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Limits

from Peter Radford

I don’t understand why people get upset when I say that economics is a waste of time. I suppose it’s because I don’t make a clear enough difference between economics as a general topic and economics as a formal, mainstream, body of knowledge. It’s the latter that is a waste of time. The former is wonderfully interesting.

At its heart economics is a study of human behavior, where that behavior is specific to certain activities. It is thus deeply rooted in psychology, so it is more closely associated with biology than physics. This is not a new idea: some of the greatest economists of the past have argued as much. Trying to transfer in ideas from physics, even metaphorically, therefore tends to lead to dead ends.

Like the notion of efficiency. That’s something of great interest to engineers, but has little to do with economics. You can have an efficient physical system. You cannot have an efficient social system. There’s just too much we don’t know and can never know. Still economists all over the world are obsessed with efficiency. So what do they do? They start to abstract and simplify. They model and fine tune. They test and re-test. And still their ideas run afoul of reality: human beings are not efficiency seeking machines, and so any system filled with humans is likely to be darned near impossible to steer towards efficient outcomes. Nothing daunted economists press on. If humans are unlikely to be efficient the logical next step is to construct a theory to exclude actual humans. That’s what’s happened in economics: the faulty decision to root economics in a physics-like setting rather than in a biology like-setting forced subsequent generations of economists to “refine” their thinking and, eventually, to force real people out of their theoretical world. Voila! Modern economics ends up as a wonderful edifice with extravagant claims as to its ability to understand human behavior precisely by eliminating all contact with humanity. Weird.  

Ergo, if your goal is to understand real economies replete with real humans, modern economics is a waste of time.

Go study something else. You can learn a great deal about real economies by reading psychology literature. Behavioral economics — which despite all the press it gets has had only a marginal impact on the mainstream and on textbook economics — is an attempt to do that. The behavioral economics project is in its infancy. Go get involved.

By the way: anything that refers to strategic behavior is also useful. Real humans are constantly trying to outwit each other. That’s when they’re not cooperating, which is another human characteristic economics determinedly overlooks.

Humans are complicated. Too complicated for an economics built on an exclusive belief in relentless rationality.

Furthermore, many psychologists are now challenging the entire premiss that humans are calculating machines in the manner of computers. Our ability to compute sits uneasily with a far more powerful and deeply rooted set of survival skills that are experiential and heuristic. We are not rational information processors. We cobble things together. We try things out. We are really good at pattern recognition. As calculators we, well, suck. Yet economics bases itself on the notion that we are computational wizards. There is nothing in modern psychology to support this idea, but it persists in economics. Indeed economics is proud of its ersatz psychology and exports its “insights” into other social sciences with imperial abandon. It ought not. Its insights are embarrassingly rotten.

Worse: so proud is economics of its [bad] understanding of human behavior that it insists all economic theorizing be based on it. Thus we have the insistence on building macro theory on micro-foundations. At the risk of upsetting thousands of dedicated and well-meaning economists: garbage-in garbage-out just about sums up the micro-founded enterprise.

There is in evolutionary biology, as I am sure you all know, a notion called a “fitness peak”. Roughly speaking, this is the idea that a species refines its survival strategy and succeeds in a certain context. As it does so it “climbs” higher up a successful strategic slope that defines it relative “fitness”. Problems arise when the context subsequently changes. The more superbly refined fitness becomes, there more difficult it is to go back down and climb a different and more relevant slope. Yesterday’s cleverness becomes todays’ ignorance. The advantage of the old peak becomes a hindrance in the newer landscape.

So it is with economics.

It began in the context of the mid and late-1800’s obsession with physics. It’s greatest critique is situated in mid-1800’s industrialization. Economics began its climb up its own fitness peak back then. But the context has changed. Science has moved on. Economics hasn’t kept up. Instead it keeps on refining its obsolescence. It keeps on getting more and more specialized at something that is less and less relevant.

It needs re-doing.

Which is what a lot of people are working on: socio-economics; behavioral economics; evolutionary economics; experimental economics; institutional economics and many other fields are veritable hives of activity, they just haven’t made it into the textbooks.

Meanwhile what we call mainstream economics is, indeed, a waste of time.

  1. May 11, 2017 at 1:47 am

    Peter, I fear that you’re wrong in saying that “mainstream economics is, indeed, a waste of time”. That fails to acknowledge the appalling consequences that mainstream economics has on billions of every day lives due to its influence in formal and informal policy making…As an intellectual exercise you’re right but in the real world it’s much, much more dangerous than a mere waste of time!

  2. Risk Analyst
    May 11, 2017 at 2:11 am

    I was with you up until you got to the fitness peak. The species neoclassicalopithicus is quite successful and is not under any pressure to back down the evolutionary hill. They control the intellectual direction of economics departments in most or many universities, government or semi-government (The Federal Reserve) agencies, and other institutions, far outsell by number of books any competitors and monopolize the academic journals. Despite the lack of accuracy, the media loves them. Can you avoid seeing a posting from or interview of Paul Krugman for even one week if you keep up with the news? I cannot. So, on that one point I disagree. They are wildly successful. They just do not understand the economy, but that is a minor point for them.

  3. May 11, 2017 at 10:00 am

    From my book «South Africa and the World-system – From the Boer Wars to Globalization»:
    «At the level of development of ideas, and according to Joan Robinson (1973), one of the major contributions of the ‘General Theory’ of Keynes, has been a radical break with the neoclassical orthodoxy (of an axiomatic character) in which the rationality claimed for the system by their proponents and defenders was taken as being of an ‘eternal’ character (and therefore outside the concrete, historical, social and human time) and of a ‘universal’ character (and therefore outside of any geographical and cultural context). Also according to the same Joan Robinson, Keynes had sought explicitly and specifically, to study the concrete economy of his time in order to understand and explain what was objectively happening with specific societies, historically and culturally conditioned, that he was given to know. In this sense we could say that Keynes (re)opened the way for the future meeting of the fields of interest of economics and anthropology.»
    In other words, it would seem that the disciplines of Anthropology and/or Sociology of Development are better equipped to deal with the complexity of economic behavior of human societies…

  4. May 11, 2017 at 11:18 am

    Just a few remarks. You say, “You can learn a great deal about real economies by reading
    psychology literature.” While this is correct, sort of, you can learn much more about economics by reading history literature. Psychology has the same problem as all the social sciences. They all modeled themselves on physical science. They all set as their goal the uncovering of universal laws of human behavior. Problem is no such laws exist. My evolutionary biology professor explained it this way. Humans have few instincts and no universal laws of behavior. They run on biological evolution (sort of a biological law) and cultural adaptation (which defines the rules of the game constructed within the space of biological evolution). Psychology, sociology, and the other social sciences soon gave up the notion of universal behavioral laws. Focusing instead on what Max Weber called Verstehen.
    Apparently, economics has not made this move. So, at its heart the social sciences are the study of human culture and societies. These are both created by humans and guide human actions. Economics would in this scheme be the social science considering what specific cultures and societies have created that they call economic. Regardless of whether the economist agrees with the classification or not. Follow the actors, without going naive – basic premise of the science/art of anthropology. I suggest economists adopt the same premise for their work.

    • robert locke
      May 11, 2017 at 12:28 pm

      One of my PhD fields, under Lynn White, Jr, was Middle Ages, 1000-1350. White asked one question in my three hour writtens: “To what extent can the civilization that existed 1050-1350 in Western Europe be called Christian?” Where does one begin to answer that one. I thought for 45 minutes before setting pen to paper.

      • May 12, 2017 at 1:25 pm

        I understand your dilemma, Robert. My concentrations were Russian Area Studies and 20th Century US. One question on the comprehensives of the Russian side was, “Compare and Contrast Stalin as leader of Russia with two Czars you select.” I chose Ivan the Terrible (Ivan IV, 1530-1584) and Peter the Great (Peter I, 1672-1725). The prime issue in Russian history has always been which direction to turn, To the East and despotism, or to the West and democracy. Ivan chose the former, Peter the latter. Without Peter there is no modern Russia and thus no USSR. Wrote 24 pages in 30 minutes.

      • robert locke
        May 12, 2017 at 6:39 pm

        Since Burckhardt, the Middle Ages, have by definition been sandwiched between an early era of glorious achievement, the classical era, and the Renaissance, which led to a rebirth of the glorious secular man after the dark Christian era. That erroneous view of the past underlines interpretation of human history like those of the Enlightenment. What I learned about the civilization of Europe 1000-1350 was that it was a vibrant, dynamic era in human history, filled with life and work equal to any Renaissance heroic age, but that it was a Christian civilization, which stood in contrast to the 19th century on the lines of Henry Adam’s contrast between the Virgin and the Dynamo (1900); in short that the Virgin could produce just as dynamic a civilization economically as the Dynamo, but that the thought world that produced the Dynamo could not properly analyze the dynamism of the Christian world with the ideas and tools it had developed. Just as it has problems studying the dynamism of Central Europe, Japan, and China, with these tools.

      • May 13, 2017 at 6:49 am

        Robert, I’m not well versed in Europe 1000-1350. But even my meager research puts the lie to the notion that this period was a “dark age.” Any reasonably intelligent person who reads even a little of the primary literature, studies the building, clothing, art, science, and commerce of the period must arrive at this same conclusion, I think. I also agree that from the vantage of the 19th century this period must have seemed economically primitive if not irrelevant. In fact, I think the Renaissance would not have occurred but for the scientific and artistic work of the people during this period. And much of this art and science is neglected, even dis-remembered I think because its creators were farmers, artisans, crafts persons, serfs, and monks. Very few “great men” among them, per 19th century scholars. Simple prejudice has make this period dark to us. Historians have an obligation to remedy such short falls if they can.

      • robert locke
        May 13, 2017 at 6:36 pm

        Let me dredge up two items from the Widepedia that illustrates the dynamism of the high middle ages as a Christian rather than secular civilization. One is “Cistercian.” The other is Drang nach Osten, Ostsiedlung, 12=13th centuries.

        “The term Cistercian (French Cistercien), derives from Cistercium,[3] the Latin name for the village of Cîteaux, near Dijon in eastern France. It was in this village that a group of Benedictine monks from the monastery of Molesme founded Cîteaux Abbey in 1098, with the goal of following more closely the Rule of Saint Benedict. By the end of the 12th century, the order had spread throughout France and into England, Wales, Scotland, Ireland, Spain, Portugal, Italy, and Eastern Europe.
        The keynote of Cistercian life was a return to literal observance of the Rule of St Benedict. Rejecting the developments the Benedictines had undergone, the monks tried to replicate monastic life exactly as it had been in Saint Benedict’s time; indeed in various points they went beyond it in austerity. The most striking feature in the reform was the return to manual labour, especially field-work, a special characteristic of Cistercian life. in relation to fields such as agriculture, hydraulic engineering and metallurgy, the Cistercians became the main force of technological diffusion in medieval Europe.

        “According to one modern Cistercian, “enterprise and entrepreneurial spirit” have always been a part of the order’s identity, and the Cistercians “were catalysts for development of a market economy” in 12th-century Europe.[89] It was as agriculturists and horse and cattle breeders that the Cistercians exercised their chief influence on the progress of civilisation in the Middle Ages. As the great farmers of those days, many of the improvements in the various farming operations were introduced and propagated by them, and this is where the importance of their extension in northern Europe is to be estimated. They developed an organised system for selling their farm produce, cattle and horses, and notably contributed to the commercial progress of the countries of western Europe. To the wool and cloth trade, which was especially fostered by the Cistercians, England was largely indebted for the beginnings of her commercial prosperity.[21]
        Farming operations on so extensive a scale could not be carried out by the monks alone, whose choir and religious duties took up a considerable portion of their time; and so from the beginning the system of lay brothers was introduced on a large scale. The duties of the lay brothers, recruited from the peasantry, consisted in carrying out the various fieldworks and plying all sorts of useful trades. They formed a body of men who lived alongside of the choir monks, but separate from them, not taking part in the canonical office, but having their own fixed round of prayer and religious exercises. They were never ordained, and never held any office of superiority. It was by this system of lay brothers that the Cistercians were able to play their distinctive part in the progress of European civilisation.

        Until the Industrial Revolution, most of the technological advances in Europe were made in the monasteries.[89] According to the medievalist Jean Gimpel, their high level of industrial technology facilitated the diffusion of new techniques: “Every monastery had a model factory, often as large as the church and only several feet away, and waterpower drove the machinery of the various industries located on its floor.”[90] Waterpower was used for crushing wheat, sieving flour, fulling cloth and tanning – a “level of technological achievement [that] could have been observed in practically all” of the Cistercian monasteries.[91] The English science historian James Burke examines the impact of Cistercian waterpower, derived from Roman watermill technology.

        The Cistercian order was innovative in developing techniques of hydraulic engineering for monasteries established in remote valleys.[70] In Spain, one of the earliest surviving Cistercian houses, the Real Monasterio de Nuestra Senora de Rueda in Aragon, is a good example of such early hydraulic engineering, using a large waterwheel for power and an elaborate water circulation system for central heating.
        The Cistercians are known to have been skilled metallurgists, and knowledge of their technological advances was transmitted by the order.[92] Iron ore deposits were often donated to the monks along with forges to extract the iron, and within time surpluses were being offered for sale. The Cistercians became the leading iron producers in Champagne, from the mid-13th century to the 17th century, also using the phosphate-rich slag from their furnaces as an agricultural fertiliser.[93] As the historian Alain Erlande-Brandenburg writes:

        The quality of Cistercian architecture from the 1120s onwards is related directly to the Order’s technological inventiveness. They placed importance on metal, both the extraction of the ore and its subsequent processing. At the abbey of Fontenay the forge is not outside, as one might expect, but inside the monastic enclosure: metalworking was thus part of the activity of the monks and not of the lay brothers. This spirit accounted for the progress that appeared in spheres other than building, and particularly in agriculture. It is probable that this experiment spread rapidly; Gothic architecture cannot be understood otherwise.”

        The 2nd item is Drang Nach Osten,, 12th century. Ostsiedlung.

        “Medieval West European agricultural advances were carried eastward in the course of the Ostsiedlung.[17]

        These included:
        • the three-field crop rotation, which replaced the ley farming previously common east in East Central Europe.[17] According to estimates by Henryk Łowmiański, as cited by Jan Maria Piskorski, this reduced the area of cultivated land needed to feed a family from 35 to 100 hectares (86 to 247 acres) (lay farming) to 4 to 8 hectares (9.9 to 19.8 acres) (three-field system); furthermore the growth of both warm- and cool-season grain increased the likelihood of a good harvest.[17][
        • the mouldboard plough with an iron blade, which replaced the scratch plough.[17]
        • iron spades, scythes and axes[17][
        • increased use of horses[17][
        • land amelioration techniques such as drainage and dike or levee construction. Sporadic use of fertilizers was likewise introduced.[17][

        With the introduction of these techniques, cereals became the primary nutrition, making up for an average 70% of the peoples’ calorie intake.[17] As a consequence, an abundance of barns and mills were built.[19] Channels dug for the numerous new watermills marked the first large-scale human interference with the previously untouched water bodies in this area.[19]

        The amount of cultivated land also increased, especially through the clearance of forests.[20] The extent of this increase differed by region: while for example in Poland, the area of arable land had doubled (16% of the total area by the beginning of the 11th century and 30% in the 16th century, with the highest increase rates in the 14th century), the area of arable land increased 7- to 20-fold in many Silesian regions during the Ostsiedlung.[20]

        The changes in agriculture went along with changes in farm layout and settlement structure based on the Hufenverfassung, a system to divide and classify land.[21] Farmland was divided into Hufen (also Huben, mansi), much like English hides, with one Hufe (25 to 40 hectares depending on the region) plentifully supplying one farm. This led to new types of larger villages, replacing the previously dominant type of small villages consisting of four to eight farms.[19] According to Piskorski (1999), this led to “a complete transformation of the previous settlement structure. The cultural landscape of East Central Europe formed by the medieval settlement processes essentially prevails until today.”[19]

        Ostsiedlung also led to a rapid population growth throughout East Central Europe.[20] During the 12th and 13th centuries, the population density in persons per square kilometre increased, for example, from two to 20–25 in the area of present-day Saxony, from 6 to 14 in Bohemia, and from 5 to 8.5 in Poland (30 in the Cracow region).[20] With the speakers of a variety of different German dialects also came new systems of taxation. While the Wendish tithe was a fixed tax depending on village size, the German tithe depended on the actual crop, leading to higher taxes being collected from settlers than from the Wends, even though settlers were at least in part exempted from taxes in the first years after the settlement was established. This was a major reason for local rulers’ keenness to invite settlers.

        Urban development

        The type of town introduced during the Ostsiedlung was called “free town” (civitates liberae) or “new town” by its contemporaries.[19] The rapid increase in the number of towns led, per Piskorski, to an “urbanization of East Central Europe.”[19] The new towns differed from their predecessors in:
        • the introduction of German town law, resulting in far-reaching administrative and judicial rights for the towns. The townspeople were personally free, enjoyed far-reaching property rights and were subject to the town’s own jurisdiction.[19] The privileges granted to the towns were copied, sometimes with minor changes, from the legal charters of Lübeck (Lübeck Law in 33 towns[29] at the southern coast of the Baltic Sea): Magdeburg Law in Brandenburg, areas of modern Saxony, Lusatia, Silesia, northern Bohemia, northern Moravia, Teutonic Order state; Nuremberg Law in southwestern Bohemia; Brünn Law in Moravia, based on the charter of Vienna); and Iglau Law in Bohemian and Moravian mining areas.[30] Besides these basic town laws, several adapted town charters.[30]
        • the introduction of permanent markets.[19] While previously, markets were held only periodically, townspeople were now permanently free to trade[19] and marketplaces were a central feature of the new towns.
        • layout. The new towns were planned towns, with their layout often resembling a checkerboard.
        Soon after town law was granted and the town area settled, many towns came to care for their own interests much more than for those of the local ruler, and gained partial or full economic and military independence. Many of them joined the Hanseatic League.

        The settlers
        The vast majority of the settlers were speakers of a variety of German dialects. In the northern zones Low German, at that time varieties of Lower-Saxonian, but also of early Netherlandish, that is to say, in modern terms, Dutch and Flemish. Next to these also Frisian. In the central zones speakers of Thuringian en Upper-Saxonian participated. In the southern zones speakers of East Frankish and Bavarian tongues were dominant. Significant numbers of Dutch as well as (though to a lesser extent) Danes, Scots or local Wends and (French speaking) Walloons also participated. The settlers were mostly landless younger children of noble families who could not inherit property. Entrepreneur-adventurers, often from lower-noble descent, called locators, played a recruiting, negotiating and co-ordinating role and established new villages, juridically and geo-physically. Of course, outlaws took the opportunity to escape but they were not appreciated because success depended upon discipline and solidarity.[34]
        The settlers migrated in nearly straight West-to-East lines. As a result, the Southeast was settled by South Germans (Bavarians, Swabians), the Northeast by Saxons (in particular those from Westphalia, Flanders, Holland, and Frisia, while central regions were settled by Franks. As a result, the different German dialect groups expanded eastward along with their bearers, the “new” Eastern forms only slightly differing from their Western counterparts.

        Settlers were invited by local secular rulers, such as dukes, counts, margraves, princes and (only in a few cases due to the weakening central power) the king. Also, settlers were invited by religious institutions such as monasteries and bishops, who had become mighty land-owners in the course of Christian mission. Often, a local secular ruler would grant vast woodlands and wilderness and a few villages to an order like the Cistercian monks, who would erect an abbey, call in settlers and cultivate the land.”

    • Craig
      May 11, 2017 at 8:57 pm

      Verstehen is what has traditionally been called Wisdom which is the holistic human mental discipline that includes and completes the scientific method. Wisdom is NOT religion of any orthodox dogmatic variety. It is the mental process which can lead to an integrated and heightened state of the intellect and self awareness leading to a fuller experience of temporal/physical, conceptual and personal truths. An example of this that I just posted to my blog wisdomicsblog.com follows:

      In Order To Truly Experience The Validity of Space-Time…

      …you have to have a heightened experience of your own self awareness in direct and focused connection to it. Such an experience has been described by sages down through history and it is always basically the same. It is described as an intense nowness, a flow of intense moments, a virtual palpability of space and an intense vibrancy of every sense and everything experienced for as long as such experience lasts, and yet there is an effortlessness to the experience as well. It is the experience of serenity while being in the temporal universe.

      This experience is precisely and exactly described within The Cosmic Code as:

      [ (Space x Time) Self Awareness/Consciousness ]

      Not in any way to disparage Einstein, his intuitive visualizations and mathematical calculations regarding Space-Time are remarkable and follow the trend of virtually every scientific breakthrough which is an integration of the scientific method with an aspect or aspects of human self awareness/consciousness, but his insight is incomplete because it did not include the most relevant factor in the calculus….namely self awareness/consciousness itself.

      We must bring the process of Wisdom and its pinnacle experience of self awareness/ consciousness to all of our experiences, most urgently to our economic and monetary systems and last but not least to the reductive mode of thought known as science…..because it enables a deepening and validating self knowledge/experiencing of its highest and most difficult to understand concepts.

      • May 13, 2017 at 7:16 am

        Craig, I respect your descriptions but cannot accept them as you pose them. Verstehen (or wisdom if you like) is not mysterious or expanded consciousness. It is the one piece of homo Sapiens life that is unique to the species. That is imagination. By imagination I mean the capability to create and act on things, places, ideas, qualities, etc. that no homo Sapiens has ever seen and may not even exist anywhere, or both. This is part of homo Sapiens evolution, developing about 12,000 years ago. Science was imagined by humans and then actualized. Art, literature, etc. all the same. Early social scientists reversed this direction. Treating humans as explainable by science. Weber’s (and others) attempted to fix this error. Verstehen was one such effort. From this perspective, Verstehen is an effort to apply imagination to reveal the processes of imagination. Difficult job, yes. But one that fits human aptitudes.

    • May 15, 2017 at 6:05 am

      Robert, you just flew past my meager knowledge of the period. Details are wonderful. Helps explain a lot.

  5. mike
    May 12, 2017 at 12:55 pm

    adding Charles Sanders Peirce’s descriptions of abductive logic as our premier thinking device here (or descriptions of it by others since he was pretty obtuse) rather than induction or deduction will get you even higher on your own theoretical fitness peak.

  6. May 12, 2017 at 3:36 pm

    .Yes! Excellent, Peter. We must reconstruct.

    1. Where to start:

    First, we must isolate the effect of exchange prices from all other factors which might influence the consumption of goods or services. Other things being equal, Marshall’s quaint term, does not mean they are, of course. It means only that, for the moment and for this purpose, we won’t consider such other things. If I do that, this lets me say that, for any set of budgets formed by a consumer, and if nothing else intrudes into the decision about what to consume, then, for any set of prices py and px for any two goods x and y, there exists a price consumption possibility schedule for all possible budgets whose equations can be set as y = px/py*x or as x = py/px*y. So, in the absence of any other factors affecting consumer decision-making, this is a ray from the origin in Cartesian positive space. And, also in the absence of any other factors affecting consumer decision making, the slope of the consumption possibility schedule is simply the price ratio.

    Second, and if and only if nothing else but prices matter to consumers, the basket of goods the consumer will choose will always be composed such that py*y will always equal px*x. This is a situation of absolute indifference on the part of a consumer, since prices and only prices can determine the composition of the baskets chosen at any budget when no other factors affecting decision-making are taken into account.

    Now, should anyone prefer to study actual human behavior in a monetary exchange system where there exist consumables that are LIKED or DISLIKED, they must first realize that the price system between priced goods so operates that one can imagine price consumption possibility schedules for all possible budgets a consumer might allocate and based upon solely on preferences as likes anddislikes for different goods. A person absolutely indifferent between two goods would have a price consumption possibility schedule: a ray 45 extended 45 degrees from the origin in Cartesian positive space.

    The price-consumption possibility schedule for all possible budgets is merely a reference schedule because other factors certainly enter into budget formation and consumption decisions.

    2. Having now started:

    We may now say that other things are not equal. We can do so by introducing preferences as a factor in consumer decision-making. This does not mean that there are no other factors than preferences or prices. It means and only means that if we can account for the influence of a consumer’s preferences in conjunction with prices, then we can introduce yet other factors influencing decision-making, factors that directly enter into budget formation decisions and which may be more determinative of possible baskets needed to be chosen to satisfy needs and wants.

    So, let’s just introduce all preferences as positive preferences for the moment. That just means that, for the moment and only this moment, we can sequence all LIKED goods [thus by assumption ALL ‘GOODS’] into less liked, liked indifferently, more liked, and most liked. If it was possible to mathematically express a ‘liked indifferently’ function with rising ‘satisfaction'[S], it might have the form S= f(x,y) = the product of x to the power i times y to the same power i, such that the ratio of the partial derivatives of S always equaled py/px. [Which is, of course, a price consumption possibility schedule for any budgets consumers might form.]{We should not be surprised that this strongly resembles Uxy = x to the power i times y to the same power often found in standard textbook problems, for, sometimes, even when something is wrong (like the mathemagical function dreamed up here for S or, in mainstream economics, for ‘Utility’), something else is accidentally right: namely that price ratios do matter, which hardly can be said to be the same as saying only real/relative prices matter in a nominal price system denominated in nominal units of exchange, and where nominal income significantly affects what can be afforded and in what quantities if at all..

    Now, we should get rid of our mathemagical function S. That’s because it is unnecessary, for whenever py*y is not equal to px*x, it must be the case that preferences exist and are influencing the consumer’s decision. There may be other things that influence the final decision made by a consumer, but, so far as we have assumed these out of consideration by saying that only preferences and prices matter, we can ignore these. We can simply say that if py*y is not equal to px*x, then, other considerations not being present to influence decisions, any differences from the price consumption possibility schedule and what is preferentially the chosen basket, must be due to one good being preferred over another.

    Now we can drop the assumption that all preferences for goods are positive preferences for those goods by bringing in the observed reality that consumers ‘like’ some goods and ‘dislike’ others, but are observationally capable of consuming goods they do not like (or like as much) to have to consume./1 Clearly, even if dissatisfied, they have some reason for doing so: a reason or set of reasons that cannot possibly reflect only their preferences.

    3. Now demolish the neoclassical framework of consumer theory: {which, BTW, demolishes also the micro-theory of the behavior of the firm}

    Demolishing the framework and constructing another is now very straightforward. The theory of the consumer rests upon the improbable assumption that only prices and consumer preferences enter consumer decision-making. If, however, consumers are life forms (and I observe that most are, save for firms who ‘prefer’ more profit over less profit, less profit over no profit, and no profit over any losses), then there are ranges of consumption of needed goods just sufficient to realize those needs. It can be shown that maximizing neoclassical preference functions leads to choices that are insufficient to realize needs, placing at hazard the health and sustainability of the life of the consumer. In other words, life forms have biological imperatives which must be met if the well-being and life of the consumer is to be sustained through time. [Which is not to say that the modern day has no social or technological imperatives which must also be met if consumers are to effectively participate in the economy or society. Nor is it to say that realizing wants is unimportant relative to realizing needs. It is to say that needs realization is vital to biological well-being, whereas want realization above needs enters into psycho-social well-being. Put differently, some ways of meeting needs are very satisfying; some, not at all, just as some ways of realizing wants.

    Let us now define utility as an objective benefit obtained through the use of goods. Different uses bring different objective benefits. If I use various foods to make and sandwich to eat, I am, on eating it, benefiting by obtaining nutrients. If I use the same food to make a sandwich to sell it, on selling it I have a profit or a loss. Both nutrients or profits come in the form of objective units: absorbed nutrients (calories, vitamins, minerals, etc.) or money.

    Unlike money which no one ever seems to have enough of, there are limits to benefits from having more nutritional units than one needs in one’s diet. Too much of some kinds can kill you or bring on diseases like gout; too little has the same effects over lengthy periods.

    ‘Just right’ is a bit fuzzy. We are not so constructed noumenally as to know precisely what we need. I speculate that, if we can afford to and if there are no ‘hidden persuaders’, that we may tend to approximate a sufficient diet over a lengthy period while consuming ‘more’ and ‘less’ than needed daily over small periods of time.

    Anyway, this is lengthier than I’d planned, Peter. But, I’ll add more if anyone is interested.

    • May 12, 2017 at 3:39 pm

      Edit to above comment: A person absolutely indifferent between two goods would have a price consumption possibility schedule: a ray 45 extended 45 degrees from the origin in Cartesian positive space, if and only if px = py in nominal terms.

    • May 13, 2017 at 10:18 am

      You a physicist or economist? This equation stuff is all pointless in economics. If you want to know how and why people create budgets and purchase certain things rather than others, ask the people. Or, if asking them frightens you, observe them taking such actions. Prices matter to most people, but for some (the rich) they matter very little. For the degree to which they matter, again ask, or observe people. Okay, with “price consumption possibility schedules” we’re back to physics. As a physicist friend used to tell me, all that is needed to upset a beautiful table or graph on human desires (consumption) in one fart.

      Preference may sound like a simple notion. It is not. Humans prefer lots of things. Figuring out, to the extent we can, how and why they prefer, and how they use the notion of preference requires first historical and ethnological studies. And then comparative long-term tracking of the factors that seem to be important. And even then, the project must be updated regularly to figure out what humans have invented since the last time we studied “preferences.”

      This all can be translated into some forms of derivative equations, but they won’t be very useful and they will misinform more than they inform. You see the humans you study understand math, too. They’re just as likely to use it against economists as they are to be revealed by it. For example, quantifying “affordability” is dumb, stupid, asinine, and so on. But it does provide a good laugh for the people the quantification supposedly explains.

      In what sorts of frameworks do people consume and create their theories of consumption? In whatever frameworks people constructed in which they daily live. No special sorts of frameworks are needed. Now, such special frameworks can be created. They include markets (of varied designs), religious groups, governments, gangs, etc. The divisions here are cultural, not mathematical. So, it’s not a question what factors enter consumption and preferences, but rather of what factors do not. All this has been for at least 500 years based around the use of money. But there an infinite number of monies. Each tied to certain forms of preference and consumption. In studying people economists need to seek to carefully understand which of these forms of money, preference, consumption are operating at each time and place. And why.

      • May 15, 2017 at 8:43 pm

        Sadly, I wrote out a page of reply to you but couldn’t log in and so lost that comment.

        What is pointless is keeping existing theory with all of its defects. What is pointless is ignoring the many changes to that existing theory that I am making. What is pointless is saying that one cannot quantify or use math rigorously from what evidence exists and can be observed.

        What is also pointless is trying to reply to you when you have no idea what I am saying, despite the reality that what I am saying is basically what you have been saying.

      • May 16, 2017 at 8:19 pm

        Larry, agree that economists have generally made a mess of the theories they use in attempts to understand economic actions. Of course quantification is possible. Humans created mathematics to help them look into things like the universe and economics. And of course evidence is possible. Humans invented it for the same purpose. We’re the imaginative species. But for any particular set of observations there are endless theoretical explanations. And for theories many observations can fit them. The point, in all these decisions human judgement must come into play to make choices that link theories and observations. Human imagination is ultimately the factor in judgement. No way to go round or escape this.

        Thanks for the comments.

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