Home > Uncategorized > Economics vs. the Natural Sciences: The methodology of “as if”

Economics vs. the Natural Sciences: The methodology of “as if”

from Michael Hudson

What is even more remarkable is the idea that economic assumptions need not have any relationship to reality at all. This attitude is largely responsible for having turned economics into a mock-science, and explains its rather odd use of mathematics. Typical of the modern attitude is the textbook Microeconomics (1964:5) by William Vickery, long-time chairman of Columbia University’s economics department, 1992-93 president of the American Economic Association and winner of the 1997 Nobel Economics Prize. Prof. Vickery informs his students that “pure theory” need be nothing more than a string of tautologies:

Economic theory proper, indeed, is nothing more than a system of logical relations between certain sets of assumptions and the conclusions derived from them. The propositions of economic theory are derived by logical reasoning from these assumptions in exactly the same way as the theorems of geometry are derived from the axioms upon which the system is built. 

The validity of a theory proper does not depend on the correspondence or lack of it between the assumptions of the theory or its conclusions and observations in the real world. A theory as an internally consistent system is valid if the conclusions follow logically from its premises, and the fact that neither the premises nor the conclusions correspond to reality may show that the theory is not very useful, but does not invalidate it. In any pure theory, all propositions are essentially tautological, in the sense that the results are implicit in the assumptions made. [Italics added.]

This disdain for empirical validity is not found in the physical sciences. Ptolemaic astronomers were able to mathematize models of a solar system revolving around the earth rather than the sun. The phlogiston theory of combustion was logical and even internally consistent, as is astrology, former queen of the medieval sciences. But these theories no longer are taught, because they were seen to be built on erroneous assumptions. Why strive to be logically consistent if one’s working hypotheses and axioms are misleading in the first place?

Lacking empirical testing and measurement, economics narrows into a mock-science of abstract assumptions without much regard as to whether its axioms are historically grounded. The self-congratulatory language used by economists euphemizes the resulting contrast between economics and science. “Pure” theorists are depicted as drawing “heroic” generalities, that is, banal simplicities presented in a mathematical mode called “elegant” rather than simply air-headed. To the extent that the discipline uses mathematics, the spirit is closer to numerology than to the natural sciences. Indeed, astrology also is highly technical and mathematical, and like economics it deals with forecasting. But its respectability has not lasted. Is this to be the destiny of today’s economic orthodoxy?

http://www.paecon.net/PAEReview/issue55/whole55.pdf

  1. deshoebox
    April 15, 2019 at 9:03 pm

    My opinion: Because the economy exists in the real world and because economics should be trying to make sense of things that actually happen in the real world, its assumptions should be true of the real world. Clearly Mr. Vickery had never actually studied formal logic. If he had he would have known that even one untrue assumption leads to a contradiction (because its opposite would also be an assumption) and that from a contradiction anything can be proven. You can prove that any distribution of wealth and income is equivalent (according to whatever criteria you choose) to any other, but you can also prove it’s not. How useful! This, in my view, is the fundamental flaw in economics as currently practiced and taught, not so much that it happens to be useless, but that it is at it core useless except as a tool for justifying whatever you feel like justifying. Or, of course, anything your paymasters would like justified.

  2. Stanley Mulaik
    April 16, 2019 at 12:50 am

    I regard classic economics more like astrology than Ptolemaic astronomy. At least that reproduced the data, but by having too many parameters derived from data than having some parameters that could be tested and falsified by data.

    • Helen Sakho
      April 16, 2019 at 1:10 am

      A million black holes, filled with a zillion tautologies that mainstream Economists (of all creeds and colours) have managed to inject into their useless theories cannot possibly reverse the damage they continue to cause.
      As Easter is now approaching, and the amazing Norte Dam is on fire, perhaps they can rush to Paris on an easy ride on the back of all those they have mislead and repent. The gods of the poor might then consider forgiving them.

    • Yoshinori Shiozawa
      April 16, 2019 at 1:30 am

      Stanley is wrong in two aspects. (1) He is mistaken to use the term “classical economics.” (2) Actual mainstream economics is much more like Ptolemaic system than astrology.

      He should distinguish present New Classical Economics from real classical economics from Adam Smith to John Stuart Mill. Keynes’s usage to call Marshallian Economics “classic” is also misleading. We should better call it neoclassical.

      Actual mainstream economics is similar to Ptolemaic system of late years. It increased the number of epicycles and introduced tricks like eccentric circle and ecant. However, astronomy of late medieval era accumulated observations and tried to keep up with the movements of planets. The last greatest astronomer of Ptolemaic system was Tycho Brahe.
      He produced data which enabled Kepler to find his laws of planetary motion. Michael Hudson is exaggerating one aspect of mainstream economics. “As if” is one of many methodological ideas of mainstreams but many mainstream economists care about “prediction” just like geocentric astronomers who wanted to predict eclipse.

  3. Robert Locke
    April 16, 2019 at 8:27 am

    Those who sit in the citadels of power, determine the validity of thought. So the rwer is screwed, unless it takes over the citadels of power.

  4. Frank Salter
    April 16, 2019 at 9:38 am

    This is an excellent assessment of the current state of conventional and heterodox economics. It speaks of economic theory. However it continues with the misunderstanding that there really is some form of economic theory in existence. The quantity calculus proves that what economists have been doing is untenable. It can NOT ever be valid theory, Why do academic economists fail to understand this. Is it that de Boer’s 1995 paper requires a serious commitment to its understanding. It can be simply stated as: addition of quantities is only valid when the actual values are measured in identical physical units; multiplication and division of physical quantities is always valid; other operations on quantities are forbidden. So the Cobb-Douglas production function can never be a theoretical explanation of production — raising quantities to fractional powers can only be a concrete mathematical representation of a single data set. This is why there are so many different production functions — they all demonstrate better fits to different data sets.

    Applying the quantity calculus means there is no reason to compare predictions against the empirical evidence. The predictions (I would not call them that) will always match the data set to which they were fitted and will not match other data sets. This can be seen in figure 4 of Salter (2017), where Solow’s fitted curves match over the range of the data. That all but his linear fit, which he discarded, fail to fit reality over the range of valid values of capital is obvious.

    References:

    de Boer, J (1995). “On the History of Quantity Calculus and the International System”. In: Metrologia 31.6, p. 405. url: http://stacks.iop.org/0026-1394/31/i=6/a=001.

    Salter, Frank M. (2017). “Transient Development”. In: Real World Economic Review
    (81), pp. 135–167.

    • Frank Salter
      April 16, 2019 at 11:59 am

      I would like to add a critical question.

      Is there anyone at all who will engage in a discussion about the significance of the quality calculus as seen by you? To me as a physical scientist, it is a self-evident truth. Do any of you see it in that way?

  5. Jorge Buzaglo
    April 16, 2019 at 5:00 pm

    William Vickrey was a keynesian. For instance: “Bill’s [William Vickrey’s] view does not mean that inflation cannot be a problem; it simply means that within the 4 to 8 percent range, inflation is a separable problem from unemployment. Within that range, inflation is best dealt with by means other than contractionary monetary and fiscal policy. Contractionary policies to fight inflation simply add to the misery index without significantly reducing inflation. Running contractionary aggregate demand policy to fight inflation is the modern equivalent to the practice of blood letting to cure diseases; it piles one misery onto another, without doing any significant good.” Quoted from: David Colander, “William Vickrey’s Contribution to Economics”. Available from: ttps://www.researchgate.net/publication 5169785_William_Vickrey%27s_Contribution_to_Economics [accessed Apr 16 2019].

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