Home > Uncategorized > What is (wrong with) neoclassical economics?

What is (wrong with) neoclassical economics?

from Lars Syll

If you want to know what is “neoclassical economics” and turn to Wikipedia you are told that

neoclassical-economicsneoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by cost-constrained firms employing available information and factors of production, in accordance with rational choice theory.

The basic problem with this definition of neoclassical economics — arguing that  the differentia specifica of neoclassical economics is its use of demand and supply, utility maximization and rational choice — is that it doesn’t get things quite right. As we all know, there is an endless list of mainstream models that more or less distance themselves from one or the other of these characteristics. So the heart of neoclassical economic theory lies elsewhere.

The essence of neoclassical economic theory is its almost exclusive use of a deductivist methodology. A methodology that is more or less used without a smack of argument to justify its relevance.  

The theories and models that neoclassical economists construct describe imaginary worlds using a combination of formal sign systems such as mathematics and ordinary language. The descriptions made are extremely thin and to a large degree disconnected to the specific contexts of the targeted system than one (usually) wants to (partially) represent. This is not by chance. These closed formalistic-mathematical theories and models are constructed for the purpose of being able to deliver purportedly rigorous deductions that may somehow by be exportable to the target system. By analyzing a few causal factors in their “laboratories” they hope they can perform “thought experiments” and observe how these factors operate on their own and without impediments or confounders.

Unfortunately, this is not so. The reason for this is that economic causes never act in a socio-economic vacuum. Causes have to be set in a contextual structure to be able to operate. This structure has to take some form or other, but instead of incorporating structures that are true to the target system, the settings made in economic models are rather based on formalistic mathematical tractability. In the models they appear as unrealistic assumptions, usually playing a decisive role in getting the deductive machinery deliver “precise” and “rigorous” results. This, of course, makes exporting to real world target systems problematic, since these models – as part of a deductivist covering-law tradition in economics – are thought to deliver general and far-reaching conclusions that are externally valid. But how can we be sure the lessons learned in these theories and models have external validity, when based on highly specific unrealistic assumptions? As a rule, the more specific and concrete the structures, the less generalizable the results. Admitting that we in principle can move from (partial) falsehoods in theories and models to truth in real world target systems does not take us very far, unless a thorough explication of the relation between theory, model and the real world target system is made. If models assume representative actors, rational expectations, market clearing and equilibrium, and we know that real people and markets cannot be expected to obey these assumptions, the warrants for supposing that conclusions or hypothesis of causally relevant mechanisms or regularities can be bridged, are obviously non-justifiable. To have a deductive warrant for things happening in a closed model is no guarantee for them being preserved when applied to an open real world target system.

Henry Louis Mencken once wrote that “there is always an easy solution to every human problem – neat, plausible and wrong.” And neoclassical economics has indeed been wrong. Its main result, so far, has been to demonstrate the futility of trying to build a satisfactory bridge between formalistic-axiomatic deductivist models and real world target systems. Assuming, for example, perfect knowledge, instant market clearing and approximating aggregate behaviour with unrealistically heroic assumptions of representative actors, just will not do. The assumptions made, surreptitiously eliminate the very phenomena we want to study: uncertainty, disequilibrium, structural instability and problems of aggregation and coordination between different individuals and groups.

The punch line is that most of the problems that neoclassical economics is wrestling with, issues from its attempts at formalistic modeling per se of social phenomena. Reducing microeconomics to refinements of hyper-rational Bayesian deductivist models is not a viable way forward. It will only sentence to irrelevance the most interesting real world economic problems. And as someone has so wisely remarked, murder is unfortunately the only way to reduce biology to chemistry – reducing macroeconomics to Walrasian general equilibrium microeconomics basically means committing the same crime.

If scientific progress in economics – as Robert Lucas and other latter days neoclassical economists seem to think – lies in our ability to tell “better and better stories” without considering the realm of imagination and ideas a retreat from real world target systems reality, one would of course think our economics journal being filled with articles supporting the stories with empirical evidence. However, contrary to Noah Smith, I would argue that the journals still show a striking and embarrassing paucity of empirical studies that (try to) substantiate these theoretical claims. Equally amazing is how little one has to say about the relationship between the model and real world target systems. It is as though thinking explicit discussion, argumentation and justification on the subject not required. Neoclassical economic theory is obviously navigating in dire straits.

If the ultimate criteria of success of a deductivist system is to what extent it predicts and coheres with (parts of) reality, modern neoclassical economics seems to be a hopeless misallocation of scientific resources. To focus scientific endeavours on proving things in models, is a gross misapprehension of what an economic theory ought to be about. Deductivist models and methods disconnected from reality are not relevant to predict, explain or understand real world economic target systems. These systems do not conform to the restricted closed-system structure the neoclassical modeling strategy presupposes.

Neoclassical economic theory still today consists mainly in investigating economic models. It has since long given up on the real world and contents itself with proving things about thought up worlds. Empirical evidence only plays a minor role in neoclassical economic theory, where models largely function as substitutes for empirical evidence.

What is wrong with neoclassical economics is not that it employs models per se, but that it employs poor models. They are poor because they do not bridge to the real world target system in which we live. Hopefully humbled by the manifest failure of its theoretical pretences, the one-sided, almost religious, insistence on mathematical deductivist modeling as the only scientific activity worthy of pursuing in economics will give way to methodological pluralism based on ontological considerations rather than formalistic tractability.

  1. January 31, 2018 at 3:11 am

    As usual, Lars Syll is right in his criticism on neoclassical economics but he is forgetting one important thing: It takes a theory to beat a theory. This dictum was employed by Mark Blaug in his book and George Stigler in his Nobel Prize speech. But I do not know the true origin of the dictum. At any rate the dictum expresses how a science (natural or social) progresses. Syll’s criticism is addressed on the methodology of neoclassical economics but such an effort is not effective to beat the neoclassical economics. It needs a theory. He lacks a prospect for this theory. However, in my opinion, it already exists. See, for example, my paper:
    The Revival of Classical Theory of Values
    https://www.researchgate.net/publication/269393496_The_Revival_of_Classical_Theory_of_Values

    Or, if you like a more specialized, state-of-the-art article, see
    The New Theory of International Values: An Overview
    https://www.researchgate.net/publication/304717720_The_New_Theory_of_International_Values_An_Overview

    This new theory clearly surpasses four generations of mainstream international trade theories (i.e. textbook Ricardo model, Heckscher-Ohlin-Samuelson theory, New trade theory and New new trade theory). A simple criterion of the superiority is that these four theories exclude input trade (trade in intermediate goods) by assumption whereas the new theory of international values is the general theory which can treat input trade. In view of globalization of the economy and the importance of global value chains (this is a network of production and trade of intermediate goods), the four generations of neoclassical trade theories are already outmoded.

    • January 31, 2018 at 3:19 am

      “The new theory of international values is the general theory which can treat input trade.” must be read “The new theory of international values is a general theory which can treat input trade.”

    • Frank Salter
      January 31, 2018 at 7:35 am

      That classical values are significant is true — labour-time is the natural unit of human effort in production, but it is insufficient to provide a quantitative analysis of production.
      The correct use of differential equations involving time is also necessary in providing valid quantitative relationships.

    • January 31, 2018 at 9:20 am

      Dear Frank Salter,

      please read my first cited article. Classical theory of values that I speak of is the price theory of Ricardo, but not labor theory of value. It is better called “cost of production” theory of values.

      • Frank Salter
        January 31, 2018 at 10:07 am

        Dear Yoshinori Shiozawa,
        I read your paper some time ago and understood your use of the term “cost of production” theory of values.
        I very deliberately used the term labour-time and not labour theory of value. I spoke about labour-time being the natural unit of production. It arises directly from my first principles analysis. Thus I believe we are using different terms but intend the same meaning. In my transient analysis the use of labour-time arises as the only method by which the differential equations are capable of solution. I also demonstrate that by using capital as a parameter, conventional analysis will never be capable of providing a general quantitative description of production. It can only provide curves fitted to specific empirical data.

      • Frank Salter
        January 31, 2018 at 11:09 am

        Addendum
        I should add it is the separation of labour and time which allows solutions to be found. The differential equations need to be integrated over time to obtain their solutions. The use of capital per se ties them together with no possibility of separation and therefor no possibility of integration.

    • January 31, 2018 at 11:39 am

      In this summary of the abstract of Yoshinori’s first paper, I would like to qualify a few points.

      “In my understanding, the crisis of economics is deeper than the present crisis of the world economy. What is necessary for a reconstruction of the economics? … Keynes adopted neoclassical economics framework [but] did not distinguish classical and neoclassical value theories. In my opinion, the adoption of equilibrium framework was the fundamental reason of Keynes’s failure. I do not deny that the General Theory contained a revolutionary idea i.e. that of effective demand. But Keynes or other economists after him could not arrive to formulate the concept in a proper way. … [Y. proposes] replacing neoclassical theory of prices with classical theory of values”.

      Yes, there are deeper crises at the underlying levels of failure to understand personality differences, hence empirical scientific method and instrumental motivations. Thus Keynes spoke to his fellow economists in the equilibrium language they were familiar with, but (as a pioneer with no familiar words to express what he was trying to say) changed the concept of equilibrium from a predictable Newtonian position (Frank’s point) to something more dynamic: a motion staying on course. According to Keynes’ “General Theory of Employment, Interest and Money”, money making via interest wouldn’t stay on course if unemployment built up.

      • Frank Salter
        January 31, 2018 at 2:29 pm

        Dave,
        I do not recognize my taking a single predictable position. My analysis develops relationships which predict the manifold alternatives which depend upon the division of labour, the level of technical progress and the maintenance requirement as they vary over time. This is very much a hypersurface of possibilities. How a manufacturing industry develops depends upon the decisions made by the actors involved. The pressure of competition forces them towards the path of maximum output whilst expending the least effort. This effect is what has been called the “invisible hand”. It is that the most effective method of production is concentrated on a single value of the division of labour at a particular level of progress. The most effective value for the division of labour approaches one half at large values of the technology level.

      • January 31, 2018 at 5:58 pm

        Replacing the theory of prices with the classical theory of values :: if done :: absolutely requires bringing benefits from use back into economics. And that requires, yes, agreeing that two pecks of corn carry twice the benefit than one peck of corn. Whereas later schools simply fudged ‘utility’ as a benefit OR satisfaction, later neoclassicists like Friedman/Stigler attacked even notion of benefits as a form of value.

        All of today’s neoclassicists do because they have to. For to accept that notion of constant (or possibly rising) benefits from use is to abandon the deductive rationalism underlying the notion of demand schedules, supply schedules, and price formation. Ironically, Marshall knew this — which is why he said that a proper construction of economics absolutely requires data on the various and diverse benefits from the use of commodities rather than the kind of anticipated pleasure/satisfaction ‘utility’ assumptions he used to construct anticipated but always diminishing marginal ‘utility’ while setting that margin equal to ‘price’.

      • February 1, 2018 at 4:19 pm

        Thank you, Larry, for a good brief of my paper.

      • February 2, 2018 at 3:42 pm

        Dave and Larrry,
        I am sorry. It seems I have mistakenly addressed my thanks.

  2. Edward Ross
    January 31, 2018 at 8:09 pm

    Maybe their is a probability that I am a simpleton but all of the above conversations help me to understand some of the theory of what is wrong with neoclassical economics. But from my perspective of real people struggling in the real world, the problem is not just highly questionable theory and modelling, it is the effect extreme wealth has on politics and academics. Thus I find Lars Syll’s final paragraph where he closes with “the problem with will give way to methodological pluralism based on ontological considerations rather than formalistic tractability.” Here on the subject of ontology we should not forget Tony Lawson who has worked hard on the subject for a long time. One of his recent papers is available in the Australian Journal of Political Economy volume 80 p26-42.

  3. February 1, 2018 at 6:53 am

    Tony Lawson’s philosophy is wonderful. It provides argument to combat Friedmannian instrumentalism, for example. However, his critical realism has something parallel to Lars Syll’s philosophy of economics. Lawson’s criticism is right and wonderful, but he could produce no real economic theory (at least up to now).

    Therefore, there are severe criticisms against his critical realism. See for example
    Walters and Young (1999) Is Critical Realism the Appropriate Basis for Post Keynesian Economics? Journal of Post Keynesian Economics 44(3): 105-123.

    Walters and Young argue that “the adoption of CR [critical realism] is not merely unnecessary but is destructive of Post Keynesian Economics.”

    Lawson, like Syll, is forgetting that it takes a theory to beat a theory.

    • February 1, 2018 at 5:29 pm

      In my experience, Tony Lawson’s achievement has not been about providing combative argument anything like as much as it has been in modestly encouraging others to make the best of their own experience. In other words, he has nailed his mast to the flag of pluralism and ontology (knowing what we are talking about) rather than quite understanding the point of rethinking economics in terms of an information science devised for error correction which apparently does not exist: which not only economists but jobbing scientists generally have failed to recognise.

    • Rob Reno
      February 3, 2018 at 2:50 am

      As usual, Lars Syll is right in his criticism on neoclassical economics but he is forgetting one important thing: It takes a theory to beat a theory…. Lawson, like Syll, is forgetting that it takes a theory to beat a theory.

      Shiozawasan is forgetting that in times of theoretical crisis any given field within science progresses one funeral at a time. If Lars and many others who echo his cogent crique are right (and Shiozawasan admits this much already) then whether they have a new theory or not to replace the old one is irrelevant and no addition of ad hoc hypotheses on top of ad hoc hypotheses will solve the crisis; nor will lamenting that a solution does as of yet not exist. It is naïve to assume or expect that a nice new theory will emerge without conceptual and ideological conflict.

      God forbid we keep offering expert advise based upon models and theories we now know are blatantly false just because we have no other immediately ready theoretical solution. We owe our children and grandchildren better than that given the 2008 Great Recession.

    • February 3, 2018 at 3:41 am

      Reno has a complete misunderstanding. I am not searching or waiting “a nice new theory,” because in my belief the new theory already exists. In my first comment, I have cited two of my papers. Do you understand the difference? The visions on how economic system (a large system as big as world economy) works are completely different. Neoclassical economics imagines that it is prices that adjust demand and supply. The new theory (named classical theory of value) explains that it is firms that adjust their production speed to make the supply nearly equal to the demand. Small differences are dealt by product stock adjustment. Prices have a totally different function. They give a criterion on the choice of production techniques.

      The new theory must be developed further but the basis is already established.

      • Rob Reno
        February 5, 2018 at 9:16 am

        I am not searching or waiting “a nice new theory,” because in my belief the new theory already exists…. I have cited two of my papers.

        The I’ve Got a Theory claim is useless without empirical verification against real-world outcomes. That is a persistent theme running throughout the works of Syll-Fullbrook-Marques and many other critics of mainstream economics in the WEA books. One cannot help but observe that others on this site are also claiming they too have a theory and no one seems to be listening. Why is that?

        Nor do I think your theory deals with real-world markets as they actually function in the real world lives of family wage earners. Does your theory deal with fraud? Does it deal with pervasive market manipulation and deception? Does it deal with lobbyists bribing politicians who then do the bidding of their corporate donors turning attacking regulator agencies or simply capturing them by putting them under the control of their crony appointees? I don’t think it does, and if it doesn’t it is just more the same old mainstream economics. It’s just a slightly tweaked old wine in old wineskins.

        I find it very puzzling how someone doesn’t even read the work of those whom they criticize and yet can claim they “are forgetting something important.”

        The claim that it takes a theory to beat a theory (hereafter, TBT) comes in many flavors and has been used by politicians, lawyers, economists, and scientists. But unfortunately history doesn’t bear this claim out as it is not universally applicable. Neither is Kuhn’s model of “scientific revolutions” universally applicable. Fullbrook in his WEA book Narrative Fixation in Economics “challenges not the narrative of competing theories as such, but rather the hegemony which that narrative maintains over our vision of science (Fullbrook 2016, 26)” by describing a process of theory displacement and narrative pluralism:

        Generally – and the present case is no exception – the natural sciences ignore outsider analysis, but the narrative fixation on the dialectical side of scientific development has had and continues to have a deleterious effect on the human sciences. Of course theory displacement offers a true characterisation of important chapters in science history. But there are many major advances in science for which the narrative of scientific revolutions, including its intervals of “normal science”, has no explanatory power. More to the point, in the human sciences those “extraordinary episodes” which have “necessitated the community’s rejection of one time-honoured scientific theory in favour of another incompatible with it,” are virtually unknown (Kuhn 1962, p. 6). In economics, for example, the absence of such episodes weighs so heavily on its pursuit of understanding that no sensible overview of its fundamental ideas is possible without abandoning the traditional narrative structure. (Fullbrook 2016, 3-4, emphasis mine)

        The underlying assumption (unspoken and unproven) is that TBT unless beaten still stands. In a cloistered tone deaf community of mainstream economists this might well be true, but in the real world that is not the case, and in the end it will be such pressure from the younger generation of economists that are better informed and not satisfied with the same old theory first approach that will change the paradigm as they take over teaching and practicing from the passing of the mainstream old guard one funeral at a time. They will be comfortable thinking within a narrative pluralism just as Fullbrook describes simply because they are more imaginative and less shackled by their past work and pet theories, while more focused on real-world outcomes.

        The narrative of competing theories, especially Kuhn’s version, seriously underestimates the scientific imagination, that talent which John Stuart Mill characterized as the faculty for “mentally arranging known elements into new combinations” (Mill 1893, p. 433). Kuhn’s narrative assumes that the scientific mind is so deficient in agility as to be incapable of alternating freely between incommensurable conceptual systems. I would be the last to deny that examples of this stereotype exist in every discipline and that in some disciplines this intellectual ineptitude dominates. Nor do I deny that narrative communities sometimes exist in bondage to their conceptual system because they have failed to make explicit its primary presuppositions. But it seems a cruel travesty of the truth to portray the scientist in general as, on the one hand, an intellectual bumpkin, incapable of shifting between conceptual gestalts and, on the other, as a moral midget, committed primarily to the glorification of a particular narrative point of view rather than to the understanding of the empirical domain to which that narrative and others refer.

        For too long historical data from science have been collected, selected and interpreted mainly to answer questions posed by the various versions of the competing-theories narrative of scientific progress. The case for regarding this narrative as a general explanation of scientific advance has, in its various forms, been constructed primarily on the basis of examples drawn from physics. Yet even here on its most favoured ground it is a simple matter to show that the narrative of competing theories not only fails to account for but also runs counter to most major developments. (Fullbrook 2016, 27-28, emphasis mine)

      • February 5, 2018 at 11:22 am

        Rob, you are very good at quoting people who haven’t got answers and not at understanding those who have. The whole point of Kuhn is that we don’t just need a theory to beat a theory, but a new theory at a deeper level of reality than the old one (notably a paradigm shift illustrated by feeling our own train moving from the station when in fact it turns out to be the other one). In a paradigm shift situation the new theory trumps old observation. Of course it really has to do that. I’ve used the example of doing a jigsaw by fitting the connections when one can’t see a match in the picture, but when the connections seem to fit, the picture has to actually match too.

      • February 5, 2018 at 2:30 pm

        I have read Rob’s all recent posts. I have nothing to add to davetaylor1’s comment.

      • Rob Reno
        February 5, 2018 at 7:56 pm

        Thanks Dave, but we will have to agree to disagree. You seem to be stuck on the Kuhn paradigm and not realize that the field of the history of science continues to grow. New theories are displaced in more than one way, depending on many factors, rather than following some archetypal mold. Alfred Wegener had a perfectly good theory while the old one was failing an multiple points. Nevertheless it was flatly rejected by American scientists not because Wegener’s “theory” was wrong (they never gave it an honest hearing in America from the start, except for a few) but rather because of methodological and cultural reasons. It doesn’t take a theory to beat a theory, for theories can fail miserably before a new theory emerges, and even if one is present it can be rejected because scientists are not automatons, but human beings, and science doesn’t take place in vacuum but in specific social context.

        You also apparently disregard Fullbrook, which tells me something about your own ability to consider other points of view. Why is that?

        Considering this a site where WEA authors post and where their work is available, I think is most appropriate to quote relevant material from their works, regardless of whether not you dismiss it. Me thinks you doth protest to much ;-)

      • Craig
        February 5, 2018 at 10:48 pm

        Rob,

        One thing that greatly clarifies even paradigms is considering the ascending scale of mental activity/epistemological awareness. We are not only approaching the necessity of a new economic and monetary paradigm, but a new zeitgeist as well. Here is that scale and the corresponding mental activity from top to bottom:

        zeitgeist/ethic – self actualized knowingness

        paradigm – looking in order to know while integrating both holistic and reductionistic mental modes of thought

        philosophy – combining and aligning ideas

        theory – combining and aligning data and factors

        data – a kind of figure, figure on separate facts

        This scale can also be looked at as concentric circles of mindsets with data the first such circle.

      • Rob Reno
        February 5, 2018 at 11:35 pm

        One thing that greatly clarifies even paradigms is considering the ascending scale of mental activity/epistemological awareness. We are not only approaching the necessity of a new economic and monetary paradigm, but a new zeitgeist as well. Here is that scale and the corresponding mental activity from top to bottom:
        zeitgeist/ethic – self actualized knowingness
        paradigm – looking in order to know while integrating both holistic and reductionistic mental modes of thought
        philosophy – combining and aligning ideas
        theory – combining and aligning data and factors
        data – a kind of figure, figure on separate facts
        This scale can also be looked at as concentric circles of mindsets with data the first such circle. ~ Craig

        Three concentric circles of truth, beauty, and goodness sounds nice ;-) I wholeheartedly agree with your outline above, and look forward to exploring your site more fully. I apologize and confess I have not got there yet, but I will. I am just determined to work my way through the WEA material and Robert’s material before I move on. It requires discipline and patience.

      • February 6, 2018 at 12:53 am

        Rob Reno (February 5, 2018 at 7:56 pm) >
        It doesn’t take a theory to beat a theory, for theories can fail miserably before a new theory emerges.

        Let me know a good concrete case in which a theory failed before a new theory emerges, preferably among famous cases in the history of science. I am curious.

  4. Edward Ross
    February 1, 2018 at 9:30 pm

    While I have no problem accepting the argument that it takes a theory to beat a theory. From my real world perspective what is missing here in the conversation is real world experience and unbiased observation and in my view that is. While economists argue about theory they tend to forget the history of how Keynes concepts of economics were sidelined.

    For example “To the capitalist establishments in the western world, especially the Americans and the British and the orthodox economists in their universities— the high priests of laissez-faire—these thoughts were subversive of the economic order to which they wished to return, and hence had to be eliminated.” Ted Wheelwright (1995) ‘The Complicity of Think-Tanks’ cited in The Human Costs of Manageralism edit Stuart Rees and Gordon Rees and Gordon Rodley 1995. Ted Wheelwright also details how the goal of dismissing Keynes was achieved with the help of big business. The thrust of my response here is that from my position as a ordinary citizen of the world economic theory only becomes relevant when it takes into account history and the study of people in the social sciences such as modern Anthropology such Bill Geddes, who had studied other social sciences before concentrating on anthropology including its effects on economic problems an Malcolm Crick.

    • February 1, 2018 at 11:55 pm

      If your “real world experience and unbiased observation” are effective, why do you not address yourself to mainstream economists rather than talking with opponents to them?

      • Rob Reno
        February 3, 2018 at 3:01 am

        If your “real world experience and unbiased observation” are effective, why do you not address yourself to mainstream economists rather than talking with opponents to them?

        Perhaps he is here the same reason you are, because he recognizes that,

        As usual, Lars Syll is right in his criticism on neoclassical economics.

        It seems the burden to take seriously the critique that Lars levels lies with the mainstream economists, not Lars or those who he cites, for if we can all see his arguments are cogent, correct, and supported by evidence, then we face a least that much awareness of the work that needs done. The _real_ burden of truth lies on the mainstream economists who have been proven to be a Naked Emperor.

      • February 3, 2018 at 3:54 am

        Are you expecting that mainstream economists will convert to construct an alternative economics? With extremely high probability, it will not happen. We have learned much from the history of sciences. In the case of the turn of physics at the beginning of the 20th century, new development was supported by people of younger generation after Einstein and Planck.

      • Rob Reno
        February 5, 2018 at 9:46 am

        Are you expecting that mainstream economists will convert to construct an alternative economics? With extremely high probability, it will not happen.

        With extremely high probability the old mainstream economists will die and younger more pluralist minded and real-world outcome focused economists will replace them one funeral at a time.

    • February 2, 2018 at 8:51 am

      Yoshinori, there is a simple answer to that. Mainstream books are likely to be priced in the hundreds of dollars, but critical books in the tens of dollars. Not only do mainstream economists not (in my experience) listen face to face, they price their arguments out of reach.

    • February 2, 2018 at 1:54 pm

      Dave, it’s not too bad. Are critical books so popular?

      • Rob Reno
        February 3, 2018 at 3:09 am

        Are critical books so popular?

        If you go to a university bookstore those are the books that fill the shelves. Over the last few years I have been watching them closely (filling up my bookshelves) and overwhelmingly they are critical of mainstream economics. Most of them written by practicing economists. They have vast bibliographies showing these critiques are not new but go back to the early “scientification” of economics during the Progressive Era.

      • February 3, 2018 at 3:21 am

        This is a good sign. What is needed is the coup de force that may beat mainstream economics. It must be a theory and not a criticism, because we have full of criticisms.

      • robert locke
        February 3, 2018 at 8:12 am

        What is economics for? The argument usually used is the application of theory to practice. We don’t need a theory to replace a theory (that’s to operate in the world of neoclassical economics, where theories are important) but theories that are prescriptive in practice. That is the argument people in practice have always used when trying to communicate with academic economists. When, the two sides work with each other cooperatively economics thrives, when they don’t, economics becomes esoteric.

      • February 3, 2018 at 11:57 am

        I know why people pay academic economists their salary mainly from their tax. It is for a good prescription. I agree with you, Robert. But from where a good prescription emerges? From a good theory and observations. If the theory is wrong as in the case of actual economics, the first thing to do is to replace the wrong theory by a good theory.

        Why is it necessary? To have a better understanding on how economy works. It is not the mathematical model that is wrong with neoclassical economists. Their basic vision is already wrong. If you do not replace by a new better understanding, you can get no good prescription.

        Is it esoteric effort? In my opinion, no. What is at the stake is quite simple and clear. This is a part of my reply to Rob Reno (Reno: post of February 3, 2018 at 2:50 am; Shiozawa: February 3, 2018 at 3:41). I believe a common people can see the difference.

        In my first comment, I have cited two of my papers. Do you understand the difference [between neoclassical vision and the one I adopted]? The visions on how economic system (a large system as big as world economy) works are completely different. Neoclassical economics imagines that it is prices that adjust demand and supply. The new theory (named classical theory of value) explains that it is firms that adjust their production speed to make the supply nearly equal to the demand. Small differences are dealt by product stock adjustment. Prices have a totally different function. They give a criterion on the choice of production techniques.

      • Rob Reno
        February 5, 2018 at 10:13 am

        The new theory (named classical theory of value) explains that it is firms that adjust their production speed to make the supply nearly equal to the demand. Small differences are dealt by product stock adjustment. …

        I find it interesting that mainstream economists choose their toy models such that they are always mathematically tractable but completely autistic when it comes to the real workaday lives of real people living in a real world. In the imaginary toy world fraud doesn’t exist, manipulation and deception are unheard of, and nobody in involuntarily unemployed.

      • Rob Reno
        February 5, 2018 at 10:24 am

        If the theory is wrong as in the case of actual economics, the first thing to do is to replace the wrong theory by a good theory.

        The last ditch defense of the rational choice theory is to insist that it takes a theory to beat a theory, and that the behavioralists have only assembled a collection of empirical regularities without any unifying theory. The behavioralists indignantly respond that they do have a theory, although an incomplete one. The assumption on both sides is apparently that the sine qua non of social science is having a unified predictive theory. But perhaps this is merely another symptom of economics’ famous case of “physics envy.” Physics presents a breathtaking example of mathematical elegance combined with fantastically accurate predictions. But taking physics as the paradigm of science may be a mistake. Today’s great success story among the sciences may well be biology…. But organisms … are extremely complex, and no one seems to think that their features can be predicted in any detail on the basis of a deductive theory. (Daniel A. Farber, Toward a New Legal Realism, 68 U. Chi. L. Rev. 279, 295 (2001))

  5. February 3, 2018 at 12:28 pm

    “The new theory (named classical theory of value) explains that it is firms that adjust their production speed to make the supply nearly equal to the demand.”

    Okay, Yoshinori, but rather than get mired in misunderstandings let us try and build consensus. It now being past your deadline date, have you got time to read the paper I sent you? It agrees with you, but (like banks creating money on demand, not lending out what they already have), has local firms (not just some average firm) reproducing what has already been used, from local or strategically distributed materials. Same picture, but with the horse before the cart.

  6. February 3, 2018 at 12:41 pm

    Dear Dave,

    I am a slow worker. The deadline date is over but I am still struggling with my paper. Helas! Perhaps I came to half of the way.

  7. February 4, 2018 at 1:23 pm

    It seems that nobody is against the dictum that it take theory to beat a theory. Although we cannot find this dictum in the Thomas Kuhn’s famous book: The Structure of Scientific Revolutions, he thought that a scientific revolution was a change of paradigm theory.

    Economics is now in a great crisis. Many people, not learned economists in particular, but many common people, now acknowledge it. We are now in the age of scientific revolution for economics. It comes from replacement of paradigm theory by a new one. The strategy that we should take is almost evident.

  8. Craig
    February 4, 2018 at 6:54 pm

    Correct, except a new paradigm is not a theory it is the recognition of a new pattern….which then makes a new theory and its policies a relatively easy and rational/logical process. Focusing on theory first and only generally just slows and/or distorts the process of paradigm perception. This is not to invalidate the scientific process of theorizing of course. Rather it is simply suggesting that we integrate the reductionistic/iconoclastic process of the scientific method and the wholistic/unifying process of Wisdom/paradigm perception. The better to hasten the recognition of the new paradigm/pattern. We don’t need just economic theory we need a Wisdomics.

  9. February 4, 2018 at 11:11 pm

    Kuhn used the term “paradigm theory” five times in his book: The Structure of Scientific Revolutions.

    Kuhn defined his key concept “paradigm” primarily as “model or pattern”. (III. The Nature of Normal Science). These words are ambiguous and and we should reflect what a paradigm is or can be in a concrete scientific revolution. At the same time, it would be true that simple pattern of way of thinking has no power to replace the old pattern of thinking. It needs a certain degree of theory. The dictum “It takes a theory to beat a theory” may point this.

    Kuhn talks about Copernicus, Newton, Lavoisier and Einstein. In each case, the person who brought a revolution had a well developed theory. In cases like Copernicus or Einstein, it is evident that they could not perform their revolutions without having a theory or a system of a theory that are at least comparable to the old paradigm they had to compete with. Simple change of methodological or methodological attitudes cannot bring a revolution.

    A change of perceptional pattern may occur at first in the mind of the revolution bringer, but between that personal inspiration and the revolution a theory making or construction is necessary. For me, Lars is not aware of this phase of paradigm change or ignoring it. His philosophy of economics has a defect.

    • Craig
      February 5, 2018 at 5:46 am

      Well, as I said I’m not trying to invalidate theorizing. I’m simply saying that a paradigm itself is a singularly significant concept that fits within and creates an entire new pattern….and recognizing the concept is a boon to theorizing which may be going in the conceptual direction of the paradigm…but has not fully cognited on the paradigm itself. Paradigm perception is an extremely progressive event that clarifies the path ahead toward its implementation.

      And paradigms have signatures like opposition, inversion of present realities and new discoveries/insights from places people aren’t aware of or looking at either because orthodoxy has told them. The paradigm change from H & G to Agriculture was the oppositional change from nomadism to homesteadism, i.e. moving around to staying in place. Helio-Centrism was the inversion of the position of the earth and the sun. For the Church and many believers it was also a psychological inversion from ego-centrism to relativism. Helio-Centrism also was accompanied by the telescope and finally the ellipse. When you mentioned that your books were looking at micro-foundations I thought, “Ah, someone who may cognite on the significance of the aggregative and singular integration point between the micro and macro economies that is retail sale. Being willing to look anywhere and everywhere prevents the blunting and blinding of orthodoxy.

  10. February 5, 2018 at 8:58 am

    I have no time to argue in detail. A paradigm change requires a new vision backed by a new theory. Please read my post February 3, 2018 at 3:41 am in a Reply to Rob Reno.

    Methodological arguments such as criticisms on methodological individualism, reductionism, emphasis on uncertainty, and lack of realism have no enough power to change the economics itself. Those criticizers must present a theory or set of theories that are free from those defects they criticize and equipped with a new vision. Lars Syll should contribute by his criticisms and orienting new generation to construct such theories.

    • February 5, 2018 at 11:05 am

      So when Yoshinori has time I hope he will read the paper I sent him offering new paradigms revealing an evolving vision and critique of where we are at, embodied in a set (or rather, a nest) of relatively new theories. It meets Craig’s criteria not least by focussing on everything rather than retail transactions.

      On television the other night I saw my fundamental paradigm portrayed with time lapse photography. It showed whiskers of ice growing on a branch, then the discs of criss-crossing whiskers of ice we call snowflakes. What we have next is gravity acting on the snowflakes and their piling up three-dimensionally as snow and ice, this having capabilities which affect our own lives. The same order of development and emergence of new capabilities is evident in the development of trees, roaming animals and humans able to roam imaginatively backwards and forwards in time.

      It also occurs in the processes (as against physical structures) of navigation. We aim one-dimensionally along a line on a two-dimensional surface, make one-dimensional (but sideways, hence two-dimensional) corrections to deviations from it, make two-dimensional adjustments if (over time) we get out of position relative to our course, and finally (for a time) may change course deliberately to avoid dangers. This then links us theoretically to the theory of control by means of PID information feedbacks, which predicts chaos if you keep changing course to avoid bankruptcy but forget where you were going in the first place.

    • February 5, 2018 at 11:52 am

      Incidentally, having read Yoshinori’s paper, I don’t think his conclusions that far from mine, but his arguments, it seems, were obtained by looking at a neglected set of data (what actually happens in the Japanese industries he is familiar with) and mine by going right back to choice of axioms (Big Bang or the Universe we see) and as A N Whitehead put it, “getting hold of the stick at the right end”. In a way we are addressing different audiences. I’m arguing to justify what should be taught at school, so that by the time they get to university, youngsters can see that there is more to economics than going shopping, and Yoshinori’s production process approach can come into its own.

  11. Craig
    February 5, 2018 at 6:28 pm

    So what does everyone think is/might be the new paradigm in economics? I’ve gone on record as Monetary Gifting being my assertion. C’mon give it a try, take a chance.

    And by the way IMO fully recognizing the significance of retail sale as the point to implement monetary policy in the new economic paradigm is the telescope, the ellipse and cultivation of the ground type discovery that always attends, originates and confirms a genuine paradigm change.

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