my top 10 list

Why ‘Economics and Reality’ is on my top 10 list

from Lars Syll

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For a good many years, Tony Lawson has been urging economists to pay attention to their ontological presuppositions. Economists have not paid much attention, perhaps because few of us know what “ontology” means. This branch of philosophy stresses the need to “grasp the nature of the reality” that is the object of study – and to adapt one’s methods of inquiry to it.

Economics, it might be argued, has gotten this backwards. We have imposed our pre-conceived methods on economic reality in such manner as to distort our understanding of it. We start from optimal choice and fashion an image of reality to fit it. We transmit this distorted picture of what the world is like to our students by insisting that they learn to perceive the subject matter trough the lenses of our method.

The central message of Lawson’s critique of modern economics is that an economy is an “open system” but economists insist on dealing with it as if it were “closed.” Controlled experiments in the natural sciences create closure and in so doing make possible the unambiguous association of “cause” and “effects”. Macroeconomists, in particular, never have the privilege of dealing with systems that are closed in this controlled experiment sense.

Our mathematical representations of both individual and system behaviour require the assumption of closure for the models to have determinate solutions. Lawson, consequently, is critical of mathematical economics and, more generally, of the role of deductivism in our field. Even those of us untutored in ontology may reflect that it is not necessarily a reasonable ambition to try to deduce the properties of very large complex systems from a small set of axioms. Our axioms are, after all, a good deal shakier than Euclid’s.

The impetus to “closure” in modern macroeconomics stems from the commitment to optimising behaviour as the “microfoundations” of the enterprise. Models of “optimal choice” render agents as automatons lacking “free will” and thus deprived of choice in any genuine sense. Macrosystems composed of such automatons exclude the possibility of solutions that could be “disequilibria” in any meaningful sense. Whatever happens, they are always in equilibrium.

Axel Leijonhufvud

Modern economics has become increasingly irrelevant to the understanding of the real world. In his seminal book Economics and Reality (1997) Tony Lawson traced this irrelevance to the failure of economists to match their deductive-axiomatic methods with their subject.

It is — sad to say — as relevant today as it was seventeen years ago.

It is still a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond my imagination. As long as mainstream economists do not come up with any export-licenses for their theories and models to the real world in which we live, they really should not be surprised if people say that this is not science, but autism!

Studying mathematics and logics is interesting and fun. It sharpens the mind. In pure mathematics and logics we do not have to worry about external validity. But economics is not pure mathematics or logics. It’s about society. The real world. Forgetting that, economics is really in dire straits.

To many mainstream economists, Tony Lawson is synonymous with anti-mathematics. But I think reading what Tony Lawson or yours truly have written on the subject, shows how unfounded and ridiculous is the idea that many mainstream economists have that because heterodox people often criticize the application of mathematics in mainstream economics, we are critical of math per se.

Indeed.

No, there is nothing wrong with mathematics per se.

No, there is nothing wrong with applying mathematics to economics.

amathMathematics is one valuable tool among other valuable tools for understanding and explaining things in economics.

What is, however, totally wrong, are the utterly simplistic beliefs that

• “math is the only valid tool”

• “math is always and everywhere self-evidently applicable”

• “math is all that really counts”

• “if it’s not in math, it’s not really economics”

“almost everything can be adequately understood and analyzed with math”

What is wrong with these beliefs is that they do not — as forcefully argued by Tony Lawson — reflect an ontological reflection on what can be rightfully expected from using mathematical methods in different context. Or as Knut Wicksell put it already a century ago:

Knut-WicksellOne must, of course, beware of expecting from this method more than it can give. Out of the crucible of calculation comes not an atom more truth than was put in. The assumptions being hypothetical, the results obviously cannot claim more than a vey limited validity. The mathematical expression ought to facilitate the argument, clarify the results, and so guard against possible faults of reasoning — that is all.

It is, by the way, evident that the economic aspects must be the determining ones everywhere: economic truth must never be sacrificed to the desire for mathematical elegance.

Economics and Reality was a great inspiration to me twenty years ago. It still is.

  1. May 11, 2016 at 4:55 am

    Good post. Mathematics is necessary when coupled with scientific methodologies: I.e., inferences from evidence. And no scientific methodology is closed to inferences from evidence that does not quite fit into its mainstream theoretics. It is the logic of math when combined with reasonable inferences from evidence — and evidence-based confirmation of parts or the whole of these inferences — which leads to active science rather than dead scientias based mostly upon axiomatic propositions.

    All of the theory of the consumer and of the firm needs be recast into a benefits from use framework that prioritizes neither exchange equivalencies through some subjective ‘utility lens’ nor profits as a solely measure of benefits against which firms can be characterized as ‘efficient’ users of resources. As for macro-economics, to the extent that the theories of the firm and consumers are ‘wrong’ — which all but dogmatists agree they are — then any macro-economics based upon micro-economic conjectures does more harm than good.

  2. May 11, 2016 at 6:57 am

    This book is certainly worth the read. My reaction is twofold. First, it doesn’t go far enough. But it’s not a bad effort for a 20th/21st century American. Second, all of the ground covered in this book has been considered more fully by Michel Serres, Bruno Latour, Gaston Bachelard, and others in Europe. On the American side a better treatment of these topics is found in William James, Charles Sanders Peirce, and John Dewey. But as I said not a bad effort for a modern American, particularly an American economist.

  3. C-R D
    May 11, 2016 at 3:58 pm

    “The central message of Lawson’s critique of modern economics is that an economy is an “open system” but economists insist on dealing with it as if it were “closed.”

    If a complex multi-dimensional dynamic system is closed, then if is hopelessly chaotic. Something has strayed far afield when PhD economists are attempting to model an input/output system as a closed system.

    • May 12, 2016 at 4:09 am

      Assuming the economy is separate from and not connected with the rest of society is not only a logical error it’s also empirically impossible. Therein lies the basic problem economists face. They are forced by the these and the other assumptions upon which they base their discipline to “sell” the notion to the world that economic actions are stand alone, not related to things like how we obtain our daily bread, shelter, transportation, etc. which leads inevitably to economics being irrelevant for these questions and thus to the lives of the 99.8% of the world’s population who are not economists. In that situation economists have no other option but to attack, demean, and denigrate anyone or anything that questions the relevance of the economics discipline. The perfect storm for a psychopathic way of life, and one that like most psychopaths has trouble feeling empathy for anyone who does not accept what the discipline identifies as truth. Scary.

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