Friedman-Savage and Keynesian uncertainty
from Lars Syll
An objection to the hypothesis just
presented that is likely to be raised by
many … is that it conflicts with the way human beings actually behave and choose. … Is it not patently unrealistic to suppose that individuals … base their decision on the size of the
expected utility?While entirely natural and under-
standable, this objection is not strictly relevant … The hypothesis asserts rather that, in making a particular class of decisions, individuals behave as if they calculated and compared expected utility and as if they knew the odds. The validity of this assertion … depend solely on whether it yields sufficiently accurate predictions about the class of decisions
with which the hypothesis deals.
‘Modern’ macroeconomics — Dynamic Stochastic General Equilibrium, New Synthesis, New Classical and New ‘Keynesian’ — still follows the Friedman-Savage ‘as if’ logic of denying the existence of genuine uncertainty and treat variables as if drawn from a known ‘data-generating process’ with known probability distribution that unfolds over time and on which we therefore have access to heaps of historical time-series. If we do not assume that we know the ‘data-generating process’ – if we do not have the ‘true’ model – the whole edifice collapses. And of course, it has to. Who really honestly believes that we have access to this mythical Holy Grail, the data-generating process?
‘Modern’ macroeconomics obviously did not anticipate the enormity of the problems that unregulated ‘efficient’ financial markets created. Why? Because it builds on the myth of us knowing the ‘data-generating process’ and that we can describe the variables of our evolving economies as drawn from an urn containing stochastic probability functions with known means and variances.
This is like saying that you are going on a holiday-trip and that you know that the chance the weather being sunny is at least 30% and that this is enough for you to decide on bringing along your sunglasses or not. You are supposed to be able to calculate the expected utility based on the given probability of sunny weather and make a simple decision of either-or. Uncertainty is reduced to risk.
But as Keynes convincingly argued in his monumental Treatise on Probability (1921), this is not always possible. Often we simply do not know. According to one model the chance of sunny weather is perhaps somewhere around 10% and according to another – equally good – model the chance is perhaps somewhere around 40%. We cannot put exact numbers on these assessments. We cannot calculate means and variances. There are no given probability distributions that we can appeal to.
In the end, this is what it all boils down to. We all know that many activities, relations, processes and events are of the Keynesian uncertainty-type. The data do not unequivocally single out one decision as the only ‘rational’ one. Neither the economist, nor the deciding individual, can fully pre-specify how people will decide when facing uncertainties and ambiguities that are ontological facts of the way the world works.
Some macroeconomists, however, still want to be able to use their hammer. So they — like Friedman and Savage — decide to pretend that the world looks like a nail, and pretend that uncertainty can be reduced to risk. So they construct their mathematical models on that assumption. The result: financial crises and economic havoc.
How much better – how much bigger chance that we do not lull us into the comforting thought that we know everything and that everything is measurable and we have everything under control – if instead, we could just admit that we often simply do not know, and that we have to live with that uncertainty as well as it goes.
Fooling people into believing that one can cope with an unknown economic future in a way similar to playing at the roulette wheels, is a sure recipe for only one thing – economic catastrophe!
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Real-World Economics Review Blog 
Even if you were content to assume people knew everything about all the probabilities of all events in the future and were amazingly rational in their choices, you’d still have to deal with non-transitive preferences. Many economists deny that these are possible but in fact, if you have at least three options and three or more criteria for choosing among them, it is easy (and probably quite common) to see a situation where A is preferable to B, B is preferable to C, and yet C is preferable to A. Is there a rational choice in such a situation? Hint: No, there isn’t.
Lars Syll talks about the world as if all that happens in it are everywhere and always uniformly uncertain. But the world is more structured. Some are radically uncertain, but some are more stable and some are less uncertain. It is useless to talk endlessly that the world is radically uncertain.
We should change our research strategy. In this regard, Peter Radford‘s old speculation (almost 10 years ago) may give us some hints for us:
“Lars Syll talks about the world as if all that happens in it are everywhere and always uniformly uncertain”.
The issue is not to create a prescriptive science but to create a society that copes skillfully with unknowns and the unpredictable. What kind of society is that: one with solid education in mathematics and languages. Then, if you find out in ten years that you were wrong, you didnt need electrical engineers but infomation engineers, you can quickly acquire them.Adaptability is the key not prescription.
Robert, would you like to explain more directly what you want to say?
I have only cited several paragraphs of Peter Radford’s article about ten years ago. I did not “find my self in ten years that I was wrong”. At least in the above comment, I did not say such a thing. Are you talking with some other person than me?
“There is no way to make educational institutions serve specifically the professional and occupational needs of an economy. And such a response is not really necessary: For most bosses in a business or firm find that they want people with quite different qualifications than those imagined when the first positions were advertised. Also the positions offered can be filled by people of quite diverse training. Peter Mertens in key qualifications argues that evens if their initial predications about knowledge and skill needs are wrong, the imminent elasticity of the system is important.” (Locke, 1989, Cambridge univ. press, management and higher education since 1949.219-21.The key qualifications for adaptabity are good training in mathematics and languages.
I do not still understand what you want to say. If this is totally independent from Lars Syll’s article and my comment on it, I agree with you. Key qualifications for adaptability must be, as you say, mathematics and languages. From the ancient Greece, seven liberal arts were considered to be necessary for the free person to get their essential culture. In modern terms, they may be summarized as mathematics and language. in Franch lycée, these two are separated between philosophy and mathematics classes.
I think we agree, although I hink we would not agree that firms deal with unknowns very effectively because of self-interest.
“The issue is not to create a prescriptive science but to create a society that copes skillfully with unknowns and the unpredictable.”
Yes, and that also deciphers and focuses on the real and deepest problem, namely debt and money…specifically the monetary and financial paradigm. The former is what Steve Keen recognized that neo-classical economics ignored. But what happened then? Like most intellectuals who value problems more than solutions he moved onto another and even more thorny problem, energy and its climate effects.
Economics has been (mostly correctly) been analyzed 15 ways from the middle and over and over and over again….and almost entirely without positive effect. A clear sign that it is missing the mark.
Here is the necessary prescription:
1) Focus on money and debt
2) Recognize that the deepest problem is the monetary and financial paradigm…and our failure/unwillingness to analyze on the paradigmatic level
3) Find the new tool and/or insight that resolves the problems of the old/current monetary and financial paradigm
4) Start a socio-economic mass movement to herd the entirety of the political apparatus toward the solution and its policies discovered
5) Maintain the focus and political pressure until the new paradigm and its policies are implemented
Sorry. I made a mistake. I have omitted a “/” in the second last closing block quotation. Text after “Quotations are all from an article “Speculations on uncertainty: A respectful response to Hannes” on January 28, 2011.” is all mine.
Let me repeat the last part of my comment:
Quotations are all from an article “Speculations on uncertainty: A respectful response to Hannes” on January 28, 2011.
I do not object Radford’s thought on uncertainty. It is argued constructively. My book with Morioka and Taniguchi is also based on the fundamental recognition of this kind. I have explained in Chapter 1 how to deal with ubiquity of intractable problems (refutation of neoclassical economics) and how our economic behavior is organized in this world of uncertainty in a similar spirit as Radford. We have selected certain types of firm’s behaviors (in Chapter 2) and observed what will happen in this virtual world (Chapter 2 to Chapter 6). The book made it clear that, in an certain range of situations (for example, when the final demand changes “slowly”), how the economy (a system of firms connected with each other by input-output relations) works with this set of behaviors. This does not mean that our theory is universally valid. Instead, we claim that our theory has clarified how conventional (Radford would say “institutional”) behaviors can generate certain type of processes that are quite stable withing the range of validity.
I believe our approach is much more productive than Lars’s endless talk about uncertainty and its essence without any prospects to develop an alternative economics or with no visible progress of his thought. How many times has he posted on this theme? Four times in this year and more than ten in these three years.
“The modern business firm is a system of thought. It is an institutional construct made nefcessary, not by risk alone, nor by the need to gather information about transactions, but by the basic uncertainty that threatens to undermine the connectedness of the production processes.”
This is not correct. In my conclusions to The End of the Practical Man, 1984, 2006), “Space, time, and uncertainty, I wrote “This study has shown that in Germany the business and engineering sciences were not uniquely or even principally a response to the demands of the big business and industrial community.” … If the demand of the entrepreneurs did not create these schools and the sciences developed within.,then what did? The answer I think, is the German university tradition itself. (p.309). The tradition did not include higher education in engineerng and business economics. Institutions that taught these subjects had to be developed as much in Germany as in Britain or France. In Germany it was not so much a question of teaching a body of acquired knowledge to students. Science (Wissenschaft) was what one did with the body of knowledge acquired. And what one did was research — create knowledge. The German research seminar, the doctoral disseration, and the Habilitationsschrift are expressions of this scientific attitude.
The argument is teleological but noneconomic in nature.
This is a citation from Peter Radford’s article “Speculations on uncertainty: A respectful response to Hannes” on January 28, 2011.
I wish that Peter Radford answer to Robert Locke’s objection.
But the objection is not in any way inconsistent with the statement it objects to. How could it be? “The modern business firm is a system of thought. It is an institutional construct” and “in Germany the business and engineering sciences were not uniquely or even principally a response to the demands of the big business and industrial community.” are talking about two different things – the existence of businesses and the study of business, respectively.
Calgacus, Roberto Locke is a historian of educational institutions. His main method is comparative studies. For him, the study of business (management science and Betriebswirtschaftslehre) contains itself an institutional aspect.
But, of course, I agree with you. Even if any discipline has an aspect of institution, it has its own logic as a science (or a discipline) and should distinguish reasons of firms (raison-d’être?) and its institutional aspects.
”Even if any discipline has an aspect of institution, it has its own logic as a science (or a discipline)’
See if you can get your hands on the following and read the section on the color dye industries: Sidney Higgins, Dyeing in Germany and America, with a chapter on Colour Productiion: a report. Manchester 1907. The way German higher education institutionalized its pursuit of knowledge was unique, admired, and greatly copied in the second industrial revolution because it had a logic of its own that no other tradition possessed at the time. That iis why people, including Japaese and Americans, fled into German universities and the newly created Hochschule of engineering and business economics at the turn of the 19th and 20th centuries to learn how the logic of science they were learning in their countries did not match the high tech fruitfulness of the German system of Technik. Its in the end of the practical man, which none of you have read because it came from an historian. There is no raison d’etre for science, its a creation of a culture. And the German educatiioal cultural heritage was different. Hiistorians know that.
Here is an historian who does, Peter Borscheid, Naturwissenschaft, Staat and Industrie in Baden, 1848-1914), Stuttgart 1976, who observed that, although bankers and merchants frequently put up capital, university-educated research chemists (Caro at BASF, Meister at Hoechst, etc.) men who had learned their discipline from Liebig or one of his students, promoted the companies. Only by knowing modern chemistry could its industrial or commercial potential be fully appreciated. They learned it in the research seminars of German academic research chemists that were the fruits of a university research tradition.
August Wilhelm von Hofmann (8 April 1818 – 5 May 1892) was a German chemist who made considerable contributions to organic chemistry.
After studying under Justus von Liebig at the University of Giessen, Hofmann became the first director of the Royal College of Chemistry in London, in 1845. In 1865 he returned to Germany to accept a position at the University of Berlin as a teacher and researcher. he co-founded the German Chemical Society (Deutsche Chemische Gesellschaft) (1867). In both London and Berlin, Hofmann recreated the style of laboratory instruction established by Liebig at Giessen, fostering a school of chemistry focused on experimental organic chemistry and its industrial applications.
I agree with you that Chemistry played an important role in the Second Industrial Revolution. But, is this a specific event that we cannot discover in other sciences and historical phases?
Take for example, electricity. Famous Thomas Edison had no high education in the University but lead American electrification by his ingenuity and business sense. But, electronic industry after in the second half of the 20th century depended much heavily on the University.
History of medicine has much longer and much different history than other sciences. Even though, we can say now that medicine depends very much on medical science or biomolecular physics.
Don’t forget that we are arguing the strategy to re-organize or re-build economics. What are the lessons on economics that you obtained from your historical study?
The lesson I learned on economics from historical studies is that it is not a prescriptive science and has not helped me to understand historical process, which is my chief interest as an historian. I discuss this in my book, the End of he Practical Man, when I discuss the limitations of The new economic history. Read Deidre McClosley’s, the Rheoric of Economics. McCloskey began as a revisionist historian who used neoclassical economics and econometrics to refute Landes and other’s views about the decline of the Victorian entrepeneur and then reversed herself entire because she realized the methodoligical shortcomings, as did Leslie Hannah, of the revisionist new economic history. We sorted this out in the early 1980s.
I discuss this in the end of the practical man. I turned to educational history because I learned about the differences in how thought was institutionalized and transferred into practice in 19th century economies by studying the institutions carefully. Economists know nothing about this, since they ignore institutions. Except, I learned in Japan. Japan had no research institutions of higher education to compare with the German, and yet Japan became a modern industiral-economic power. I learned that the institutionalization of thought in the knowledge creating firm, institutionalizied the economic modernization, from lots of people inside and outside Japan. Did you see my 2019 article, economicis and the shop floor. I talk about how wirtschafts-ingenieurs using their educational strengths, learned from Japan. I’ve been at this a long time.
Thank you, Robert. It is very clear. The story about McCloskey’s turn was interesting. I read her book The Rhetoric of Economics. It was translated into Japanese. But my reading was too rapid and I could not understand the background you told of.
I ordered The End of the Practical Man. This is the third book of yours that I bought. It will arrive in the end of October.
However, I wonder if I can read it well because I am now suffering biocular diplopia (Everything seems double). With an eye, I can read but it is quite troublesome.
As for the reasons why Japan had “succeeded” in the 19th century to start industrialization, I know various opinions about it. As there are so many factors that influenced the process, it is difficult to know which factor played a major role in this process. If we go back in the history, perhaps Japan had changed much in Sengoku period (the Age of Warring States, full 16th century). Japanese became more loyal to the business relations than family blood bondage. In the middle of Edo period, many business houses made it a tradition to adopt an able apprentice as husband of a family daughter and let him succeed the business.It is told that this happened even when the family has some sons of their own.
Research in Germany
• The German university focused on seminars of
small groups of students working on specialized
topics.
• The seminars in physics and chemistry became
the basis for adding research laboratories.
• The first successful example of was Liebig’s lab
at Giessen.
Liebig’s Lab
• Liebig was trained in Paris (under Guy-Lussac) and
returned to Germany with the intention of starting a new
kind of training program.
• Liebig’s group was key in founding the new discipline of
organic chemistry and developing practical methods that
could be used in industry.
• Liebig’s lab was the first example of a research school –
called by Morrell a “knowledge facory.” Liebig assigned
research topics, established technique and
instrumentation; arranged access to publication, and
placed his graduates in positions (academic, industry,
government).
Liebig’s Laboratory
Liebig’s Influence
• Liebig’s potash apparatus
was used to determine the
carbon content of organic
substances. It became
symbolic of the power of
organic chemistry.
• Liebig’s students filled the
ranks of research chemists in
Germany, GB and the US.
• Liebig showed that chemistry
could lead to material wealth
and progress.
• beliebig = any, anything.
Industrial laboratories
• Chemistry was the first science to produce
commercially viable products in the lab.
• The early industries that employed research
chemists were textiles (aniline dyes),
pharmaceuticals, agriculture, etc.
• The research chemists, trained in the
universities, could also be hired into
industrial jobs. A number of university
professors founded their own companies.
The fact that science is a creation of a culture does not deny that it has a raison-d’d’être. Probably Robert may be affecting a specific meaning to this word. But I use this when something has a positive function in the society. Firms exist because they have some functions that other entities are difficult to satisfy. Science plays various functions. It gives us a world view that human being could not obtain without it. It gives us new seeds of new technologies and new products. It trains us to think rationally, etc.
Historians seem to have too strong tendency to understand everything from evolutionary processes but one can also understand by functions it plays in the contemporary life. Two are possible and I do not think they are exclusive with each other.
A culture is a pattern, i.e. a paradigm. There are paradigms within paradigms going from the level of the personal to the cultural to the cosmic.
Science is a paradigm. Even though it is attempting to expand and transcend itself the current paradigm for inquiry is still mainly Science/Empiricism Only.
Wisdom (not religion, but rather spirituality-self actualization) is both a personal and a cosmic paradigm and the paradigm of science resides entirely within it.
History is a discipline that looks at facts and attempts to decipher wisdom regarding them.
Wisdom is the mental process of integrating truths in seemingly opposing perspectives and realities.
The natural philosophical concept of grace is the pinnacle unitary concept of wisdom, namely love in action in the temporal universe where we all reside and interact with ourselves, others and the physical universe in the graciously flowing, interactive, integrative present moment process.
Thus if one wants to be personally and systemically attuned with the natural they should attempt to match and apply the relevant aspects of the natural philosophical concept of grace to themselves and whatever body of knowledge and/or system they are engaged with.
Germans talk about the natural sciences, the Geisteswissenschaften (sciences of the spirit) and Technik. We have the two cultures, but not Technik, as a thought process in our work life.
That’s a real difference. Do you have the German equivalent of Technik in Japanses views of science.
The normal translation of Technik would be Gijutsu. I do not know if it exactly correspond to German Technik. Gijutsu attracted the interest of many students of science and technology studies and there were a long debate (mainly 1940 to 1970) over the nature of Gijutsu (Gijutsu Rongso, controversy on technology). Just after the World War II, Japanese saw that Japan was defeated by the overwhelming industrial power of the United States. They understood that there was a big differences in technology behind this industry power difference. So, they endeavored to learn all technologies from the United States. What they have imported included not only the narrow knowledge of production and designing, but production systems and methods. In the course of the learning process, they learned that firms are leaning organizations. I believe that the concept of knowledge creation firm came after that. But, of course, don’t trust me too much. I am not a historian and all knowledge I have on Japanese firm institution is result of hear-say.
See my posting on rwer blog, 24 May 2016, Economics and Technik, to see the German 3rd science that drew the world’s attention
May 24, 2016 “Economics and Technik” rwer blog
from Robert Locke
Dave Taylor in a comment about David Ruccio’s post on this blog, April 26, 2016, “Minimum-wage machine,” talks about “Kuhn’s distinction between ‘revolutionary’ and ‘normal’ scientists, which I [Taylor] have consistently interpreted as (in Britain, anyway) a more familiar distinction between “fundamental” and “applied” science.” This distinction, as the late Ian Glover observes, is familiar “in Anglophone countries, [where] two “cultures, the arts and sciences are recognized.” In the science culture engineering is placed in an inferior place; UK scientists look down on engineering as a subject for the less brilliant and gifted.
Glover went on to note that in [Germany] rather than two cultures there are three: “ Kunst (like the arts), Wissenschaft (similar to science) and Technik (the many engineering and other making and doing subjects, representing practical know how (Können),” but including scientific knowledge (Wissen).
If you explore this civilization of Technik you’ll find Japan, too.
Also see my real-world economics review, issue no. 64
Reassessing the basis of corporate business performance: modern financial economics’ profit control versus integrated people and
process improvement
Robert R. Locke [Emeritus, University of Hawaii / Manoa. USA]
Copyright: Roberhttps://rwer.wordpress.com/2013/07/02/rwer-issue-64/
In his essay “Technik comes to America: Changing Meanings of Technology before 1930,”
Eric Schatzberg points out how the American concept of technology came to incorporate
ideas about Technik formulated in Imperial Germany (1871-1918). (Schatzberg, 2006)
Although he wrote the piece for the Society for the History of Technology, it should just as
easily have been directed at economists. In Germany the idea of Technik [the combination of
Können (practical skills and industrial arts) and Wissen (knowledge)] was the essence of
engineering, but the Germans – who proselytized the idea – were often historical economists
(e.g., Gustav Schmoller and Werner Sombart). (Drechsler, 2011) Moreover, the Americans
involved in the transfer of the concept of Technik to America were institutional economists,
primus among whom stood Thorstein Veblen.
From Wikipedia, the free encyclopedia
J
Wissenschaft is the German language term for any study that involves systematic research. The term is sometimes roughly translated as science, although Wissenschaft is much broader and includes every systematic academic study of any area, for example, humanities like art or religion.[1] Wissenschaft incorporates scientific and non-scientific inquiry, learning, knowledge, scholarship and implies that knowledge is a dynamic process discoverable for oneself, rather than something that is handed down. It did not necessarily imply empirical research.
Wissenschaft was the official ideology of German universities during the 19th century, and it led to the development of the modern research university.[2] It emphasized the unity of teaching and individual research or discovery by the student, the Einheit von Lehre und Forschung. It suggests that education is a process of growing and becoming.
Some 19th-century Americans visiting German universities interpreted Wissenschaft as meaning “pure science,” untainted by social purposes and opposed to the liberal arts.[3]
Some contemporary scientists and philosophers interpret Wissenschaft as meaning any true knowledge or successful method, including philosophical, mathematical, and logical knowledge and methods.[4]
Before Immanuel Kant published his Critique of Judgment in 1790, the “schöne Wissenschaft” (roughly, “fine sciences”) were highly regarded.[2] The “schöne Wissenschaft” included poetry, rhetoric, and other subjects that were meant to promote an understanding of truth, beauty, and goodness.[2] Kant argued that aesthetic judgments were not an area of systematic knowledge, and therefore were outside the realm of Wissenschaft.[2]
Compared to science
Although Wissenschaft and science were roughly comparable words in previous centuries, the word science in English “has narrowed its meaning incomparably, whereas Wissenschaft…has retained its broad meaning”.[5] In modern English, the word science refers to systematically acquired, objective knowledge that is about a particular subject (the workings of the natural world, including the people in it) and produced through a particular methodology (the scientific method), in a progressive, iterative process that builds on previous knowledge. Wissenschaft, by contrast, encompasses knowledge of objects as well as truths, such as what it means to be good.[5
Wissenschaft incorporates scientific and non-scientific inquiry, learning, knowledge, scholarship and implies that knowledge is a dynamic process discoverable for oneself, rather than something that is handed down.” The process of Wissenschaft is academically institutionalized.
.Yoshinori, The American idea of science prevailed after the Methodenstreithat established econometriccs and the neoclassical view of economics as science. The Germans, of course, continued as economists, to work in their Wissenschaft tradition, people like Schmoller, Weber, Sombart and what they wrote lost out in the discipline in the 29th century.
But Technik is another matter, it was not wertfrei (value free) as Gerlman Wissenschaft demanded, but the product of a new educational system that took shape in the technical and commercial Hochschulen in Imperial Germany. And it dominates German higher education today.
People saw Technik and the education that went with it as a new civilization fitted to an industrialized world.
I started to understand what you want to say, Robert. A tripartite classification of high learning is possible. You want to say is that Tecknik is a third class of disciplines that are different from Sciences and Humanities. Am I right?
Yes, and Technik brings together sociiologically the community of skill and science inside and outside the firm into an arch of industrial participation of mutual respect for blending of craftmanship and science in Technik, that we don’t have in Anglo-saxonia, with its disdain for engineers that accountants and financial money managers in the UK share. See, Peter Lawrenxw, Mangers and Managerment in West Germany, Croon Helm 1980.
Beliebte Studiengänge – und die Alternativen Most sough after major, top 10 in Germany
Was studieren? Zehn Favoriten im Check!
BWL
Germanistik
Maschinenbau
Medizin
Informatik
Jura
Wirtschaftsingenieurwesen
Pädagogik
Elektrotechnik
BWL
Egal, ob Frauen oder Männer: Betriebswirtschaftslehre ist seit vielen Jahren das mit Abstand beliebteste Studienfach in Deutschland. Derzeit sind über 200.000 Studierende eingeschrieben, um mehr über die Grundlagen der Unternehmensführung, Wirtschaftspolitik und Marktgesetze zu erfahren. (Whether men or women business economics has been by far the most popular study for years, in 2016, over 200,000 students)
In den letzten Jahren haben sich Kombi-Studiengänge etabliert, die das betriebswirtschaftliche Grundstudium mit einer Spezialisierung verknüpfen — also etwa Wirtschaftsingenieurwesen, Often conbined with engineering, Wirtschafts-ingenieur, which began in 1924.
.Yoshinori,
In 1900 Wilhelm II, with a Pikel on his head, granted German technische Hochschulen right to give engineering degrees, Dipl.=Ing and Dr. Ing. the first engineering research doctorates in the world. He and his civil servants broke the monopoly that the classic gynasien, with their Abitur, had over entry into higher education.
After 1920, new civic universities in Germany, i.e., Frankfurt am Main, Cologne), got the right to conver doctorates in business economics, a new field, which is now the top major in german universities-Hochschulen, (bwl) whose orgins I describe in the book you just bought.
These two fields of study promoted the develop of Technik in Germany because of the way they were integrated into German indusrial civilization.
We got neoclassical economics, which has failed as a prescriptive subject, but which this blog discusses endlessly.within the contest of the anglo=saxon view of science.
And yet anyone earning a living as an applied economist is a sort of engineer because he or she is schooled in theories based on abstractions that don’t apply in reality. So a theory has to be selected from alternatives, bent around and adapted ad hoc to nearly apply so tentative conclusions can be reached. Then a substantial error margin has to be built in. If you just read academic articles or – worse yet – text books you have no exposure to that engineering process. If it oppresses you that such a process can never confer certainty, better stay in the ivory tower. Action requires doing the best you can accepting that perfection is unattainable.
Progress is limited in economics because “theory” is valued far above “engineering” and the theorists accept little or no feedback from practitioners. Reality is dismissed in effect as an uninteresting special case. Theory becomes self-referential and increasingly divorced from reality while what is learned in practice is often forgotten because not incorporated into theory. The reasons for that perversity are not philosophical but sociological.
Thank you Robert and Gerald for confirming what I have been saying here for years and that is, that macro-economists are largely caught up in abstraction and thus have failed to look directly at the economic/productive process itself as well as the cost accounting process within which it is correctly and inextricably embedded. If they did they would recognize that, amongst all of the other lesser characteristics of money, especially in a monetary economy like the one we all live in, not the “veil over barter” that the neo-classicals have led us to delusionally believe; that it is most basically accounting and so it will adhere to the equal debits and credits summing to zero cost accounting convention. Put these observations together with the recognition of retail sale being the point where production becomes consumption and you have the ideal point to implement a monetary and pricing policy that benefits all economic agents and enables us to FINALLY direct industrial policy so as to align it with ecological sanity and species and planetary survival.
Theorizing is perfectly legitimate of course, but riding it like a hobby horse gets dangerous and ridiculous without consulting the temporal universe and some of its basic derived truths.
Economics is complex, paradigms are deep simplicities that alter the complexities of patterns and the present monetary and financial paradigm is the correct target for our investigations…if we want to be real, effective and honest investigators.
Robert,
I admit that Technik and sciences are very different knowledge. But that does not contradict that sciences may help Technik. A good example is Medicine. It was a kind of Technik from its origin until recent times in all countries. But, chemistry and biology helped much to make Medicine more effective to cure many diseases. Although there are many fields or aspects that modern scientific Medicine can do little. So, in Japan, there are many medical doctors who still try to find some truths in Chinese medicine. We may still learn much from Yoga and Indian medicine. Even if we admit that Medicine has many weakness, ti does not deny that sciences helped to improve Medicine very much.
Economics is still in a stage near to the Medicine before the 19th century. It contains many illogical and fictive aspects. In that sense, we can better compare economics with astronomy in the Medieval era. It was firmly combined with astrology and the demarcation line was vague. Economics is still a system of beliefs that can be compared to Ptolemaic system. I admit that economics is still in such a state. But, does it imply that economics must stay as pre-scientific discipline? Is it wrong to try to make economics a science? It is a possible option, but have you any firm reason to oppose to the re-building economics?
Science and craftmansship are within Technik never in conflict with each other. That was the brillance of the educational achievement in the 20th century. German research universities would not accept engineering or business economics as subjects of Wissenschaft, because they were practically oriented. But engineers and business economists so admired the research university tradition that they wanted to be part of it; which meant they had to become Wissenschaft disciplines, which they did, but not at the expense of cutting off their contacts with the real world (although they argued about their purpose a lot). This blending of science and craftsmanship is the 3rd science, Technik. Within the German work world everybody, unites to promote Technik, apprentices, university graduates, university professors. Through finance capitalism we turned our economy into a money mill that excludes a broad participation of community.
I do not support finance capitalism or ex finacialization of the economy. But, if the financialization is causing many harmful effects, it is necessary to study how finance economy works. So, you cannot deny the necessity of an economics.
I now understand why you opposed Peter Radford. You wanted to say that economics that covers firms and production already exists in Germany. I do not oppose it. But, there are many fields that economics must cover. Your third science Technik does not seem to cover topics such as economic growth /stagnation, moderating unemployment rate, and to prevent monetary system to go out of control. If you really have such an economics and everybody is confident, I do not understand why German economics becomes much more powerful overwhelming actual Anglo-Saxon mainstream economics. I suppose something is still missing in the economics as a part of the third Science or Technik.
I tried to look at the financialization question in “Financialization, income distribution. and social justice : Recent German and American experiences,” rwer, 68, 2014, 74-89.German Commerciasl Banks, (Deutsche Bank, Dresdner Bank, and Commerzbank), joined in financialization, in the 1990s, much to their chagrin through criminality, but the rest of German banking did not, and it provided the bulk of the financing for German Mittelstand firms.
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Shiozawa’s lack of historical understanding of the fields of biology, medicine, and theoretical biology is painfully evidenced in his scientism and historically anachronistic story telling about medicine, molecular biology, and economics. He has spun this false story before on the WEA forum. His lack of historical knowledge and philosophy of science is apparent in his gross oversimplifications that ignore the recurring failures in understanding resulting from certain past ideological positions that clung to a genetic greedy reductionism and that persists even to today in certain circles. But most informed biologists are aware of that molecular reductionism while a power tool and indispensable part of the science of biology is not the whole story and does come with its own limits. Molecular biologists once naively provide genetic explanations (and sometimes still do today as we see in the popular press) claiming to have found a gene for some social behavior implying that a “gene” is a persistent single entity that is conserved across generations.
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Shiozawa’s implicit claim that previous medical science was not real science, but became real with the advent of molecular biology. No doubt molecular biology has opened up new domains of knowledge, but of course it is simply ludicrous to claim medicine wasn’t real science prior to molecular biology, as many perfectly valid scientific discoveries prior to and after and/or discovered without molecular biology are available to prove this assertion simply false. Molecular biology opens a window onto the complexity of living organisms, but living organisms are not reducible to molecular biology or molecular “mechanisms.” Emergent levels of complexity are part of the causal fields that contribute to biological evolution, including levels such as the epigenome and controlling Central Nervous System (CNS) and even meanings and values as found in cultural inheritance.
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The actual history of the science of medicine and biology (including theoretical biology) is far more complex and nuanced that Shiozawa’s stereotyped story telling for his own rhetorical purposes. The _totality_ of causes of the evolution of biological organisms is no more found in molecular biology than are the _real_ underlying causes of economic change (human creation of institutions, organizations, and relationships) found in “if-then” algorithmic C-D transformations rooted in greedy reductionism.
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As Delorme states plainly below, this is scientism, not to mention an abysmal attempt to use revisionist history for purely rhetorical purposes. Shiozawa is spoofing both history and biology.
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The problems of economics as an academic pursuit have a sociological origin. The subject matter of economics is of interest to nearly everyone who lives in a commercial society and has to make a living. Intelligent people develop opinions about it and advance opinions in a way they would not do about astronomy or quantum physics. Similarly every politician has a story about the economic policy to be followed. This situation has created a strong form of credentialism among academic economists, evidenced by the use in the USA of the term “PHD economist” i.e. distinguishing a “real” economist from an economic journalist or mere informed commentator. This desire to define and secure a profession of economists has led not only to credentialism but to formalism. There must be hoops to jump through, filters to pass, if “real” economists are to be distinguished. An emphasis on mathematical technique is just such a filter. From credentialism and formalism comes a self-referential approach that holds “economic problems must have economic explanations and economic solutions”. That makes it illegitimate to introduce “non-economic” elements into economic theory. Demarcation and the exclusivity of “economics” is thereby reinforced. Non-economic elements are often considered to include any form of “irrational” behaviour. Unfortunately some schools of economics at that point finalise their separation from the real world by failing to distinguish “procedural rationality”, which is a useful simplifying assumption, from “substantive rationality”, which assumes a never-never land of near-perfect knowledge and ubiquitous equilibrium. The distinction, due to Herb Simon, was apparently too subtle for the neo-classical school. Ideology also plays a part in promoting some schools of economics. Theories that depict a self-stabilising system in which everyone is doing as well as possible are remote from reality but convenient for the conservative interests in society that wish to resist change. Once this structure is in place it is difficult to pursue a career as an academic economist without going along with a substantial part of it.
The solution to a problem that is sociological and political does not lie in abstract discussions of methodology or trying to identify philosophical mistakes. It lies in being open-minded to insights from outside economics , in constructing theories that use appropriate formal methods not theories that are constructed to show off command of formal methods whether appropriate or not. It means defining the domain of theoretical propositions and accepting the verdict of empirical data relevant to that domain. In other words the answer to people doing it wrong is not to despair and retreat into philosophy; the answer is to do it right. No-one should claim that is easy.
Technik aus soziologischer Perspektive
Forschungsstand · Theorieansätze · Fallbeispiele. Ein Überblick
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Werner Rammert springer
Lars, as per your example, people do decide, on some basis to include or not include sunglasses in their plans for the day. Any and every day. How is that decision made? Friedman and Savage hold that in making a particular class of decisions, individuals behave as if they calculated and compared expected utility and as if they knew the odds. “The validity of this assertion does not depend on whether individuals know the precise odds, much less on whether they say that they calculate and compare expected utilities or think that they do, or whether it appears to others that they do, or whether psychologists can uncover any evidence that they do, but solely on whether it yields sufficiently accurate predictions about the class of decisions with which the hypothesis deals. Stated differently, the test by results is the only possible method of determining whether the as if statement is or is not a sufficiently good approximation to reality for the purpose at hand.” This is consistent with the findings of most social science research. At which point the aim of research is to describe how people decide to make and use such assertions. Friedman and Savage decide to go down the path of ‘expected utility’ so near and dear to classical and neoclassical economics to describe and explain how and why people choose to believe these assertions. They offer no evidence to support this trek, but do suggest that “Further empirical work should make it possible to determine whether or not these implications conform to reality.” I have not followed up to determine if such work has been undertaken or completed or reviewed in the relevant economic disciplinary literature.
However, research results in psychology, sociology, and anthropology do not support Friedman’s and Savage’s hypothesis, except in narrow circumstances. People do attempt to explain their decisions and their decision making in terms of the institutional setting of their decisions, sometimes, but not always also taking into account what they take as likely not to repeat idiosyncrasies of particular situations. Sometimes they seek verification from events and authorities external to those situations. In any event, depending on what they perceive as the likely repercussions of their explanations they often receive comments, whether sought or not. Also, explanations outside generally established rules and norms (e.g., the Zodiac, QAnon) are often met with greater skepticism. Finally, Friedman and Savage do not address the issues related to the multiple and often conflicting definitions of expected utility. Particularly those outside the mainstream of economics. They claim it is “sufficiently accurate predictions” that is the bellwether here. But they leave open the question of how people determine that an explanation leads to this end, or what this end is. Leaving us with the unenviable task of sorting through the many assertions said to be sufficiently accurate made by people creating the explanations. All in all, a mostly useless paper.