Economics — an axiomatically based science doomed to fail
from Lars Syll
A modern economy is a very complicated system. Since we cannot conduct controlled experiments on its smaller parts, or even observe them in isolation, the classical hard-science devices for discriminating between competing hypotheses are closed to us. The main alternative device is the statistical analysis of historical time-series. But then another difficulty arises. The competing hypotheses are themselves complex and subtle. We know before we start that all of them, or at least many of them, are capable of fitting the data in a gross sort of way. Then, in order to make more refined distinctions, we need long time-series observed under stationary conditions.
Unfortunately, however, economics is a social science … Much of what we observe cannot be treated as the realization of a stationary stochastic process without straining credulity. Moreover, all narrowly economic activity is embedded in a web of social institutions, customs, beliefs, and attitudes. Concrete outcomes are indubitably affected by these background factors, some of which change slowly and gradually, others erratically. As soon as time-series get long enough to offer hope of discriminating among complex hypotheses, the likelihood that they remain stationary dwindles away, and the noise level gets correspondingly high. Under these circumstances, a little cleverness and persistence can get you almost any result you want. I think that is why so few econometricians have ever been forced by the facts to abandon a firmly held belief. Indeed, some of Fortune’s favorites have been known to write scores of empirical articles without once feeling obliged to report a result that contradicts their prior prejudices.
Yours truly has for many years been urging economists to pay attention to the ontological foundations of their assumptions and models. Sad to say, economists have not paid much attention — and so modern economics has become increasingly irrelevant to the understanding of the real world.
Within mainstream economics internal validity is still everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond imagination. As long as mainstream economists do not come up with any export-licenses for their theories and models to the real world in which we live, they really should not be surprised if people say that this is not science, but autism!
Studying mathematics and logics is interesting and fun. It sharpens the mind. In pure mathematics and logics we do not have to worry about external validity. But economics is not pure mathematics or logics. It’s about society. The real world. Forgetting that, economics is really, as Solow says, doomed to fail.
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Growing up I learned about microchip design & the physics within atoms & in outer space. Axioms there were “self-evident truths”: “Axioms are self evident truths. Physics is the study of how things behave. … They are axioms built on applied mathematics within the framework of physics. These equations are not axioms in mathematics, they are justified because they quantify/enumerate the Three Laws in this instance.” Sep 29, 2017 What are the axioms of physics? – Quora https://www.quora.com/What-are-the-axioms-of-physics.” Of course, physics assumes verification within either naturally occurring systems or in controlled labora- tory settings–but verification by massive numbers of empirically-driven researchers in either situation. Some of academic economics seems not to have adopted the “verify” stage, although financial, foreign trade & behavioral economists among others have worked empirically as best they could. An old & never-ending story, until new voices & faces appear.
What you say is true. Axioms are self-evident truths. I find that this blogs community fail to engage in discussion so that economics concepts are never subject to serious examination. The major thinking appears to be which authority to quote. I have found a similar attitude among “Rethinking Economics”. They appear fixed on revisiting existing authorities and by turning up what has gone before hope tp find something new. I keep pointing out that only by applying the actual scientific method will progress be made.
I keep pointing out all conventional quantitative economic analysis is proven invalid by the quantity calculus. This truth is ignored. Why? Does this community agree with this being a proven truth? I have found little engagement on the subject. For good science people need to be engaged in critical discussion. Possibly this is why economics is wrong buy no one will actually say so. The failed analysis is never cleared away.
I suggest you begin reading and debating with “Capital as Power” theorists, specifically Jonathan Nitzan and Shimshon Bichler plus thinkers like Blair Fix and Ulf Martin. I am not saying the interaction necessarily will be intellectually easy or go the way you expect or hope. It will be highly challenging and it might throw a light on your work. Bichler and Nitzan’s analytical paradigm is the most radically critical of classical, Marxian and neoclassical economics that I have come across.
In my view, they have solved the value controversy in modern economics by annulling it altogether in its conventional form. Money is not seen as a measure of value at all but as an instantiation and then a measure of social power. But this is my interpretation of their theory. You would need to read it and form your own interpretation. Then you need to consider engaging or not engaging with their thinking in the light of your own work.
On value: By applying the quantity calculus. it can be shown that the natural unit of output is labour-time. How the quantity of output is related to value is a very different question.
My analysis is fully consistent with the empirical evidence and the requirements of the quantity calculus. As such it is the only non-invalidated analysis in economics.
To Ikonoclast:
The authors you cite (RWER−61) are pursuing a course orthogonal to my analysis. However in their opening sentence they say that it is not known what capital is. That may have been true at the time of writing but it is no longer true. In appendix A. Labour-time of my paper, I demonstrate that the mathematical use by conventional economists requires capital to be labour time.
From the Quora answer: “While the boundaries of the universe are utterly contrived, the universe’s contents are not.”
That’s an important point. As it is, theoretical economics is a contrived universe that sets boundary conditions for all ‘behaviors’ within it, boundaries said to be necessary and sufficient for the understanding of the economic activities of consumers and firms, albeit, in my view, both are properly ‘consumers’ who purchase and use things (commodities and services) to get tangible and intangible benefits from how they are being used by these ‘consumers’. The ‘tangible’ benefits are always measurable material benefits of some kind attached to particular uses. The ‘intangible’ benefits are, some of the time, related to 1) the control of resources and markets (I.e, power over what is produced and for whom); 2) status and political power; and 3) ‘freedom to’ purchase and use commodities which are preferred over other commodities to meet both needs and wants. (This latter, (3), partly underlies why Marshall used a constant utility of money in a universe wherein he posited a declining marginal utility of all other ‘goods’, for any other assumption about the ‘utility’ of money would have made it impossible to have constructed Marshallian demand schedules/curves. That’s also why one cannot ‘find’ such ‘demand curves’ in the real universe outside of economic’s theoretical universe.[This problem was not resolved by the move to ‘indifference analysis’ with its dropping of satiability in commodity consumption].)
Money as a medium of exchange functions largely as permission slips to purchase and use goods one prefers to purchase and use. It’s again in part for this reason that money does not have a diminishing marginal utility throughout Marshallian analysis, for the implication carried by money as permission slips is possible insatiability in the demand for it (for what it brings for those who have it in terms of ‘freedom from’): for the amount of money one has buys ‘freedom from’ most restraints that are ethically or morally necessary for socio-economic harmony and sustainability. Money as a permission slip to do whatever one wants to carries built-in barriers to both economic and political democracy.
Econ is only a science when it comes to understanding manipulating the thoughts of an entire generation. Econ is/was a cultural response to communism – nothing more nothing less.
No to your view that Econ was a cultural response to communism. Ideas of communism/socialism were inherently entertained by many a classical economist, and the ideas of ‘exploitation’ they addressed were inherent in the ‘just price’ controversies dating back to medieval times. Today’s neoclassical economics, I agree, does try to contain and manipulate the thoughts of generations. But that is largely the result of using the price system (and subjective preferences) as the main to sole standard of value inherently motivating all consumption activity: whether of producers (as consumers of goods for the purpose of making money profits) or of individuals and families trying to meet their needs and, when possible, some of their wants.
“Within mainstream economics internal validity is still everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond imagination.” – Lars Syll.
I take the second sentence as rhetorical sarcasm rather than genuine bafflement. What Lars obviously means is why would anyone of a scientific, logical or even ethical bent be interested in such theories. Lars is entirely correct. As with all dogmas, the point of modern economic dogma is social control for the benefit of the ruling oligarchy (plutocrats) and priestly class (conventional economists).
It’s primarily for that reason that the classical framework, having an ethical component that forced attention upon the distribution of income and wealth, was abandoned in one that defined ‘value’ solely in terms of money prices, putting well into the background its distribution with its inherent impacts on both on the consumption of resources for production activities and the consumption of goods to meet needs and wants.
The distribution of money shapes all market activities. In doing so, it shapes the growth paths (and the sustainability paths) of economies as a whole. In other words, markets –through the price system– ‘serve’ only those who can buy in them, and whether the interests of these buyers is consistent with social or economic harmony is ‘hidden’, for the most part, by assumptions about the ‘neutrality’ of money as a medium of exchange, whereas as the distribution of monies always carry real-world impacts for where monies are being spent, affecting all markets for ‘good’ or ‘bad’.
The primary values of the classical school were not monetary ones, but normative ones about socio-economic equity/fairness and the goals of public policy. In a monetary system absent of subjective preferences between goods, the price system implies that all consumers would desire to have goods solely in the relation p1x1 = p2x2= …= pn-1xn-1 = pnxn across all goods. Modern indifference analysis utterly fails to understand that this is a necessary result of price systems: that goods trade solely in relation to their respective prices, and that deviations from such held ‘baskets’ of goods are mostly due to the different tangible and intangible benefits associated with how goods are used as well as the distribution of income and wealth within society.
There are no axioms in science, only hypotheses. Axioms belong in mathematics and logic. Mathematics is useful in the deductive phase of science, but is not itself science. Science involves comparison with observations of the world.
So ‘axiomatic science’ is an oxymoron.
Indeed. Oxymoron is apropos.
“A modern economy is a very complicated system.” (Solow in Syll’s citation)
To understand this complex system, it needs to develop appropriate tools. Some of them may take the form of mathematics. Don’t throw the baby out with the bathwater.
Those who want to understand this complex system should not spare themselves efforts to obtain the necessary capability. Don’t make all aspirants idle economists.
I have reproduced the above comment as a comment to
It is not an easy task to understand a complex system. In site of Lars Syll’s repeated insistence against mathematics, it is one of hopeful tool in attacking complexity. This does not imply a refusal of other methods. And, it is not an automatic operation. It is often necessary to create new mathematics. Most of economists are slaves of mathematics. It is good to denounce that they are misusing mathematics by simply imitating an established methods of investigation. DSGE model is one of them. However, this does not prove that mathematics is categorically useless. Even Tony Lawson never stated such a strong proposition.
An axiom or postulate is a statement that is taken to be true, to serve as a premise or starting point for further reasoning and arguments. That is, in terms of mathematics and logic. But in another context an axiom is an adage or rule-of-thumb. Mathematics and logic are unclear as to the origins of the former. People in everyday life are, on the other hand clear that rules-of-thumb and adages are the results of humans’ experiences with one another and nonhumans. It’s my contention that both sorts of axioms have this origin. But mathematicians (particularly philosophers of mathematics) and logicians conflate the two. Asking us to accept that axioms in mathematics and logic are inherent in humans. In other words, their origins are beyond our world in some mystery world of higher mathematics and higher logic. Poppycock! Both sorts of axioms are created through humans’ experiences. Mathematicians, philosophers of mathematics and logic, and often scientists also, fear this explanation of their axioms and therefore exert great effort and resources to hide their origins. It’s difficult to assert superiority and “take charge” when you’re just like everyone else. What do you think?