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Making economics relevant

from Maria Alejandra Madi

This post was written by Carmelo Ferlito.  He is a senior fellow at the Institute for Democracy and Economic Affairs (IDEAS)

I taught economics in Malaysia for seven years. My students were mainly second and third year university students who attended my economics classes (microeconomic theory and policy and history of economic thought) after having already learnt the basic notions of macro and microeconomics.

Most of my students were double majoring in economics and finance. My impression is that, in general, they could see the relevance of finance in their daily lives (it can help in making or saving money) while they struggled to get enthusiastic about economics, which instead was perceived as a set of abstract graphs and formulas, somehow alien from real people’s lives.

Students’ cold relationship with the subject goes hand in hand with the growing disillusionment with the discipline that followed the global financial crisis in 2007 and the apparent inability of economists to see it coming and to deal with it afterwards.   read more

  1. Helen Sakho
    December 28, 2019 at 10:15 pm

    I read through above and all the comments on it quite thoroughly, and believe that while there is plenty of room for expert knowledge (for example, doctors, nurses and surgeons), when it comes to economics, and the vast majority of economists of various persuasions, they have nothing new to say. In fact, they have failed miserably to explain the very basis of decades of polarisation on all fronts, poverty, war, famine, eco-cide and the crises that surround us and the vast majority of humanity on an everyday basis. We must be blind not to see it.

    • December 28, 2019 at 11:58 pm

      I agree. Eco is not at all about making plastic fantastics at an austeritized accelerating rate interrupted only by recession or war.

    • Amdissa Teshome
      December 29, 2019 at 7:17 am

      When I studied Economics in the 80s, cost-benefit analysis (e.g. IRR, NPV, Cost/Benefit Ratio) was the most important tool taught. In a nutshell, it was agreed, produce anything as long as these are positive. However, many variables that could undermine project performance were labeled as externalities and kept outside the model.

      A classic example is the environment. With hindsight, many economists now agree that (if they don’t, as you say they must be blind), none of the industrial and agricultural projects of the past would have been viable (i.e. met the CBA rules) if environmental factors were accounted for; and we would not have been in the climate crisis we are in today. The other side is if those projects were not implemented we would not have seen the growth that the world has experienced to this date. It is a catch 22 situation!

      What is the way forward? There is now a consensus that, whether we like it or not, the old high growth rate driven model must give way for a more sustainable (with low growth rates if necessary) model of development. Economics needs to do more on climate, poverty, hunger, malnutrition, inequality, and so on. It has not scratched many of these surfaces yet.

      What is the role of economists? We often tend to overestimate the role of the Economist in policymaking. Economists’ major role is advisory. To what extent governments listen to advise? Or do they listen to evidence that goes against their political beliefs? This the problem we are having particularly in the developing world.

      • Ken Zimmerman
        December 30, 2019 at 1:01 pm

        Amdissa, COB has always been problematic. Most obviously due to the inability to identify much less measure (with numbers) either costs or benefits for many of the things involved. In many instances there were even disagreements over the definitions of these things. This problem is amplified when things are left out of the COB supposedly for lack of clear definition or failures of quantification. More problematic still is when things are left out or even misrepresented due to cultural conflicts over politics, money, etc. Two major questions were seldom considered, and no agreement on their answer was ever reached. First, is industrialization necessary? Second, is capitalism necessary or useful? If our goal is sustainability rather than maximum growth, we must reach at least tentative agreement on what is sustainability and how it’s achieved. That work has barely begun. And there are dozens of interest groups opposing sustainability which must be overcome. Most economists can play no part in these changes. Wrong assumptions, wrong methods, wrong attitude. But the biggest obstacle is the welfare of the ordinary person. Government can handle the transition if the income of the people is not lowered. Currently, growth is accepted by most people as the source of their income. That assumption must change. But to what?

      • Craig
        December 30, 2019 at 5:14 pm

        To the wisdom of BOTH abundance AND ecological survival via the rational policies and programs enabled by the Direct and Reciprocal Distributism of the new paradigm of Monetary Gifting.

        Which resolves the deepest problem, i.e. the inevitable and economically stymieing build up of debt service costs under the paradigm of Debt Only as the sole form and vehicle for the creation and distribution of money.

        Or we can commit to despair and mass death like good Ptolemaic scholars whose calculations were set aside by the profound simplicity of helio-centrism.

        Can we think on the level of the pattern for chrissake?!!!!!

  2. December 28, 2019 at 10:20 pm

    Well, you have come to a good site here to complain. Here we see the destruction visited upon people because of lousy economics and Lars et all showing it up for what it is, a political version of economics constructed to preserve the basic inequalities of life in all nations. It is well funded and has tentacles through the media, and academia and into all our politicians.

    There are few exceptions, such as those who subscribe to Modern Monetary Theory and others like Steve Keen. Fortunately this is now breaking down the old paradigm, bit by bit. In US Congress Alexandria Ocasio – Cortez has put a cat in with the pigeons and got a big reaction. and it defeats all opposition simply because it describes the way the Economy is really supposed to work. I believe an unstoppable momentum is under way, but it will take time.

  3. Ikonoclast
    December 28, 2019 at 11:33 pm

    A new ontology is of prime importance for renovating economics philosophically and empirically. The key interdependent concepts of Complex System Monism (CSM) as a coherent metaphysical system within empirical philosophy, drawing on complex systems science, and with relevance to economics can be summarized as follows.

    DEFINITIONS

    Model: A simplified representation of a more complex original.

    Monism: Attribution of oneness or singleness to a concept or system, e.g. to the cosmos.

    Ontology: The study of existence, emergence and evolution, in terms of categories and relations
    .
    Process: A transformation over a period of time.

    System: A regularly interacting or interdependent group of items forming an integrated whole. Every system is delineated by its spatial and temporal boundaries, surrounded and influenced by its environment, described by its structure and purpose and expressed in its functioning.

    Real System: Any system which obeys the discovered Laws of hard science.

    Formal System: Any system of signs based on or forming a language, including mathematics.

    COMPLEX REAL SYSTEMS

    All-existence (the cosmos) may be posited as a single complex system (an a priori justification in philosophical terms) and thus the “concrete whole” in the priority monism sense. Parts of the cosmos are sub-systems, sub-systems of sub-systems and so on. The cosmos is a real system. All sub-systems of the cosmos are real systems.

    MODELS & MODELLING

    The entirety of human perception and understanding is achieved by modelling. Brain-internal coalesced perception, as perceived perception, is a virtual model of perceived external reality. Higher level ideations, concepts and explicit models themselves are also all models. Human understanding (and misunderstanding) is comprised of models and nothing but models.

    TRUTH CORRESPONDENCE

    Truth correspondence exists (if it exists at all) as a connection of valid congruences or homomorphisms between our brain’s models (both internal modeled perceptions and understandings and explicit exteriorized statements and models) and all reality external to the brain or mind.

    MORE ON FORMAL SYSTEMS

    Formal Systems are a sub-set of real systems, paradoxical as this statement might first seem. They are a special subset of real systems where information as patterns is encoded, transmitted, received and interpreted in and via real system media comprised of matter and energy. The formal system is instantiated in real system media.

    MATTER, ENERGY AND INFORMATION

    Matter, energy and information can be passed between real systems. For many open systems, the transfers of all three are important. In the case of human formal systems (instantiated in real systems of course including the brain), the transfer of information is usually the most important component. The transfers of matter and energy are often minimal and even deliberately minimized to achieve a high information transfer rate to energy use and/or matter “use”. These material and energy savings are one key reason that all models, both language and mathematical models and crafted scale models say, placed in a wind tunnel, are of pragmatic use as tools for investigating reality.

    THE HUMAN AGENT (A HUMAN BEING)

    Human Agency is the capacity of human actors to act in a given environment.
    The (or each) living human agent is the human connection between human formal systems and real systems.

    We can represent this process very simply as:
    Real Systems Human Agency Formal Systems

    What is represented by the arrows in the diagram? What is shown as passing from Real Systems, through Humans exercising agency, to Formal Systems and vice versa? The simplest physicalist answer is mass, energy and information. This is the correct and complete physicalist description according to modern physics and its relational system model of the cosmos.

    SYSTEM BOUNDARIES

    Matter, energy and information can pass through system boundaries depending on permeability or penetrability. A system boundary is a boundary that separates the internal components of a system from external systems. A system boundary can be an interface for the transfer of matter, energy and information. The process of empirical detection relies on matter, energy, information (in any combination) coming through a system boundary from the detected existent and passing in through the system boundary of the detecting system (a human or human instrument when taking an anthropocentric view). Thence, the “depths” or internals of any system can only be inferred or deduced (as the case may be) by system boundary phenomena or more correctly by system boundary transferred phenomena.

    QUICK SUMMARY OF ONTOLOGICAL IMPLICATIONS FOR ECONOMICS

    The above ontology is more consistent with the discoveries of modern science. It removes the Cartesian assumption of dual substances (of matter and mind or matter and spirit). Hence it removes the “transmission problem”. In Cartesian dualism how does mind affect matter? How does “will” actuate body? How is impulse transferred? This ontology also helps to clear up the puzzle of formal systems and their relationship to real systems. Formal systems are patterns of information instantiated in real system media; real media like human brains, books, diagrams, formulae and scale models to give some examples. Formal systems can be of a descriptive or prescriptive nature. Hard science uses formal system models to describe real systems. Politics, ideology, religion and moral philosophy use prescriptive models to prescribe how humans should behave (and what beliefs should actuate them). Prescriptive models can be viewed as programming and coordination routines designed to govern human behavior in society.

    If we follow on from this we note that money is not real (descriptive of reality) in any way. It does not even measure value although it pretends to do so within the mythology of marketism. It can never capture all values (for example environmental and non-human values) and it does not even capture all human values properly or comprehensively. Money is not denominated in a scientific unit of measurement: SI units or the International System of Units being the only accepted and acceptable measuring units in hard science).

    It follows from this that we can identify money (and its support structure of market components and the state as guarantor of fiat money, markets and contracts) as prescriptive systems, not descriptive systems. Money and money systems tell us what to do and how to behave individually and in society. They are prescriptive not descriptive. To reify (concretize) and fetishize money as a real, objective, albeit heuristic, measure (rather than as an invented fictive social agreement and “finite state machine” network in computing analogy terms) is to misunderstand the ontological category to which money belongs.

    If the “finite state machine” or “finite state model” of the money and market system does not model reality accurately or effectively in even some crucial circumstances (like the approach to thermodynamic and other limits to growth and approaching climate disaster) then it is the finite state machine model of capitalist money and finance which is wrong and which needs to be changed. QED.

    • December 31, 2019 at 4:22 pm

      This is in many ways so close to what I have in mind that our differences (some nuance but some basic) would be better discussed interactively. It is sufficiently detailed for me to have taken a long time to get my head round it. Here I will try and articulate our more basic differences.

      You describe CSM as “within empirical philosopy”; I see empirical philosophy as within the CSM.

      You define a model as a simplified representation of a more complex original. Against that I offer the concept of a new model of a car, or better, a “concept car”, which is not simpler than a production model but designed to provoke diverse human reactions. Fundamental to a representation is that its meaning should not change; I therefore use the word ‘map’, reserving ‘model’ for active (real) systems.

      A process is for me the cause of a transformation; a procedure is a map of it.

      At ‘system’ it is every ‘subsystem’ that is bounded. The cosmos and the number of categories within it grows with time like an arabic number representation.

      At ‘Real System’ the neglected Law of hard science is that processes (including representation) do not change unless something changes them.

      At ‘Formal System’ the neglected Law of information science is that of iconic form: “a [2-dimensional] picture speaks louder than [one-dimensional] words”.

      At ‘Models and Modelling’ I have a completely different theory of perception (as active sense setting).

      At ‘Truth Correspondence’ , well put, but in formal logic the truth is of the logic and in computing it is a procedure doing what it is intended to.

      At ‘System Boundaries’ the internals of a system can be established by violating the boundaries: by Bacon’s method of “taking things to bits to see how they work”.

      At ‘Quick Summary’ , Cartesian dualism makes complete sense in the modern terms of matter being the channels and carrier of energy and information. Even his picking on the pituitary gland rather than the hypothalamus as chemical activator of significant areas of the brain was more inaccuracy than error.

      Well said, that “Prescriptive models can be viewed as programming and coordination routines designed to govern human behavior in society,” and how money functions thus.

      I would add that the material computer circuit and brain paths govern by constraining behaviour, and in the cosmos new categories of capability emerge from complete control of previous freedoms. My theory of this started by using Cartesian coordinates as representations of difference, but my Christmas book, Anne Rooney’s How the World Works: The Periodic Table (p.183), drew my attention to the second level electron shell having “three p-orbitals .. oriented along perpendicular axes so that the electrons are as widely separated as possible, with two lobe-shaped orbitals in each one”. So perhaps my representational

      • December 31, 2019 at 4:24 pm

        A bit dropped off! So perhaps my representational “axioms are empirically based after all”.

  4. Yoshinori Shiozawa
    December 29, 2019 at 6:05 am

    I have added a concrete proposal for a possible syllabus change of economics teaching for beginners. Please see my comment (the comment that is posted on December 29, 2019 5:54 am) to the page
    https://weapedagogy.wordpress.com/2019/12/16/making-economics-relevant/

    It seems to me that philosophical arguments are useless for this kind of practical questions.

  5. Frank Salter
    December 29, 2019 at 8:58 am

    Until economists deal with the solution of appropriate differential equations over time in a physically meaningful manner there will be no progress. This book does not deal with this so the “ignorance” continues.

  6. Ken Zimmerman
    December 29, 2019 at 3:26 pm

    Relevance is about context. Under what circumstances, in what context or contexts is one action, concept, or actor useful in accomplishing a goal or understanding an action, concept, or actor in another setting (time, place)? More simply, if and how is one context related to another? Relevance is about the relationships of contexts.

    For example, in terms of understanding economic arrangements, social position and cultural knowledge are like capital and it is useful to think about them as property that can be accumulated, invested, loaned, and spent. This shows that relevance is metaphorical. In cultures metaphors are a common device. People use them to relate ways of life. One way of life (e.g., economics) is like another (e.g., warfare, family) and thus each can be used to explain the other. They are relevant to one another.

    George Orwell’s allegorical novella Animal Farm, first published in 1945 tells the story of a group of farm animals who rebel against their human farmer, hoping to create a society where the animals can be equal, free, and happy. In the book Orwell parodies the vicious use of language in communist states. ‘All animals are equal, but some animals are more equal than others’ is one of his memorable depictions of how language not only reflects but also constructs evil. Communism uses language to push a predatory view of utopian life. But capitalism is just as adept as communism at using language, particularly metaphors to capture culture. In communist states language became a tool of state oppression, in capitalism it is a tool of money. The use of language is similar, especially in the tendency towards minimizing the importance of human judgment.

    We see this a lot in economics and management. Consider, for instance, the use of the term ‘capital’. Capital, whether in the form of shares, bonds, cash or bank debt, is the formalization of a transaction. Transactions are agreements about value and obligation. Can agreements ‘flow’? One would think not. But economists routinely talk about ‘capital flows’. This metaphor depicts capital as fluid that oozes around the world. Then the pseudo-scientists in economics can analyze how that fluid will behave. Instead of capital being correctly seen as something created by people, based on uncertain judgments it is turned into a sort of natural physical phenomena. People are shifted to the margin in a way that is reminiscent of communism’s use of the idea of historical determinism.

    The capital metaphor of economists does not go unchallenged, however. Witness how Bourdieu uses capital. Anthropologists before Bourdieu note that economists’ use of capital gets the relationship wrong. Capital results from culture and society, not the reverse. In effect, Bourdieu says, “Fine, let’s extend economics to all of culture.” He did this by inventing the term “cultural capital” to refer to the knowledge and experience that people gain during their lives that give them power in daily life, politics, and the economy. Later, he added the related concept of social capital, referring to the positions, connections, and relationships one has by virtue of birth, marriage, and membership in various organizations or offices. For Bourdieu, in every society people deploy and use their economic resources (capital and labor) and their cultural and social capital in political struggles to establish and maintain dominance and power. Modern capitalist societies are different from the rest only because of their complex social and economic institutional entanglements, which allow people to dominate through control of the economy or through political and social office. Bourdieu’s views remain controversial in Anthropology. Generally, they are not supported by observations, which continue to support the standard view in Anthropology that both economies and the discipline of economics reflect the cultures of which they are but one part. There is some evidence, however, that the language and theory of economists (mostly neoclassical) is now directly and indirectly shaping cultures in many parts of the world.

    • Yoshinori Shiozawa
      December 30, 2019 at 7:32 am

      >> [T]he language and theory of economists (mostly neoclassical) is now directly and indirectly shaping cultures in many parts of the world.

      Agreed. Then, what is your strategy for changing this state of cultures? I do not hope your long post ends in bavardage.

      • Robert Locke
        December 30, 2019 at 8:54 am

        It is certainly not to end with the fake news of modern economics, which is not based on contextual studies. but on suppositions without foundations in contexts.

      • Ken Zimmerman
        December 30, 2019 at 1:02 pm

        Correct, as usual, Robert.

      • Ken Zimmerman
        December 30, 2019 at 1:27 pm

        Someone on one of these discussions said to overcome a theory another theory is necessary. But it isn’t theories we’re dealing with here but rather cultures. The current culture emphasizing growth in income, profit, and resource use as the basis of the “good life” developed over the last 500 years. Some parts were planned, but most were accidental events arising from unexpected interactions or interactions of unexpected actors or things. From this culture arose dozens of institutions about work, governing, status, class, God, war, etc. that solidified into accepted, taken-for-granted ways of life. These ways of life extend back into history for 20 human generations or more. As we see with such concerns as climate change, war, weapons use, sovereignty, etc. these institutions are not easily dislodged. Even violent revolutions often aren’t successful in achieving this. The French Revolution and the Bolshevik Revolution in Russia, for example, were massively disruptive of existing culture. But in both instances pre-revolutionary institutions returned in less than 50 years. A more nuanced approach is necessary that leads step by step from the current culture of growth to a culture of sustainability. The closest example upon which we can draw is the Nordic nations after WWII. But they were pushed by brutal climate, economic, political, and resource threats which haven’t yet materialized for the major western nations. If all else fails, we may have to wait for such threats to develop to a much more threatening level in Europe and North America. This may lead to the death of millions, but it may also be sufficient to force change.

      • Craig
        December 30, 2019 at 5:24 pm

        The route to economic sanity and survival is through a new monetary and financial paradigm. Think about the primary problem on the level of the pattern, or make “interesting points” until the current paradigm and its problems collide….and you and yours probable die.

      • December 31, 2019 at 4:52 pm

        Very well expressed, Ken, but one can have too much of a good thing. Why do you have to be so bloody pessimistic? Have you never heard of the Law of Diminishing Returns? The French and Russian revolutions may have been transient, but not the Copernican one. Try reading the Postscript in the third edition of Kuhn’s “The Structure of Scientific Revolutions”.

      • Ken Zimmerman
        January 1, 2020 at 12:35 pm

        Dave, I’m not pessimistic as you say. I try to describe history. I recognize I, like all of us mess up sometimes. I disagree with your use of the word transient for these revolutions. I suggest a more nuanced approach to them. Which recognizes that their influences wax and wane over time. The major pre-revolutionary institutions did return but over time were forced to change because of the process begun in the revolution. For a time, the old remained dominant, and then gradually the new developed greater dominance, till finally the new replaced much or all the old. The process never really stops and is as historians show punctuated sometimes by upheavals people call and historians record as revolutions. Not all follow the same path, but all take some extended (more or less) time to work out outcomes. Both historians and anthropologists study these processes of culture construction. Economists do not.

        The Copernican revolution is different in at least two ways. First, it involved changes in parts of culture that had little impact on the day-to-day life of ordinary people. Ships’ navigation did not change, the most advanced “star gazing” of the time. Most of the population were unaware of this revolution. Second, this was an elite revolution. “Gentlemen” scientists propelled it, on the backs of sailors, instrument makers, etc. of course. But its effects developed slowly. Even today most people, even educated ones could not explain it beyond “the Sun is the center of our solar system.”

      • Craig
        December 31, 2019 at 6:09 pm

        Dave,

        The French and Russian Revolutions were transient because…they were revolutions not paradigm changes like the Copernican cosmological paradigm change. Like every level of analysis below that of the pattern they were caught up in reactionary dualism. Genuine paradigm changes are permanently progressive phenomena.

        Obsessively contentious dualisms and monopolistic monisms are alike failures to conceive of the thirdness greater oneness AKA the state of integrative grace/flow.

      • Robert Locke
        January 1, 2020 at 7:28 am

        french revolution transient; it began when the Church turned its back on the Revolution; that battle manifested itself in the separaion of Church and State in 1906, and today in the fight of Islam for a place in France. Nothing transient about that.

      • Ken Zimmerman
        January 1, 2020 at 12:40 pm

        Robert, I believe my response to Dave’s comment addresses your concerns. If not, please let me know.

      • Craig
        January 1, 2020 at 9:07 am

        Yes, the PROBLEMS of old/current paradigms are seemingly interminable, and the only thing that resolves them is a new one. The self actualization of the concept of grace as in love in action could undo a zillion religious idiocies, and the relevant aspect of that concept, i.e. monetary giving/gifting as the new mega paradigm concept in economics, intelligently implemented, could create the under-girding to enable mankind to finally create a lasting culture of wisdom. What an affirmative postulate for the new year.

      • Robert Locke
        January 2, 2020 at 12:18 pm

        Ken, your response is spot on. Why is’t a view that considers so called crimes of opinion not crimes; iVoltaire fought those battles in the 18rh We fight the same battle gobally today.That paradigm change is contexually different because of the specificities of experience but the goal of human freedom persists.

  7. Yoshinori Shiozawa
    December 30, 2019 at 11:12 pm

    “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

  8. Yoshinori Shiozawa
    December 31, 2019 at 5:50 pm

    I wonder if Maria Alejandra Madi is satisfied with the discussion developed in this blog page. There are few proposals or arguments to change economics lecture courses. Almost all answers are abstract methodology arguments which do not help much in creating a new economics course that can replace actual economics 101.

    Is this really the situation that Real-World Economics Review wants to build up?

    • January 1, 2020 at 10:44 am

      Yoshinori, the prime issue is changing the real economic system, and changes to text-books are consequential on what we change it to. In a response on transmogrifying Keynes, Ken made an affirmation which greatly reassures me that he is with us on this and not a spoiler:

      “But to be honest, I have absolutely no reservations about destroying (rescinding the charters) of corporations or bankrupting the super-rich or even the less super rich if they continue to undermine democratic control of the US.”

      So imagine an economics textbook for a system with no corporations and super-rich people hogging the investment process. Surely it will have to be rethought from scratch, starting from ontology: taking a new position on what economics is, i.e. what it does and how it does it? Surely the rethinking will have to proceed the rewriting or be iterative with it?

      • Yoshinori Shiozawa
        January 2, 2020 at 10:26 am

        Dear Dave
        are you thinking that a revolution in economic system is now possible? If so, please direct your efforts toward it. You will have no time to argue economics.

        You have learned nothing from failures of socialist (or communist) revolution.

      • January 2, 2020 at 11:45 am

        What I have learned, Yoshinori, is that those who control the supply of money will always win while everybody else thinks money represents value rather than credit and responsibility. That is why I drafted “Complex Truth and Honest Money”, which I suspect you have found difficult and left unread.

      • Yoshinori Shiozawa
        January 2, 2020 at 2:23 pm

        Dave >> the prime issue is changing the real economic system

        Dave >> imagine an economics textbook for a system with no corporations and super-rich people hogging the investment process

        We may imagine a world where there are no super rich people. If all countries of the world ally in imposing uniform income and inheritance tax, we may reduce the number of people who own assets million times more than ordinary people. However, unless we would be satisfied by the standard of living before the industrial revolution, it is impossible to consider an economic system which works well without firms.

        You are like utopian socialists who imagined to construct an equitable economy without no good knowledge or understanding of how economy works. Economics is a science that make it possible.

      • Craig
        January 2, 2020 at 6:57 pm

        @Yoshi,

        The new monetary and financial paradigm of Direct and Reciprocal Monetary Gifting is the antithesis of socialist re-distributive taxation and the serfdom of finance capitalism.

        It is also NOT utopianism which whenever it is raised up like a straw man is always conceived of as a top down oppressive phenomenon. D and R Monetary Gifting resolves the major problems of the current mess and places enough money “into the many hands of the individual” so that THEY are empowered to determine who survives economically and, with proper guidance to create their OWN utopia. The real power is thus in the correct hands, and is a bottom up phenomemnon. Inversions are major signatures of all historical paradigm changes.

        Of course the reactionary will say, “Its Communism!”, but it’s actually communitarian which is what everyone says they want when they refer to de-centralization. The new paradigm will finally enable BOTH true decentralization AND the ethical governing of larger organizations as well because its policies and programs will be based on the most unitary and freeing concept the human race has ever conceived and experienced.

        Yeah, yeah, yeah there will fools who will oppose it and decry it….what else is new? But continuing and actual grace as in monetary gifting is very easily understood by anyone experiencing it and is thus just as easily acculturated.

      • January 2, 2020 at 9:19 pm

        Yoshinori claims I am “like utopian socialists who imagined to construct an equitable economy without no good knowledge or understanding of how economy works. Economics is a science that make it possible”.

        That shows just how blind he is to what the real issues arising from the evolution, dynamism and subjectively divergent (if developing) interpretations of science and economics are.

        I’ve said enough for now about the Humean philosophy of science, but Yoshinori: you need to get your head round the cooperative, “not-for-profit” organisation of firms in real economies, which are distinct from the financial empires with or within which they now have to live and therefore need to understand. These are illustrated by the highly successful Mondragon group in Spain, which manages its own finance and invests where the need (not the money) is. I’ll tell you again: read Race Mathews’ “Jobs of Our Own” (or for that matter, Ruskin’s “Unto This Last”) so you will have seen there are alternatives to your mistaken assumption that capitalism is economics. In my own experience, what firms do is what its staff do together, not what ambitious individuals do when competing for promotion (or raiding the till).

      • Yoshinori Shiozawa
        January 5, 2020 at 7:21 pm

        I know cooperatives in Mondragon. Do you have any idea for reforming economics course for undergraduates? This is the page for that. Mondragon and non-profit organization each may be a page of a new textbook, but no more.

      • January 5, 2020 at 8:17 pm

        Yoshinori, this is the page for making economics relevant. It is the form of the economy which needs to be made relevant to living in a finite, living world, not making the form of a text-book relevant to a capitalist form of the economy which is on the verge of destroying the world we live in. It is not just me saying that: Ken says US senator Robert Kennedy was saying much the same much more elegantly back in 1968:

        https://rwer.wordpress.com/2020/01/02/beyond-gdp/#comment-163064

      • Yoshinori Shiozawa
        January 6, 2020 at 6:33 am

        Dave,

        I do not object that this blog RWER blog is a page for making economics relevant. I am afraid that so many commentators to this blog do not acknowledge it.

        However, this page posted by M A Madi and written by Carmelo Ferlito argues economics course. Haven’t read the main post?

      • January 6, 2020 at 10:47 am

        Yoshinori, you are almost right: ” Haven’t read the main post?” This far down the line I had almost forgotten it and had in mind Peter Dorman’s comments on the limitations of experimental science. Apologies therefore for any overstatement here.

        The image which stuck from Carmelo Ferlito was that of pluralism as “karst river patterns”, which I accepted of micro-economics in much the same way as I accept that some electronic engineers focus on communications, others on computers or control systems. But note that he opted for economic history rather than economics, and this:

        “Realism means, first of all, to help students to understand how economics can say something about most of the aspects of human life, for example, to woo a girl or boy and the patterns of traffic jams can both be explained by sound economics. This does not mean to renounce abstraction, but to choose that level of abstraction that is functional, a powerful explanation of reality rather than the one that tries to subjugate reality to its unrealistic assumptions”.

        And this, which sheds a different light on pluralism:

        “The discipline is not a monolith. An unsatisfactory textbook explanation or assumption does not mean the absolute nonexistence of more satisfactory ones. Students need to be introduced to different paradigms, to be trained to look for contending explanations and to develop a judgment about them.”

        If you can follow the argument in “Complex Truth and Honest Money”, its PID logic ends up realised in boys and girls raising their families, with its control schema – applying to both brains and economies – being interpreted in different ways, from static flows to single-feedback, complex feedback and personalised networks prioritised to avoid traffic jams: as in satnav helping us to steer our own canoe, and government aimed at enabling us to control ourselves rather than it trying to control us.

  9. January 2, 2020 at 11:33 am

    Ken at December 30, 2019 at 1:27 pm
    “Someone on one of these discussions said to overcome a theory another theory is necessary. But it isn’t theories we’re dealing with here but rather cultures”.

    Again I want to say how well Ken’s argument is expressed, even if it misses what I see as the key points: that culture is the embodiment of theory in that it is reinforced by it, and the conclusion I have recently reached, that capitalism began pre-theoretically with the Black Death in fourteenth century England leaving large areas of depopulated agricultural land being made use of for grazing sheep. Mass-production of wool led to profitable international trade, hence Smith’s theory that wealth is to be made by generating and trading surplus.

    • Ken Zimmerman
      January 2, 2020 at 3:39 pm

      Dave, culture is the result of the accumulation of experiences, of all sorts. Often nonlinear and unexpected, one might call culture in large part accidental. Within any culture many explanations (theories) are created. Some as short as two sentences. Others covering the pages of many books. Before writing, cultures and the theories emerging from them were carried orally. Which sometimes limited the size and complexity of both. There are many answers offered for the origins of capitalism. Largely resulting from how capitalism is defined. Early rudiments are easiest to find in long-distance trade. Usually referred to as merchant capitalism. In Mesopotamia and the eastern Mediterranean, on the “Silk Road” and the great East-West trade route through the Indian Ocean, this trade was largely in the hands of independent merchants. These merchants traded on their own accounts, even if this was usually done in close coordination with the politically powerful, and often, moreover, in close cooperation with other merchants, typically in cross-border networks based on common ties of ethnicity, homeland, or religion. There was no lack of profit seeking, daring, dynamism, or a willingness to cope with insecurity and competition.

      Merchant capitalism developed relatively late in medieval Europe, and then differently than in Asia. In medieval Europe capitalistic practices caught on in long-distance trade. Between the 12th and 15th centuries, trade between Europe and Asia that had heretofore been rather sporadic extended, with increasing density and regularity, from the coastal cities of northern Italy, southern France, and Catalonia to Egypt, Palestine, Syria, and Byzantium, and from there further eastward. The Crusades of the 12th century, which to some extent were raids, simultaneously upset and powerfully stimulated East-West trade. For a long time, this trade was managed by shipowners, merchants, and ship captains from Venice, Genoa, and somewhat later Florence, together with Pisa and Livorno, soon also points of departure for ships sent through the Straits of Gibraltar to France, Flanders, and England. Another important trade route ran through the seas in the north and linked Russia, Poland, and Scandinavia with Flanders, Brabant, and England. Yet routinely used and increasingly upgraded trade routes were also developed on land: these included the Alpine passages from Italy to southern Germany and further north, continuing along the Rhine route that led from Basle to the Netherlands, where there was an oversea connection to England; there were also links that emerged between these trade regions because of regular visits to trade fairs starting in the middle of the 12th century (initially in the Champagne region of France).

      Not only were the merchants who carried on this long-distance trade following capitalist principles, they were also developing cooperative solutions to reduce the considerable risks associated with long journeys over great distances. For the overland journey they banded together into caravans, and they sent their ships out in fleets, not infrequently numbering fifty to a hundred, well-armed in order to protect themselves against raids by robbers and pirates (and sometimes also by competitors!). In a time of weak states and widespread mistrust toward foreigners, traveling merchants from the same regional or ethnic background who found themselves in the same distant destination often stayed in close contact with each other, and even lived there together on a mostly temporary basis, separated from the native population, in trading stations, lodges, overseas branch offices, or specialized urban districts, often with separate self-governing institutions and special legal jurisdictions of their own; these arrangements rested on a foundation of privileges the merchants had acquired from the relevant local authority in exchange for services rendered. As a rule, these were temporary associations among highly mobile persons, yet they could also develop into long-term unions, the best-known example of which is the Hanseatic League. The merchants of the Hanse liked to combine in pairs and form small trading companies that would last for several years. They shared what were frequently high profits: in the 14th and 15th centuries, it was said, there could be an annual return of 15 to 20 percent, as measured according to the paid-up capital. Most of the merchants belonged to several such trading companies, if only in order to spread the high risks of maritime trade. The methods of bookkeeping were simple. The merchants functioned simultaneously as their own bankers and money changers. Buying and selling on credit was the rule, and the merchants made use of cashless money exchange, using bills of exchange (promissory notes and drafts). Creditworthiness was essential for mercantile success, and merchants observed each other reciprocally and controlled each other indirectly in this way, even though everyone guarded the state of their business as a secret. This form of merchant capitalism was cooperatively molded and closely tied to politics. Common institutions that, like the branch offices, looked after merchants’ business tasks collectively, and not only were important strategic decisions made by individual merchants acting on their own, but such decisions were also discussed in the council meetings and governments (political bodies not infrequently dominated by merchants) of the relevant cities and at irregularly scheduled Hanse diets. The longstanding success of the Hanse was equally based on a corporative urban policy that sought out and allocated privileges to individual merchant-entrepreneurs, and which did not shy away from military conflicts if deemed necessary or useful.

      Another variant of merchant capitalism that, on the whole, had more dynamism and a more promising future was developed between the 12th and 15th centuries in northern Italian cities (especially Venice, Pisa, Genoa, and Florence) as well as in southern German cities (especially Nuremberg and Augsburg), where the emphasis was also on long-distance trade. This kind of trade required methods for bridging long distances and, if possible, without transporting sacks of coins. These projects—perhaps sea journeys lasting several months, often between one and two years, to distant ports, with several intermediate stops and multiple transfers of goods that were new or different each time—kept getting bigger and requiring more capital. Business on the basis of advance payments and credits had already become the rule in Venice as early as the 12th century, in part on the basis of very high interest rates (20 to 40 percent in the middle of the 12th century, in some cases). The need for minimizing risk was immense. Several merchants and moneylenders acting as silent partners would join to form temporary companies. Most conducted business in different lines simultaneously, with different products and functions; there was neither room nor incentive for specialization. Frequently a merchant worked with several ships, while in other cases several owners of capital operated a ship jointly. Profit was sought in order to augment the capital. A large portion of the required capital was generated in the trade itself, but large sums also flowed out of assets acquired politically, even violently, or through agriculture. Large, even huge riches were accumulated, at first (in the 12th century) only during an individual merchant’s lifetime, but later as inherited wealth when one generation shifted to another, and later still with the aim of creating a cross-generational firm. The formation of enterprises with legal personalities of their own—distinct from the household of their shareholders and operators, and moreover often with a variety of changing owners—represents a development in medieval merchant capitalism from the 13th century onward, and especially during the 14th and 15th centuries, that can hardly be overestimated. It was also a development apparently missing in the versions of merchant capitalism found in China and Arabia. The Great Ravensburg Trading Company, which started in textiles and did business Europe-wide, was supported by more than a hundred families and existed for 150 years (1380–1530). This expansion of merchant capitalism in the High and Late Middle Ages would not have been possible without the invention of new methods and the deployment of new legal forms. Double-entry bookkeeping, which juxtaposed debit and credit precisely so that both sides of the ledger were instantly retrievable, was known in northern Italian trading cities by the fourteenth century at the latest, and for a long time it was labeled the method alla Veneziana. The monitoring instrument of double-entry bookkeeping, however, was not broadly implemented until the 19th century. Overall, this technique proved much less important for the rise of capitalism than scholars like Weber and Sombart assumed. In commercial practice new methods were created, and were soon also introduced as rules and regulations, for handling cashless lending, dealing in promissory notes, and futures trading. This had the effect of expanding, quite decisively, the spatial and temporal dimension within which the business of merchant capitalism could take place. Not only were Arabic-Indian numerals—including zero—adopted from the Orient (around 1200) so as to facilitate written calculations, it also happened that some methods for trading and calculating were copied from Arab competitors and partners. Different legal forms for shareholding, partnership, and capital consolidation were developed, and these rudimentary innovations facilitated capital shares with limited liability (though without an option for trading the shares). The reawakened tradition of Roman law, with its formal rationality and contract-friendly design, was helpful here, even if it did not prove decisive. In contrast to merchant capitalism in Arabia—and, it would appear, China as well—the southern and western European variants exhibited a striking dynamism; it extended beyond trade, on the one hand in the direction of a financial capitalism with independent institutions and a special closeness to the politically powerful, and on the other hand by penetrating in the first rudimentary way into the world of production.

    • Yoshinori Shiozawa
      January 5, 2020 at 7:25 pm

      That someone is me. I cited several times the dictum: It needs a theory to beat a theory. This is an advice for Lars Syll. Criticizing alone is not sufficient to replace mainstream economics. We need a new economics.

      • Ken Zimmerman
        January 6, 2020 at 2:43 am

        Yoshinori, as I’ve already pointed out there are lots of alternatives out there for mainstream economics. No need to invent others till we consider current options available. I’ve pointed out a few myself. Including Institutional economics (old and new), Islamic economics, and state socialism (my example, Nordic nations). Robert pointed our German historical economics. There’s also English and French historical economics. Democratic socialist economics is in the press a lot right now. As is corporatist economics. Let’s work out the details on how the world economy might look with any one or some combination of these in place. We have lots of options to consider long before we need to invent something new.

      • Yoshinori Shiozawa
        January 6, 2020 at 7:44 am

        Ken, your post on January 6, 2020 at 2:43 am reveals clearly what you are thinking about. You named various heterodox economics including already extinct German (and English) historical school and democratic socialist economics.
        What I am asking is the theoretical basis on which old (Orthodox) institutional economics, Evolutionary economics and Post Keynesian economics, Complexity economics, and others draw. (It is quite difficult to include New Institutional Economics among heterodox economics, because it draws too much on neoclassical economics.)

        These heterodox economics have their own (pre-analytical) visions on how economy works. The trouble with these economics is that they have no firm foundations that can replace neoclassical economics.

        In the case of Post Keynesian economics, this is equivalent to say that it lacks microfoundations. This is true at least for Kaleckian economics, which is a powerful strand of Post Keynesian economics. Evolutionary economics is against the holy trinity: rationality, selfishness and equilibrium. But excepting neoclassical framework like Arrow and Debreu (1954) Existence of an equilibrium for a competitive economy, Econometrica 22: 265-90, there has been no theory that can explain how a large complex decentralized economy works. Similar thing can be said for Complexity economics.

        When I say that it needs a theory to beat a theory, I always refer to basic or microfoundation theory that can compete against Arrow-Debreu general equilibrium theory. If I add a word, our new book with Morioka and Taniguchi: Microfoundations of Evolutionary Economics, Springer-Japan, 2019 is for the moment a unique basic theory that supersede Arrow-Debreu theory in many aspects. Please read the Preface to the book here:
        https://www.researchgate.net/publication/334508762_Microfoundations_of_Evolutionary_Economics

        Ken also cited Democratic socialist economics and Islamic economics. We may add Feminist economics and Ecological economics among this category. These economics are set of political, religious, and sociological claims and rather normative ones. (Islamic economics is necessary because Islamic law stipulates customs that are legitimate in non-Islamic countries.) They should be classifies as applied economics. They have no independent theoretical frameworks.

      • Ken Zimmerman
        January 6, 2020 at 12:59 pm

        Yoshinori, you’re a hoot! You want someone else to do all the work. All I listed are viable options for remaking an academic discipline. None are ‘extinct’ as you claim. I do not include any form of post Keynesian economics. That’s already in my view too corrupted. You claim, “These heterodox economics have their own (pre-analytical) visions on how economy works. The trouble with these economics is that they have no firm foundations that can replace neoclassical economics.” I think you’ll find all have firm factual bases. Not necessarily mathematical or even what would be called today scientific foundations. But often historical/cultural impeccable foundations. Read their literature. I’ve seen nothing in this blog or in the current economic literature that supports a need for micro foundations for economics. You claim that democratic socialist, feminist, ecological, Islamic, etc. (I assume) are sets “…of political, religious, and sociological claims and rather normative ones.” The current economics discipline also clearly fits this description. And you say they have no “independent theoretical frameworks.” That is not correct, in my view. I suggest you read their literature. I think you’ll see you’re incorrect.

      • Yoshinori Shiozawa
        January 6, 2020 at 3:31 pm

        Ken, your long offense and defense reveal that you have only superficial understanding of both mainstream and heterodox economics. You know names of various strands and no knowledge on their theoretical contents. Anthropology and economic history do not help you to understand economics. They serve you as epistemological obstructions. Of course, you will not understand it as you never did. I finish my intervention here. Please continue your eloquent speech.

      • Ken Zimmerman
        January 6, 2020 at 3:44 pm

        I know their factual and theoretical contents. I don’t believe you know even the least little bit about any of these alternatives. You certainly haven’t shown any interest or understanding of any of them. Apart from saying, without evidence they won’t work. Show me I’m wrong. Or stopping sending these nonsense comments.

      • Robert Locke
        January 7, 2020 at 9:30 am

        This blog began with the assumotion. c. 2000 that economics as taught was no prescriptive science, and that we needed to allow studies of sodiety into the dialogue. You can see the result in these exchanges 20 years later. As an historians I could write the history of this blog, which would be typical of all groups of individuals, lots of disagreement and some progress.towards clarification of the subject, which is typical of human beings.

      • Ken Zimmerman
        January 7, 2020 at 1:12 pm

        Robert, for over 20 years economics as practiced by most economists in the 20th century seemed like not just a waste of time, resources, and people’s lives, but a positive impediment to solving many of the world’s major problems. Economic anthropologists and the few economic historians still around have criticized this economics and suggested changes. To no effect. After the rebellion of first French and then American economic students it seemed economics might be on the cusp of real change. It isn’t. Apart from a few angry academic papers and editorials, economics remains the same mathematized, overly formal, and equalizing markets junk science it was 20 years ago. Economics desperately needs pluralism. But is unlikely to create it on its own. I’ll take your word for it that this blog is typical. The examples of current Republicans using economics and the law to undermine democracy are now running in the triple digits. Time is running out.

      • Yoshinori Shiozawa
        January 7, 2020 at 11:44 am

        Robert,
        it is a great idea that you write the history of this blog. I have participated this blog from two or three years ago but I know no history before I became to frequent this blog.

        Don’t say “I could write” but please say “I will.” If the history of this blog is written, it will be a great contribution how communication between individuals with totally different backgrounds can develop. There were surely such communications in the past, but most of them (except the age of Republic of Letters) were done orally and they did not leave sure textual evidence. The novelty of a blog is that you can get the relevant texts easily.

  10. Craig
    January 2, 2020 at 6:22 pm

    If you want a paradigm change in economics you have to realize that: “It’s the monetary and financial paradigm that you have to attend to, stupid.”

    No insult intended.

    • January 2, 2020 at 10:25 pm

      Craig, I entirely agree with this, but another change is needed in respect of method, i.e. not assuming automatic equilibria but realising what is needed to attain it (PID error correction).

      Ken, your mastery of words is much greater than mine, but I’m not jealous. I learned early the engineer’s dictum that “an engineer can make for a penny what any fool can make for a pound”. As Craig says, no insult intended. My point is that if the problem is in the architectural structure one doesn’t need to go into all the details of where the fittings go. If reality is four-dimensional then linear language can only represent quantity and opposition without words understood to involve complexity and multi-dimensionality. This, I think, is what Frank is fishing for when insisting on using International Units.

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