Home > Uncategorized > Economics is still in the pre-scientific age

Economics is still in the pre-scientific age

from Michael Joffe

If you are interested in “creating greater economic equality, reducing the power of corporations” and so on, you have to understand how economic power works. I am using “power” here not as an ideological category, but in the sense of causation, the degree of one’s ability to bring something about. It is obvious that in the economy, some people and some organisations (e.g. firms) have more influence than others. What they want to happen is more likely to happen. This is causation, and it is power. So it is nothing whatever to do with the mere theological discussions that Ken Zimmerman appears to think this is about. And it is absent from economic theories (not just neoclassical ones).

To quote discussions among anthropologists about universal human laws etc is just silly. We have ways of finding out how causation works. In biology and other natural sciences, they have worked extremely well. We have known how the human circulatory system works for 400 years. We know a lot about e.g. the causes of many diseases.

If economists applied a similar methodology (mutatis mutandis) to the economy, we would have much better knowledge about how it works, causally. And it is an elementary error to confuse the workings of the economy with something like predicting human behaviour, which everybody knows is near-impossible. The behaviour of the economy has many regularities – most of which seem to me to be system properties like feedback, not reducible to the vagaries of human nature. These can readily be understood if one goes about it in the right way.

And also, to reiterate, this is about understanding causal processes, not about prediction. One of the big flaws (not the only one!) of conventional economics is that it acts as if research is all about prediction. The basis of the natural sciences such as biology is understanding causation. That can help with prediction. But most of all, it means that interventions have a better chance of success. Compare modern medicine, with a scientific basis, with what was going on in, say, the 1850s. Leeches and all that. Economics is still in the pre-scientific age, it is like 1850s medicine.  read more

  1. ghholtham
    December 10, 2019 at 2:32 am

    We have ways of finding how causation works – in a stable system. The human body has not changed biochemically in over a hundred thousand years. Microbes evolve much faster and medicine struggles to keep up. Social systems including economies evolve relatively quickly, at least since the industrial revolution. A few decades ago tens of thousands of people were employed in the UK making steel and motor cars, now many fewer. Eighty years ago there were hundreds of thousands of coal miners in developed countries. No-one much was employed writing computer software, Some macroeconomic relations continue to hold, others appear to have changed. We have a rough idea what is going on but, like generals, we are always at risk of fighting the last war.
    Adam Smith was not so wrong in thinking economic power was dispersed at the time he wrote. The tendency of the capitalist system to generate monopoly and to commandeer the political system was evident to Marx 70 years later. Since then universal suffrage altered the power balance for a time, helped by great wars and the need for mass mobilisation. But in the past few decades we have swung back towards monopoly and plutocracy.
    Identifying stable and persistent causal relationships in such changing circumstances is not trivial..
    One thing medicine and economics have in common is a fringe of homeopaths with implausible remedies, all convinced the specialists are idiots for not believing them.

    • Craig
      December 10, 2019 at 6:26 am

      The paradigm of the economy and the money system hasn’t changed for the entire length of human civilization. Economic specialists are not idiots because they don’t believe me, they’re idiots because, curiously from a scientific standpoint, they don’t and/or refuse to analyze from the paradigmatic level.

      • December 10, 2019 at 10:09 am

        But Craig, economics is still in the pre-scientific class because it is using the WRONG paradigm: not of economics but of scientific method. It is disagreeing about paradigms and what they are because empiricists try to theorise events rather than what is channelling and ordering them: trying to bring order out of chaos before it knows how to by mimicking the ‘force’ rather than the ‘communication of information’ paradigm.

      • Craig
        December 10, 2019 at 6:41 pm

        Dave, yes economics is held back by the fact that the monetary paradigm has never changed for the last 5000 years as David Graeber has written about. It has ALWAYS been Debt Only. That is both its conceptual essence and temporal fact….which should satisfy scientists, but mostly doesn’t because the present paradigm for inquiry is Empirical Science Only and hence strongly tends to invalidate and exclude philosophy and integrative phenomena like paradigm changes.

  2. Yoshinori Shiozawa
    December 10, 2019 at 3:17 pm

    I support Micheal Joffe strongly.

    Michel Joffe >
    ”[Science] is about understanding causal processes, not about prediction. One of the big flaws (not the only one!) of conventional economics is that it acts as if research is all about prediction. The basis of the natural sciences such as biology is understanding causation. That can help with prediction. But most of all, it means that interventions have a better chance of success.

    ”[I]t is an elementary error to confuse the workings of the economy with something like predicting human behaviour, which everybody knows is near-impossible. The behaviour of the economy has many regularities – most of which seem to me to be system properties like feedback, not reducible to the vagaries of human nature. These can readily be understood if one goes about it in the right way.

    Joffe’s idea is explained in his splendid
    Michael Joffe (2017) Causal theories, models and evidence in economics—some reflections from the natural sciences
    https://www.cogentoa.com/article/10.1080/23322039.2017.1280983

  3. ghholtham
    December 10, 2019 at 7:17 pm

    When coinage was based on precious metals, where was the debt? The monetary system has changed considerably in 5000 years. Modern banking began in Lombardy no more than 6-700 years ago. It is not obvious that things are worse as a result. Craig, your history is as flakey as your economics.

    In a complex and evolving system it is often possible to explain past events without being able to predict the future. Historians do that all the time. If you cannot predict, however, you cannot manage the system. For science to lead to a dependable technology of management the system has to be stable enough for causal explanation of the past to imply some ability to predict the future. That is one of the difficulties in economics; sometimes it does and sometimes it doesn’t.

    • Calgacus
      December 10, 2019 at 8:08 pm

      ghholtham:When coinage was based on precious metals, where was the debt?
      Coinage wasn’t based on precious metals so much as preciousness of these metals was based on their use for coins. People just weren’t as obsessed with shiny things before that.

      Coins or quantities of metals were used to represent debts. They are/were money things, the transfer of which is recognized, agreed on as creating a debt of the receiver to the giver. It is this debt, this immaterial credit/debt relation that backs the coins or metals, not vice versa.

      At the most fundamental level, there has been no change in the monetary system in more than 5,000 years. It is important to talk about this fundamental level, because that is the level that the modern mainstream gets completely backwards.

      • December 10, 2019 at 10:14 pm

        Calgacus: “Coinage wasn’t based on precious metals so much as preciousness of these metals was based on their use for coins.”

        Nicely put. So “Coins or quantities of metals were used to represent debts.” Yes; but as I see it the debt is not the “immaterial credit/debt relation”, it is a commitment to do something. If one gives coins to a shop-keeper, one is giving him credit for goods one is purchasing, marking a debt which is discharged by him providing them. Similarly (if one likes to think of it this way round) if one works for an employer his debt to you is discharged by his giving you credit for it. The advantage of the coin (as of the old tally sticks) was that the two sides of the exchange don’t have to take place at the same time, allowing one to e.g. coordinate purchase with completion of production. Without mentioning time it sounds a bit stupid to talk of us selling NZ our apples and them selling us theirs, but we sell them in our autumn and they sell them in theirs. [Thinking of that with family in NZ and of the poor souls so dreadfully injured by that eruption on White Island].

        I agree entirely with your last sentence. I see money as a representation of credit, i.e. representing our own credit worthiness as humans, not the value of the goods we buy.

      • Craig
        December 11, 2019 at 12:33 am

        “They are/were money things, the transfer of which is recognized, agreed on as creating a debt of the receiver to the giver.”

        “At the most fundamental level, there has been no change in the monetary system in more than 5,000 years.”

        Precisely. And recognizing that, that is Debt Only as the sole form and vehicle for the creation and distribution of money,….is the paradigmatic level of analysis that is necessary….if we want pattern change instead of just the various easily undone reforms recommended by heterodox theorists.

    • Craig
      December 11, 2019 at 12:35 am

      Go back to school ghholtham.

  4. ghholtham
    December 13, 2019 at 2:45 pm

    Craig,

    Just think what nonsense you are talking. Next time you buy something with a coin or banknote have you incurred a debt to the seller? Don’t be silly. The coin settles the transaction. Most modern transactions are not of that form but in history they were.
    Gold was valued in societies, eg pre-dynastic Egypt before they had money. Early money derived value from the content of the coins. When the king issued coinage to pay for something, no-one thought the king owed them anything. He’d paid: in gold, silver, copper or whatever. They had an asset to which no debt corresponded. That is the definition of “outside money”. “Inside money” is when as asset acts as a medium of exchange and there is a debt corresponding to the asset – eg a current account entry which is a liability of the bank. I am surprised you don’t know about these elementary concepts and don’t realise that the dominance of inside money is relatively recent in the sweep of human history.

    • Craig
      December 13, 2019 at 5:33 pm

      As I said go back to school. Read David Graeber’s book Debt: The First 5000 years for instance. Gold never worked effectively and never created economic and monetary democracy. Get that appendix removed.

  5. Yoshinori Shiozawa
    December 13, 2019 at 9:11 pm

    I have read Michael Joffe’s preliminary draft: Cost and price reduction in the transition to the modern economy. It was really a great book, which argues the origin of the Industrial Revolution in the early 19th century. His method of evidence-based economics is fully employed and the argument is supported by his tremendous erudition. Although it is not published yet and it is warned “Do not quote, cite or circulate”, this provides us an model example how we should study economic change.

  6. ghholtham
    December 14, 2019 at 4:23 pm

    I’ll make one last effort to establish some common ground. Consider the 19th century gold standard. Central banks promised to pay bearers of their banknotes in gold if requested. In that sense the banknote was a debt of the state. If you went to the bank and demanded payment in the UK they would pay in gold sovereigns. That settled the debt. They then owed you nothing and not did anyone else. Yet you still had gold sovereigns which were an accepted medium of exchange. Classic outside money – no debt. What is the difficulty in accepting that?
    No-one is denying that most money these days is inside money but it is eccentric to claim outside money does not exist or never did. No-one ever claimed there was “economic and monetary democracy”. Still isn’t.

    • Craig
      December 14, 2019 at 4:49 pm

      Gold isn’t workable and doesn’t resolve the inherent scarcity of individual income/business revenue problem. As always, if one wants to resolve and improve issues, what is needed is an integration of truths, workabilities, applicabilities and ethical considerations in opposing perspectives. What we need is to integrate monetary gifting into the debt based system. We don’t have that at all now because the MONOPOLISTIC paradigm of Debt ONLY…reigns supreme. How stupid is that??? We need to integrate monetary gifting into the economy in sufficient quantities and at economically significant places and times to invert the problematic realities.

  7. Ken Zimmerman
    December 18, 2019 at 3:26 pm

    Since this comment seems in part focused on me, I suppose I need to respond to it once again. First, causation does indeed exist. It is real, as they say. As with all such categories or classifications humans utilize, causation is a social convention or social norm. Social conventions are the arbitrary rules and norms governing the countless actions in which we engage daily without full awareness that we do so. Such actions as shaking hands when greeting someone to driving on the right side of the road. Or, declaring that A causes B. Since they are cultural, they may differ from one culture to another. Just as driving on the right side of the road is not the norm in all cultures, so declaring that A causes B is not the norm in all cultures. If we begin with culture, we conclude that our beliefs, morals, behaviors – even our very perceptions of the world around us – are the products of culture, learned as members of the communities in which we are reared. If, as we believe, the content of culture is the product of the arbitrary, historical experience of a people, then what we are as social beings is also an arbitrary, historical product. Thus, we can have no objective basis for asserting that one such worldview is superior to another, or that one worldview can be used as a yardstick to measure another. So, the meaning of a given belief or behavior must first and foremost be understood relative to its own cultural context. That, in a nutshell, is the basis of what has come to be called ‘cultural relativism.’ It is important to understand that many anthropologists, especially in the United States, regard relativism as a sound empirical finding. The anthropological linguists Edward Sapir and Benjamin Lee Whorf used linguistic data to show that categories such as time, space, and number are given in different ways by different languages, leading Sapir to state that in learning a language, we learn a world. Thus, when reporting on a cloud burst speakers of English are likely to say, ‘it is raining’. But what is the ‘it’ that is raining? We say ‘it is raining’ because we are predisposed by our language to think of events in the world in terms of the direct effects of specific causes. In contrast, an Indonesian would report ‘Ada hujan’ (‘there is rain’). Rather than cause and effect, the Indonesian expression predisposes its speakers toward seeing the world as a flowing together of things and events. No cause and effect in Indonesia before the invasion of the western world there. A more consequential example is Chinese and Western ‘science.’ Chinese scientists Wang Xiuhong, Qian Zhaohua, and Su Gengsheng say, “Plato divided the world into perceptible part and knowable part. Perceptible world, namely: phenomena world is changeable, illusory and unreal, that is a facsimile, while knowable world, namely: idea world is steady and real, which is the cause behind the phenomena.” Citing to Aristotle, these scientists explain western science this way. Cognition is the target of western science. People would not deem that they have known a kind of thing before they grip the root cause of it. No similar views exists in Chinese science. Chinese culture doesn’t include them.

    Not all groups serve the needs of their members equally or at all. Resulting in some people having more power than others, meaning they can make the weaker consent through threats and coercion. Wealth is one of the means these threats and coercion are asserted. Within all societies there are classes of people defined by the kinds of property they own and/or the kinds of work in which they are engaged. Beginning in the 1960s, an increasing number of anthropologists began to study the world around them through the lens of political economy. This approach recognizes that the economy is central to everyday life but contextualizes economic relations within state structures, political processes, social structures, and cultural values. Some political economic anthropologists focus on how societies and markets have historically evolved while others ask how individuals deal with the forces that oppress them, focusing on historical legacies of social domination and marginalization. Recognizing that culture is holistic, we find that people come to think of their available choices in everyday life as simply the natural order of things. However, in all cultures of which we know, the degree of control one has depends on the amount of power one has and the degree to which one understands the structural dimensions of one’s life. This focus on power and structural relations parallels an anthropological understanding that economic relations never exist by themselves, apart from social and political institutions. Power is the control one has within the context of economic relations fixed in the culture of which one is a member.

    • Craig
      December 18, 2019 at 7:09 pm

      Generally, in the west what people refer to and experience as consciousness is a debased Cartesian dualism with a bias toward abstraction, NOT cognition, which is an integrative and much more inclusive synthesis of one’s attention and a nascent experience of the electro-magnetic milieu that continually swirls, flows and emanates around us.

      Science in the east has precisely the same problem despite its cultural emphasis toward contemplation because science is about abstraction not cognition and Science Only is presently the monopolistic paradigm of inquiry.

      Economics requires a Wisdomics-Gracenomics and/or a Wisdomics-Satori-nomics both of whose monetary policies and and regulatory programs would reflect the direct and reciprocal dynamic synthesis that is cognition.

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