Home > Uncategorized > The problem of weak first principles

The problem of weak first principles

from Bernard Beaudreau and RWER #91

Economics is both a social and non-social (pure and applied) science, social in its quest to understand human behavior in the realm of goods and services, and non-social in its understanding of material processes – that is, the way in which goods and services (our bread and butter) are produced. It therefore stands to reason that for it to be successful, it must decipher how human beings think, and second, how inanimate material processes behave. It must understand the mechanical and physical laws that underlie production processes. In short, before it can begin to say anything of value, it must understand its subject(s). Has it?

In this section, we argue that it hasn’t on both counts, namely consumption and production.[1] In short, modern consumer and producer theory is vestigial in nature, dating back to the mid-19th century, to a time when social sciences were virtually unknown and our understanding of production was devoid of science altogether. That this was the case back in the 1860s and 1870s is not the issue. Rather, what is at issue is the failure of economics to evolve, whether it be internally, or via the other related scientific disciplines (psychology, sociology, process engineering, applied physics). It is worth noting that all of these related fields have witnessed great progress over the intervening time period (e.g. the laws of thermodynamics)

1 Weak first principles: the case of consumer theory

For a college freshman, or any layperson for that matter, taking their first microeconomics course is akin to traveling to another planet or universe where the inhabitants are less evolved (more primitive), and where the laws of physics are, for all intents and purposes, suspended – in short, a case of social science fiction. It is a voyage back to a simpler time, a dark ages of sort, when behavior was ascribed to spirits, and motion, to something referred to as vis visu.  

In short, s/he learns that we as a species are concerned uniquely with something we call utility, measured in utils. There is no reason given as to why we are so intent on maximizing it, but instead are told that it has to do with our fundamental nature. While simplicity and reductionism do have a place in formalization, it is not and should not be seen as the end result. Unfortunately, this is where consumer theory comes up short for this is precisely where the analysis ends. Everything and anything is and can be a source of utility.

While we can forgive the likes of William Stanley Jevons, Francis Ysidro Edgeworth and Alfred Marshall their simplicity in formalizing behavior in the 19th century, it becomes a matter for discussion/debate whether we can do the same in the 21st century, given the advances made in the related behavioral sciences of psychology and sociology. For some reason, the profession has remained impervious to outside influences, with the result that today, despite having similar interests and concerns, economists and psychologists/sociologists do not see eye-to-eye, and have little-to-no common ground. Reducing Homo-sapiens to a mere utility maximizer/automaton has not earned economics any brownie points in the rest of the social sciences.

In the end, it boils down to one thing, namely that the ultimate purpose of the social sciences is to learn how members of our species think–or attempt to understand the way they think and hence, behave. Given its track record in so far as consumers are concerned (or economic agents), it is not at all clear that we economists have succeeded in that part of our mission.

2 Weak first principles: the case of producer theory

The same criticism applies to producer theory where output is modeled as an increasing function of capital and labor. While this may have been acceptable to mid-19th century political economists, it is orthogonal to our (non-economic) current understanding of material processes. Broadly-defined physics has shown us that all material processes, bar none, are energy based, and that modern-day labor and capital, not being sources of energy, are organizational inputs (read: non-physically productive). In short, the laws of physics (kinetics and thermodynamics) are what govern production processes. There can be no exceptions and no violations. Again, the role of the economist in so far as production is concerned is to understand the behavior of material processes. Once more, it is not at all clear that we have succeeded.  read more

[1] By consumption and production, it should be understood, mainstream consumer and producer theory.

  1. Meta Capitalism
    March 21, 2020 at 12:29 am

    In short, s/he learns that we as a species are concerned uniquely with something we call utility, measured in utils. There is no reason given as to why we are so intent on maximizing it, but instead are told that it has to do with our fundamental nature. While simplicity and reductionism do have a place in formalization, it is not and should not be seen as the end result. ~ Bernard Beaudreau, RWER #91, The problem of weak first principles, 3/20/2020

    .
    Amartya Sen in his essay Rational Fools: A Critique of the Behavioral Foundations of Economic Theory takes us on an intellectual journey back in time to the thoughts and reflections of one of the founders of the field of economics:
    .

    In his Mathematical Psychics, published in 1881, Edgeworth asserted that ‘the first principle of Economics is that every agent is actuated only by self-interest’. This view has been a persistent one in economic models, and the nature of economic theory seem to have been much influenced by this basic premise…. I should mention that Edgeworth himself was quite aware that this so-called first principle of Economics was not a particularly realistic one. Indeed, he felt that ‘the concrete nineteenth century man is for the most part an impure egoist, a mixed utilitarian’. This raises the interesting question as to why Edgeworth spent so much of his time and talent in developing a line of inquiry the first principle of which he believed to be false. The issue is not why abstractions should be employed in pursuing economic questions—the nature of inquiry makes this inevitable—but why would one choose an assumption which he himself believed not merely inaccurate in detail but fundamentally mistaken? (Sen, Amartya K., Rational Fools: A Critique of the Behavioral Foundations of Economic Theory. In Choice, Welfare and Measurement (1982). Cambridge: Harvard University Press; 1982; pp. 84-85.)

  2. March 21, 2020 at 10:06 pm

    A quick read of the larger article raises questions not considered. Why is growth a goal? How do we handle the limits to growth? We live on a finite planet but assume infinite growth is possible.

    What about the value assumptions inherent in the current and past economic paradigms such as the purpose of economic activities? Should we not be addressing well-being of people and how does one measure that? It seems the metrics used are faulty with assumed correlations that seems to be incorrect.

  3. March 22, 2020 at 3:53 am

    I appreciate that the post divides economics into two aspects: the social and non-social. Or, economics can be divided into: thinking and physical. Natural or physical laws restrict economic behaviors, but unnecessarily pessimistic. Why? Because of innovations, or the improvements of thoughts, which create the major part of growth. Once economics does not start from its “weaknesses”, but from a minimal unit of thinking, or the meta-operation, or the thinking “atom”, it will reasonably enter into the endless processes of computational evolutions, or the Combinatorial Explosions likely as the universal Big Bang, and the mainstream equilibrium will inevitably collapse. Economists have always correctly support the optimistic prospect of economic growth — despite occasional skepticism. Environmental problems, as one of problems mankind facing, are bound to be, following the innovative perspective, mitigated continuously — including the energy issue. Welcome to visit my site to read and comment the latest introductory paper of Algorithmic Economics: “The Birth of a Unified Economics”. Thanks!

  4. March 23, 2020 at 9:57 am

    I appreciate that the post divides economics into two aspects: the social and non-social. Or, economics can be divided into: thinking and physical. Natural or physical laws restrict economic behaviors, but unnecessarily pessimistic. Why? Because of innovations, or the improvements of thoughts, which create the major part of growth. Once economics does not start from its “weaknesses”, but from a minimal unit of thinking, or the meta-operation, or the thinking “atom”, it will reasonably enter into the endless processes of computational evolutions, or the Combinatorial Explosions likely as the universal Big Bang, and the mainstream equilibrium will inevitably collapse. Economists have always correctly support the optimistic prospect of economic growth — despite occasional skepticism. Environmental problems, as one of problems mankind facing, are bound to be, following the innovative perspective, mitigated continuously — including the energy issue.

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