Home > Uncategorized > Limits of mainstream economics today

Limits of mainstream economics today

from David Ruccio

Keynes’s criticisms of neoclassical economics set off a wide-ranging debate that came to define the terms of—and, ultimately, the limits of debate within—mainstream economics.

On one side are neoclassical economists, who celebrate the invisible hand and argue that markets are the best way to efficiently allocate scarce resources. On the other side are Keynesian economists, who argue instead for the visible hand of government intervention to move markets toward full employment.

That tension, between the theories and policies of neoclassical and Keynesian economics, is the reason why in most colleges and universities the principles of economics are taught in two separate courses: microeconomics and macroeconomics. Moreover, the tension between the two schools of thought plays out within every area of economics, including (but certainly not limited to) microeconomics and macroeconomics.

One way of understanding the differences between the two approaches is to think about them as conservative and liberal interpretations of mainstream economics. Conservative mainstream economics tend to presume that the basic assumptions of neoclassical economics hold in contemporary capitalism, while liberal mainstream economists think they don’t.

Let’s consider two examples. First, within microeconomics, conservative mainstream economists (such as the late Milton Friedman) believe that individuals make rational decisions within perfectly competitive markets. Therefore, if markets exist, they should be allowed to operate within any regulations; and, if a market doesn’t exist, it should be created. Liberal mainstream economics (such as Joseph Stiglitz), on the other hand, see both individual decisions and markets as being imperfect—because individuals have limited or asymmetric information, some firms have more market power than others, and so on. Therefore, they argue, markets need to be guided to the best outcome.

The second example is from macroeconomics. The view of conservative mainstream economists (such as Thomas J. Sargent) is that capitalism operates at or close to full employment (where, in the chart above, aggregate demand intersects the vertical portion of the aggregate supply curve), whereas liberal mainstream economists (such as Paul Krugman) believe that unregulated markets often lead to considerable unemployment (where aggregate demand intersects the horizontal portion of the aggregate supply curve, at level of output less than full employment).*

To attempt to reconcile the two competing views, many mainstream economists argue for a “middle position”—somewhere between the opposed neoclassical and Keynesian views. There (in the red portion of the aggregate supply curve), mainstream economists find a tradeoff between increases in output and changes in the price level, that is, between inflation and unemployment.

And the predominant view within mainstream economics shifts back and forth between the two poles. Sometimes, as in the years before the crash of 2007-08, mainstream economics moved closer to the neoclassical approach. That’s when policies such as deregulation, privatization, the reduction of government deficits, welfare reform, and so on were all the rage, within both academic and political circles. After the crash, when the neoclassical approach was said to have failed, mainstream economics swung back in other direction. That’s when there were calls for more government intervention and fewer worries about budget deficits and the like.

In the midst of the Pandemic Depression, much the same kind of debate between advocates of the two poles of mainstream economics has been taking place. On one side, conservative mainstream economists have argued in favor of rescuing banks and corporations, such that an economic recovery would “trickle down” to workers and their households. Liberal mainstream economists, on the other hand, have favored direct payments to working who were furloughed or laid off—an idea that was attacked by their conservative counterparts, because such payments were seen as providing a “disincentive” for workers to return to their jobs.

Every time capitalism enters into crisis, the same kind of debate breaks out between conservative and liberal economists (and, of course, between different groups of politicians and voters).

If mainstream economists are so divided between the two approaches, what in the end unites them into what I have been calling mainstream economics? Like all such labels, it is defined in part by what it includes, and in part by what it excludes.

What mainstream economics includes is the idea that neoclassical and Keynesian approaches establish the limits within which theoretical and policy debates can and should take place. Together, they define what is in the “economic toolkit,” and therefore what it means to “think like an economist.” Moreover, the two groups of economists argue that capitalist markets are the way a modern economy can and should be organized. They may disagree about the relevant approach—for example, the “invisible hand” of free markets versus the “visible hand” of government intervention. But they all agree on the goal: to create the appropriate institutional environment so that capitalist markets work properly.

They also share the view that the only way capitalism operates falls below its general equilibrium, full-employment potential is because of some external “shock.” In other words, all economic downturns, such as recessions and depressions, are due to external causes, not because of anything internal to the normal workings of capitalism.

What the definition of mainstream economics excludes is any approach, such as Marxian economics, that is based on a theoretical approach that lies outside the protocols of neoclassical and Keynesian economics. So, for example, the idea of class exploitation is generally overlooked or ignored within mainstream economics. Similarly, imagining and creating ways of allocating resources other than through capitalist markets are pushed to or beyond the margins by mainstream economists.

Together, the inclusions and exclusions contained within the definition of mainstream economics serve to define what mainstream economists think and do in their theoretical practice as well as in the policy advice they offer.

———

*As many contemporary Post Keynesian economists have noted, when neoclassical and Keynesian were combined in a single approach to economics (for example, in the “neoclassical synthesis” in the decades following World War II), many of the critical aspects of Keynes’s writings—including the notion of uncertainty and the idea that much stock market investment was merely speculation and added little to the productive capacity of the “real” economy—were downplayed or ignored altogether.

  1. Robert Locke
    October 13, 2020 at 1:38 pm

    Your post is a fine illustration of why historians can learn nothing about the economy from economists. 1. The focus on markets has certainly taken place in the economics of Anglosaxonia, but from the time of the classical economists people have focused more on the nation state when they talk about the economy. That’s not the markets and it means if you center economics in state rivalries, that you have a different economics. 2. If you have 2 economics, neoclassical and keynesian, I have three, mine centered on democratic=sociology, not Marxism, but on stakeholder not market-centered economics. I have studied and written about it for forty years, This third democratic sociological firm centered economics is what historians understand, because it has been adopted into firm governance systems that deal with the problems raised by the pandemic, unemployment, for example, in the German short work program.

    In 2019 I published a memoire “Economics and the shop floor” in the rwer, outlining why the revue had failed to reform economics because it has rejected the third economics I suggest should be its focus. David, what your post does is keep the focus of the discussion on what has been discussed endlessly because of its intellectual framework.

    • Yoshinori Shiozawa
      November 12, 2020 at 3:37 pm

      Robert, I agree with you on point 1. Economic policy of a nation is not itself economics in a strict sense. Economics must start from the study of markets and agents and structures that frame and move them. On point 2, I do not understand well your three economics. Would you explain those three and how they are different?

      • Ken Zimmerman
        November 13, 2020 at 2:59 pm

        Please explain why is advisable, let alone necessary that economics (the discipline) “must must start from the study of markets and agents and structures that frame and move them?” This is certainly not supported by the evidence of economic history. Nor is there any valid theory I can find that elevates markets to such a position outside the narrow world of the US and UK.

      • Yoshinori Shiozawa
        November 14, 2020 at 1:35 pm

        Ken, is your post a question to me? The proposition “Economics must starts from the study of markets and agents and structures that frame and move them” is a conclusion that came to be confirmed in a long history of economics. Classical economists (in a wide sense, including Cantillon, Quesnay, Adam Smith, Ricardo, etc., thus not strictly Anglosaxon) have discovered a new domain of human activities that would be later called the economic. We may say that economics started from an idea or desire to better administrate national economy (a typical case is German Kameralwissenschaft) but it is the story how it originated. To well administrate the national economy, the princes, governors, bureaucrats, members of parliament and their advisers had to know what economy is or how it works. From this persistent effort, “the economic” was discovered and its discipline became economics. Of course, surely, Ken must know this.

      • Ken Zimmerman
        November 14, 2020 at 3:37 pm

        Yes, it is a question. If economists discovered economy, it was only after non-economists had invented it. The invention sometimes followed necessity such as when small human communities began to grow into cities and large cities. The management of the provisions needed for human survival thus became more difficult and involved more partners and more decisions. Sometimes it was the result of political conflicts. Such as when capitalists preferred arrangements they could use to control others, particularly to exploit them for labor or ignore usual moral codes in dealing with some people (e.g., laborers). Markets played little part in this except as cover for the preferences of dominant groups. But then economists came along to make their contributions to creating economy. Economy is what these actors and these interactions created. That is its full and complete definition. And the things that social scientists and historians study. Some, but not most economists included.

      • Yoshinori Shiozawa
        November 15, 2020 at 2:59 am

        I would not be fruitful to continue our discussion. It is evident that electro-magnetic field existed before physicists discovered it. Once the electro-magnentic field is discovered, we can talk about it without any reference to the history of its discovery.

        Please also note that I never say that economists created economy. They discovered “the economic” (what is related to economics) and, by consequence, the economy as an entity composed of those economic relations, but economy existed long before we discovered it. It has a long history but we mainly study market economy. We can of course study pre-modern economies. The market economy also has its history.There are always cultural, political, and ideological influences and pressures onto economy (or more exactly on human ideas and sentiment when they make economic decisions). That does not exclude to consider and observe the economy abstract of those disturbing influences. This is the same thing in physics and many other natural sciences. Only some of human scientists believe that any kind of abstraction destroy the holistic nature of human activities.

      • Ken Zimmerman
        November 15, 2020 at 7:34 am

        As you wish on the push and pull of scientific battle. Science is one of those things in life that either makes sense to you or does not. First, electro-magnetism did not exist for humans (and that is the only contact with it we have) before humans created it. If you have another option, please describe it. Examining human creations, including science is what social scientists do. Including, supposedly economists. There are not cultural, political, and ideological ‘influences ‘onto’ economy. Economy is part of, involved in culture which includes all the politics, ideologies, etc. Economy is not standalone. Thus, what economists always miss – economy cannot be studied outside of history and culture since economy is those things. But that is no different from any other ‘science.’ Physics, astronomy, sociology, etc. all are part of society and culture. Never separate from them. Which means there are no ‘economic’ decisions, or ‘family’ decisions, or ‘political’ decisions, etc. Only cultural/societal decisions. Nor does ‘abstraction’ end this since abstractions have the same cultural and societal origins. Which translates to people choosing to create some interactions and concepts as economic and others as not economic. This should be part of the research of any academic discipline or applied work for economics.

      • Yoshinori Shiozawa
        November 15, 2020 at 3:46 pm

        It is astonishing that Ken is such an extreme type of idealists. Electromagnetic field is an objective entity that existed and influenced human history irrespective of whether humans perceived it or not. Far before human being discovered eletromagnetic field, geomagnetic field changed by various reasons and effected change the climate. It is even suggested that it may have triggered an abrupt societal change in the eastern Mediterranean and Mesopotamia.

        See for example this paper:
        Yves Gallet, Agnes Genevey, Maxime Le Goff, Frédéric Fluteau, and S. A. Eshraghi (2006) Possible impact of the Earth magnetic field on the history of ancient civilizations. Earth and Planetary Science Letters 246: 17-26.

        The following is the abstract:

        We report new archeointensity results from Iranian and Syrian archeological excavations dated from the second millennium BC. These high-temperature magnetization data were obtained using a laboratory-built triaxial vibrating sample magnetometer. Together with our previously published archeointensity results from Mesopotamia, we constructed a rather detailed geomagnetic field intensity variation curve for this region from 3000 BC to 0 BC. Four potential geomagnetic events (“archeomagnetic jerks”), marked by strong intensity increases, are observed and appear to be synchronous with cooling episodes in the North Atlantic. This temporal coincidence strengthens the recent suggestion that the geomagnetic field influences climate change over multi-decadal time scales, possibly through the modulation of cosmic ray flux interacting with the atmosphere. Moreover, the cooling periods in the North Atlantic coincide with episodes of enhanced aridity in the Middle East, when abrupt societal changes occurred in the eastern Mediterranean and Mesopotamia. Although the coincidences discussed in this paper must be considered with caution, they lead to the possibility that the geomagnetic field impacted the history of ancient civilizations through climatically driven environmental changes, triggering economic, social and political instability.

      • Ken Zimmerman
        November 15, 2020 at 4:27 pm

        I put it to you that what I propose is as far from idealism as one universe is from another (assuming the current version of theories on universes). You assume that electromagnetism influenced human history and then immediately cite an example of researchers finding effects that agreed with their theories of electromagnetism. I repeat ‘their’ theories. What their research ‘proved’ was the theories humans made up about something humans called electromagnetism. Electromagnetism did not speak or write these theories. Humans did. So, no one here was involved with electromagnetism but with human theories of electromagnetism. That does not mean either the theories or the research performed is not useful for humans in their lives. Just like with high energy physics it is not the movements of subatomic particles that inform our actions but our understandings of these as set out in theories, mathematics, and research agendas. It is the stories we tell about high energy physics and electromagnetism. When humans lose this perspective, it is easy for them to become delusional about “life, the universe, and everything.” Which is not a good thing. It is also what makes science so difficult. After all, if the universe just spoke directly to at least one human all this need for intermediaries would be unnecessary. But there are those who reject the science and the theorizing. For example, some of my more religiously oriented friends would contend that God made the changes the researchers found. Some might say God did it via electromagnetism. Others just reject all the science stories and place God as the prime mover in all events effecting humans. I was reared with science, so I tend to reject such theories. But that does not make them go away. And as a cultural anthropologist I must accept them for what they are – other stories explaining the same events.

      • Yoshinori Shiozawa
        November 17, 2020 at 2:41 am

        A poor excuse. To admit a mistake is the first step to a productive argument.

      • Ken Zimmerman
        November 17, 2020 at 6:22 am

        You will need to show me the excuse you mention.

  2. pfeffertag
    October 17, 2020 at 3:37 am

    Thank you for the lucid explanation of the limits of mainstream left and right economics. At
    https://rwer.wordpress.com/comments-on-rwer-issue-no-93/#comment-173577
    I actually borrow the term “economic toolkit” and suggest that “thinking like an economist” hit its limits two generations ago. You sort-of confirm that with your description of the back and forth every time there is a shock. I argue that for economics to escape its stagnation it needs to transcend those limits, not to include Marxism or any particular thing (and I go nowhere near discussing allocation of resources), but to include, at the level of fundamental idealised theory, interactions other than those which are narrowly economic.

  3. Ken Zimmerman
    November 12, 2020 at 12:59 pm

    This entire scheme is nonsense. What you describe are in the words of Max Weber, ‘ideal types.’ “An ideal type is formed by the one-sided accentuation of one or more points of view and by the synthesis of a great many diffuse, discrete, more or less present and occasionally absent concrete individual phenomena, which are arranged according to those one sidedly emphasized viewpoints into a unified analytical construct…It is a useful tool for comparative sociology in analyzing social or economic phenomena, having advantages over a very general, abstract idea and a specific historical example. It can be used to analyze both a general, suprahistorical phenomenon such as capitalism or historically unique occurrences such as in Weber’s Protestant Ethics analysis.”

    In sum, ideal types are common mental constructs used in the social sciences derived from observable reality although not conforming to it in detail because of deliberate simplification and exaggeration. It is not ideal in the sense that it is excellent, nor is it an average; it is, rather, a constructed ideal used to approximate reality by selecting and accentuating certain elements.

    German sociologist Max Weber used ideal types as an analytic tool for his historical studies. Some writers confine the use of ideal types to general phenomena that recur in different times and places (e.g., bureaucracy), although Weber also used them for historically unique occurrences (e.g., his famous Protestant ethic).

    Problems in using the ideal type include its tendency to focus attention on extreme, or polar, phenomena while overlooking the connections between them, and the difficulty of showing how the types and their elements fit into a conception of a total social system. I see no reason to undermine our study of economic actions in which people engage just to satisfy the foolish pretentions of petulant economists with predilections for ideal types.

    Added to this misuse of ideal types is that this description completely neglects the multiple factors that impact the actions of actors (biological and institutional) in actual economic interactions. All actors experience and bring to their work in these interactions, incompetence, favoritism, missing information, failures of intelligence, and lack of will and expertise. The results of these factors in any situation are impossible to precisely predict or model. Even estimations of impacts are tentative at best. Sometimes all that is possible is ‘educated’ guesses.

    Finally, no matter what economists or other ‘experts’ assert are the ‘rules of the game,’ many actors involved will not follow such rules. At least not in every situation. Some cheat to gain advantage in terms of market knowledge or position. Others cheat just for the money. For example, as widely noted large corporations often use their size and market presence to push markets in directions that aid them. Forcing actors with less market presence to band together, with or without government actors to fight back.

    We can add to all this that no society in the world today organizes its economic actions entirely in terms of markets. Particularly the ideal type of market described here. Even the US. In the US state and local governments are not organized around markets and neither is the federal government. Public services such as firefighting, police, electricity, and water are seldom organized as markets. Although since the 1980s efforts to ‘privatize’ some of these have increased. Here, there is no evidence that private water companies, police, or prisons are more efficient, cheaper, or more effective than those operated by government. But there is some substantial evidence that they are not.

    We also need to note that this description completely ignores one of the more common forms for arrangements of economic actions, democratic socialism. The Scandinavian nations are some of the more successful and happier in the world. They are also proudly democratic socialist. A growing movement pressing for economic democracy will no doubt meet resistance from those who label it ‘socialistic.’ Fortunately, ‘socialism’ is losing its scariness in U.S. political discourse, despite the best efforts of Fox News and the Republican Party. While the neoliberal Economist magazine has tried to claim the Nordics as ‘capitalist,’
    Inc. Magazine entitled its laudatory article on one Nordic nation, ‘In Norway, Start-ups Say Ja to Socialism.’

    The Pew Research Center surveyed Americans in 2010 on identification with socialism, two years after the 2008 economic crisis spurred a massive barrage of propaganda against socialism from the media and many politicians. In the Pew poll, only 52% reacted favorably to the word ‘capitalism,’ while 29% reacted favorably to the word, ‘socialism.’ Among 18-30 year-olds, support of socialism and capitalism was evenly divided at 43% each. Support for socialism is dramatically higher among women, people of color, and people who make less than $30,000 per year. The poll found that interest in socialism has grown despite the propaganda campaign against it. The Gallup poll taken in the same year found that a majority of Democrats said they felt positive about socialism, and a third of the entire population was favorable.

    The Pew Center resurveyed this question in 2011 and found that “among voters under the age of thirty, forty-nine percent had a positive view of socialism. (Only forty-six percent had a positive view of capitalism.)”

    In a May 2015 poll, Yougov found Democrats evenly divided in their favorable views of socialism and capitalism: 43-43. Five months later, the same source found 49% of Democrats viewed socialism favorably, while capitalism fell to 37%.
    Mass media pundits routinely called Senator Bernie Sanders’ candidacy for the 2016 Democratic presidential nomination the entry of a socialist into the race, with no noticeable shudders in the mainstream. Now the door has opened in the US for consideration of alternatives. We should not allow self-interested economists to close off these openings. Recently four specific ‘socialistic’ economic-health-employment policies have garnered widespread support.

    A single-payer government insurance system, sometimes called Medicare for All

    A long-term expansion of unemployment insurance to ensure American workers have income when they lose their jobs

    The government guaranteeing a job for all Americans if they cannot always find one in the private sector

    Universal paid sick and family medical leave

    Support for universal basic income is also increasing.

    • Yoshinori Shiozawa
      November 12, 2020 at 3:27 pm

      A good piece of article, Ken. Full of information. You have proved that you are a good sociologist (or anthropologist, if you like) when you talk about economists (not economics) and social political opinions.

      • Ken Zimmerman
        November 13, 2020 at 2:41 pm

        Just making an effort to grasp what humans are doing. In terms of this blog, to bring realism into the work. Even if economists do not study people, many sociologists (or anthropologists, if you like) do. Attempting to tap into their insights. And into the beliefs of all the non-social scientists that make up most of what happens in the world. Both are important and necessary, in my view.

    • Craig
      November 12, 2020 at 8:34 pm

      The poster and everyone above are right in their separate dualistically opposed and hence partial analysis. That in fact is the fractured, obsessively opposed and continually regurgitative nature of analysis that does not actually rise to the level of paradigm/the total pattern analysis.

      There are individual paradigms like historian, non-conformist-iconoclast, scientist etc. etc. that are actually just individual human choices and psychological profiles, and the complex human and temporal patterns that anthropologists examine, but none of these approach the depth and breadth of Genuine temporal universe paradigm changes that are the very expression of dialectical thirdnesses. So by accurately discerning and resolving the deepest and most relevant problems in both sides of false orthodoxies/dualisms like capitalism vs socialism they make Direct Monetary Distributism possible….whether one chooses to live in a socialist or capitalist economy.

      Money, Debt and Banking. These are what Steve Keen, Michael Hudson and MMT tell us are the roots of the problem. They just need to perceive and habituate the integrative nature of paradigmatic analysis and then along with becoming aware of the signatures of imminent and accomplished paradigm changes combine only the partial truths parading as total ideologies.

      • Ken Zimmerman
        November 13, 2020 at 2:36 pm

        The “fractured, obsessively opposed and continually regurgitative nature of analysis that does not actually rise to the level of paradigm/the total pattern analysis” you set on are one of the ways humans have created to frame their interactions with one another and nonhumans. That is the top and bottom of their temporal patterns. These are indeed human choices. But in the end that is what human life is all about. Debate, confrontation, and choices. You seem to be looking for something that extends beyond this. Humans may construct, choose to construct that something. We will need to look at that process, if it exists to understand it.

      • Craig
        November 13, 2020 at 5:00 pm

        ‘The “fractured, obsessively opposed and continually regurgitative nature of analysis that does not actually rise to the level of paradigm/the total pattern analysis” ‘

        I forgot to capitalize (for emphasis) the words OBSESSIVELY, CONTINUALLY and ACTUALLY in that sentence which to the TRULY discerning reader would help them understand that my critique was of the orthodox mindset of scientific analysis, NOT OF THE MODE OF ANALYSIS ITSELF.

        “You seem to be looking for something that extends beyond this.”

        Yes, indeed I am. I’m looking at and advocating for the integrative mindset AKA Wisdom within which the set of science is wholly included, but which also includes the human capacity for creative imagination.

        “But in the end that is what human life is all about. Debate, confrontation, and choices.”

        Yes, that and creative imagination and the dynamic, interactive, integrative and cosmic force of evolution. All of which are aspects of Wisdom and its pinnacle concept the NATURAL, PHILOSOPHICAL concept of grace.

        “We will need to look at that process, if it exists to understand it.”

        It’s natural so it does exist, and yes, let us proceed with utilizing it with post haste.

      • Ken Zimmerman
        November 14, 2020 at 8:49 am

        The way of life you describe does exist in human history. Humans have created it in many forms and in many times during human history. But not recently. Perhaps it is time to reconsider these options again. Leading that effort is certainly worthwhile.

      • Craig
        November 14, 2020 at 5:44 pm

        Actually it has never effectively existed in the economy, for the entire history of human civilization.

        The middle eastern civilizations palliated the problems of the paradigm of Debt ONLY with occasional debt jubilees, and occasional tribal cultures incorporated gifting as in propitiation not grace as in gifting into their politics, but they never permanently changed that entire pattern/paradigm directly into the economy and money system.

    • November 22, 2020 at 4:24 pm

      Ken Zimmerman, your reply is excellent … but it remains essential to know where existing economic micro-foundations err, if only because of the political ideologies that the existing foundations tend to support.

      It is not enough to say that these foundations do not correspond to ‘real economic decision-making’.I say that It is important to be able to say that the basket of goods a consumer might choose if only influenced by preferences and prices differs from the basket that would be chosen if influenced by prices alone. A ‘Preference Equivalency Bundle or Basket of Goods’, for instance, would differ from a ‘Equivalent Value Bundle’ that would be chosen based upon price considerations alone. Similarly, when when looks at objective benefits from consumption, not subjective preferences, Benefit Equivalency Bundles, another matter entirely, differ from Equivalent Value Bundles, which means that substitutions and choices of goods based upon benefit equivalencies are not identical to substitutions and choices based only upon price relationships between the goods. And ‘satiation’ in any good is ruled out by the current micro-theoretic despite the reality that both objectively and subjectively there are always limits to how much is wanted in any period.

      Current theory takes account of none of these matters. Furthermore, it has no theory of budget formation itself nor how budget formation decisions with the population are impacted upon by maldistributions of the means to purchase: i.e., the distribution of monies as the means of participation of agents. In short, the micro-theory is completely inadequate for Macro-analysis. Since budget formation is currently not ‘explained’ by current micro-theory –(it simply ‘endows’ consumers with budgets)– that micro-theory is utterly inadequate for examining or predicting aggregate economic activity.

      It is absolutely essential to reconstruct the theoretical foundations if only because the emphasis upon price relationships alone paints very misleading pictures of actual consumer decision-making and of ‘rational’ behavior not only with respect to goods but also with respect to possible budget formation decisions. This last, budget formation, is currently not ‘explained’ by current micro-theory for it simply ‘endows’ consumers with budgets.

      I fully agree with you, Ken, that that the for-profit private sector and exchange within it does not comprise all of economic activity. There is currently no theory of the Public Sector … nothing which sensibly discusses this means of our providing for ourselves.

      Kudos for your comment.

  4. pfeffertag
    November 12, 2020 at 11:41 pm

    To Ken Zimmerman.

    It is not a problem that ideal types are extreme. That’s their value. It sure is a problem if the connections are overlooked, for in science it is these that make theory. An explicit interrelationship between ideal types is what a science theory is. Galileo theorised gravity with a perfect sphere touching a perfect plane at a single point and rolling friction free. Nature gives us landslides. You need Galileo to understand landslides and you need economic theory to understand the economy. For more examples and discussion see
    https://rwer.wordpress.com/comments-on-rwer-issue-no-93/#comment-173577

    That was where Weber (and Montesquieu) went wrong. He wanted to define his ideal types, not interrelate them. Science theory has no use for definitions. Actually, you are incorrect about usage. Though Weber is an honoured name, his idealisation injunction is ignored in the social sciences. There is one big exception: economics. As a result economics has a body of theory; the other social sciences do not. Where economics progressed over recent centuries (at least till about 1970), the other social sciences have not. Where economics sits at the centre of government power, the other social sciences squeal in the dark. Where economic theories can be falsified theoretically, the millions of social science writings disagree with each other but none, apparently, are wrong.

    Have I given good enough reason to use ideal types?

    You say the actions of economic actors “are impossible to precisely predict or model.” That is true of every scientific model, whether it is the movement of planet, a weather system, or a landslide.

    It is not a valid criticism of a theory to complain that the reality differs from it. It always will, no matter how good the theory. If the theory is exhausted (and economic theory does seem to have hit the wall around 1970) you must find supplemental theories. I discussed some possibilities at the link above.

    • Yoshinori Shiozawa
      November 13, 2020 at 4:44 am

      Yes, pfeffertag, economics has hit the wall (probably around 1970 but the date is unimportant). If a science hits the wall, we should step back by some distance and have to find a way to circumvent the difficulty and go beyond the wall.

      What is asked is this road map or strategy of reconstructing economics. What is your plan? I am thinking of a very long detour. The malaise of economics is so deep. So, I am thinking to retreat very far before the emergence of neoclassical economics. How about you?

    • Ken Zimmerman
      November 13, 2020 at 2:24 pm

      My concern is that debates framed as you say economists’ debates are framed are simply debating societies. They do not force those involved to face actual opposition that might force them to take up, or at least try out alternatives. It is polite but useless in terms of the operations of scientific encounters.

      As for the use of Weber’s ideal types, there are plenty of examples of their use by other social scientists. You are correct that their use has declined as more detailed and useful notions (e.g., constructionism, institutionalism, Actor-network-theory) have shown themselves more adept at expressing many alternative paths for interactions and more details on each path. They also help social scientists deal with the multiple connections involved. Some quite subtle and/or tacit, and often vacillating over time.

      As to precise modeling, I got the impression that those who argued for one or the other of the ideal types in play in mainstream economics believed they knew precisely what they favored and/or what would work or fail. If their debates are merely rhetorical discussions of style or manners, then I stand corrected. And you are correct. But at the same time, if their arguments are such, then why engage in them at all? No pressure is exerted, and nothing changes no manner which style is in favor or out of favor in any particular situation.

      • Craig
        November 13, 2020 at 7:25 pm

        “But at the same time, if their arguments are such, then why engage in them at all? No pressure is exerted, and nothing changes no manner which style is in favor or out of favor in any particular situation.”

        Correct, we need to consider and utilize the thirdness-synthesis aspect of the dialectic.

        Problem is unfortunately we are presently stuck in at least two monopoly paradigms:

        1) the monetary, financial and economic paradigm of Debt Only and

        2) the paradigm for inquiry of Science Only.

        Thus we have become less intelligent than the lower animals who when they come upon the earths abundance do not trouble themselves with abstractions or orthodoxies like:

        ” (Only) In the sweat of thy face shalt thou eat bread, till thou return unto the ground; . Instead they do the survival thing and just eat it.

        We must strip our minds of the unconscious orthodoxies and paradigms that impede dialectical progress and even our very survival.

  5. pfeffertag
    November 14, 2020 at 10:58 am

    I agree, Ken, a debating society. But only since 1970. Before that economic theory was still developing or could at least claim to be—you could argue it stopped forty years earlier than that. I am not talking about the framing of a debate; I am pointing out the approach needed to improve economic theory.

    Are ideal types really used in other social sciences? You write “e.g.,…” but do not actually give examples. Are there any examples analogous to perfect competition, perfect information, the perfect sphere on a perfect plane touching in a single point, the “ideal gas” in a closed container, etc, etc? Not that I know of.

    Subtle? I think it a massive blunder of social science to elevate subtlety. “Nuanced” is high praise, but science theory is anything but. Idealisation kills nuance. Scientific theories interrelate idealised concepts, concepts which everyone in the relevant field understands without definitions. It is surely impossible for such an approach to be subtle. The point of theory is to discover nature, free of subjectivity, free of language. Idealisation is how the trick is done. If ideal types are blunt, clear, pure, then subtlety can’t characterise science theory.

    I doubt that in the course of scientific theorising, theorists actually argue for or against any ideal types. A concept is introduced and idealised because it is needed to play a role in a proposed relationship. It has nothing to do with rhetoric. Science theories, all of which are idealised, have given rise to technologies which have transformed the planet. As someone said, “There is nothing so practical as a theory.”

    Craig, I would say that alongside the scientific approach you decry, the dialectic you advocate has been going on forever. It is Ken’s debating society and as he says, nothing changes. Economics is thriving and blooming and taking absolutely no notice. To science dialectic is irrelevant—unless perhaps where it concerns rival theories, theories which interrelate extreme concepts. This would be the social process by which economics and the natural sciences developed their bodies of theory.

    The plan, Yoshinori? Well, I give some ideas at that link. It is not a retreat from neoliberalism; it is an addition to it. Here’s the link again:
    https://rwer.wordpress.com/comments-on-rwer-issue-no-93/#comment-173577

    Fifty years of stagnation. For fifty years economists have been complaining that the reality doesn’t conform to the neoliberal theory. It’s a statement of the obvious to say that theory is not practice. The complaint has value inasmuch as it checks the excesses of neoliberalism—but that’s political activism; it doesn’t advance economic theory. The dialectic around neoliberal theory has become arid because it has exhausted its premise of competition.

    One of those complaints concerns equilibrium which seems to me to be peripheral, or maybe too technical. What is plainer is that economic theory assumes competition. The whole theoretical structure depends on competition. If fancy mathematics leads from perfect competition to perfect equilibrium I suppose I must accept it, but what competition certainly leads to is destruction. Destruction is guaranteed if competition is genuine. The history of humanity (and evolution itself) shows that competition means vanquishing rivals. It follows that to keep the destruction within bounds (to turn it into “creative destruction”) there must be rules and the rules must be enforced.

    Activism and rules. Where does that activism fit theoretically? Where do those rules fit theoretically? They don’t fit. These two social environments plainly exist but they stand outside economic theory. To mainstream economics the first is troublemaking by recalcitrant people who don’t or won’t understand that human nature is ruthlessly competitive, people who don’t or won’t understand that cooperation is collusion which undermines competition and must be punished. The second is an unwelcome restraint on freedom which is holding us all back—the “problem” as President Reagan put it.

    And yet these two social environments do exist. I call them cooperation and coercion and the big theoretical task must be to accommodate them. As even quite libertarian economists will admit (however grumpily), they are real and they are not going anywhere. Since they are there and they have economic impacts, they need to be theorised.

    A big, big rethink is needed. Fifty years of stagnation. Whole careers of lots of smart people have elapsed. It is a big, big problem. At some stage some young generation must theorise cooperation and coercion. Then they will have to fight the older generation to establish a legitimacy for those two concepts equivalent to that of competition. If/when they eventually win, it will be because they don’t change the scientific approach—just rigorously apply it. Irrelevant will be parallel empirical research (such as “behavioural economics” and game theory lab experiments) for it can only ever produce empirical factoids, factoids which reflect averages, not extremes. Empirical correlations can be useful but do not advance economic theory.

    And when (if) cooperation and coercion are theorised, they will be as perfect cooperation and perfect coercion. Why? Because the dichotomy of extremes—all-or-nothing—is the only possibility in social science where there are no measurement units. It is this idealisation which has enabled economics to generate a body of theory and to attain its present social prominence. The task for those who aren’t satisfied with how it reflects reality is to get real by developing more theory.

    • Ken Zimmerman
      November 15, 2020 at 2:55 am

      Must respectfully disagree with much of this. But first, ideal types use. Agevall, O (1999) A Science of Unique Events: Max Weber’s Methodology of the Cultural Sciences; Biernacki, R (2012) Reinventing Evidence in Social Inquiry: Decoding Facts and Variables; Gerhardt, U (1994) The use of Weberian ideal-typical methodology in qualitative data interpretation: An outline for ideal-typical analysis. Bulletin of Sociological Methodology 45: 74–126; Swedberg, R (2014) How to use the ideal type in concrete research. In: Blok, A, Gundelach, P (eds) The Elementary Forms of Sociological Knowledge: Essays in Honor of Margareta Bertilsson. Copenhagen: Department of Sociology, Copenhagen University, 163–176; Wagner, GC, Härpfer (2014) On the very idea of an ideal type. SocietàMutamentoPolitica: RivistaItaliana di Sociologia 5(9): 215–234.

      First, social science did not elevate subtlety. People did that in their ordinary everyday lives. As did scientists in their ordinary everyday lives as scientists. Should we just ignore the actions of the people who are supposedly the subjects we study?

      Scientists use types routinely. Whether they are labeled ideal is a matter of choice for each scientist.

      Theories almost never translate to actual technologies directly. There are too many subtle and sometimes backward-looking steps of scientists in using the theories to make the transition a direct one. And often the theories are transformed more than the technologies that are drawn from the work. Plus, in the simplest terms no theory is self-explanatory. All must be interpreted each time they are used for some work. Interpreted by people who will change interpretations based on dozens of explicit and tacit factors.

      Like all culture science evolves. A concept that helps explain evolution more clearly is reverse salient. The term is customarily used to identify that section of an advancing battle line, or military front, which is continuous with other sections of the front, but which has fallen behind or been bowed back. The concept of a reverse salient refers to a complex situation in which individuals, groups, material forces, historical influences, and other factors have idiosyncratic, causal roles, and in which accidents as well as trends play a part. The idea of a reverse salient suggests the need for concentrated action (invention and development) if expansion is to proceed. A reverse salient appears in an expanding system when a component of the system does not march along harmoniously with other components. As the system evolves toward a goal or multiple goals, some components fall behind or out of line. As a result of the reverse salient, growth of the entire enterprise is hampered, or thwarted, and thus remedial action is required. In science we see all of this. Science moves only if pushed. Pushing can come from scientists, scientific institutions, governments, business, etc. This is not a debate. It is an active battle. There seem to be few battles in economics. I am much less concerned with where things fit theoretically or even with data streams than I am with where they fit in the battle.

      As to the ideal types cooperation and coercion yes they exist. It is just that often it is difficult to figure out where one stops and the other begins. And sometimes difficult to determine from inside or outside in a series of interactions whether the parties are cooperating or coercing. Again types like theories must be interpreted in each situation by those involved at the time.

    • Craig
      November 15, 2020 at 3:34 am

      pfeffertag,

      “Craig, I would say that alongside the scientific approach you decry, the dialectic you advocate has been going on forever.”

      I don’t decry science or the scientific method itself, but rather only when it becomes incorrectly orthodoxy. Thinking and theorizing is only flawed when it degenerates into orthodoxy and then obsessive dualities that contain only particles of truth that parade themselves as THE TRUTH.

      And yes the dialectic has been going on forever because process is the nature of the temporal universe, the process and means of gaining wisdom, and also descriptive of what I refer to as new paradigm perception, as a new paradigm always integrates and resolves opposites to the point of a genuine thirdness greater oneness. I formulize it thusly:

      [ (A > C ] An integrated duality within an integrative thirdness greater oneness process

      • Craig
        November 15, 2020 at 3:51 am

        That formula did not take completely. There should be a [ to start followed by and then an ending parentheses indicating integration, followed by this –> indicating process to C, and finally another ] denoting an integrative trinity of the thesis and anti-thesis of A and Z ….if this posts accurately.

  6. Yoshinori Shiozawa
    November 14, 2020 at 2:18 pm

    In this blog, critical realism of Tony Lawson and his followers is so strong that those who aim to build a new alternative theories are relatively less represented. Pfeffertag is one of such few. It is important to listen what he contends.

    Let me cite a part of Frederic Sterling Lee‘s “summery of the critical realist-grounded theory approach”:

    The CR-GT approach to theory creation and evaluation overcomes the perceived shortcomings of CR and the GTM: the former has little to say about theory, while the latter lacks the ontological foundation and so appears to be a little more than an inductive research strategy.
    (Lee 2018 Microeconomic Theory / a heterodox approach, p.22)

    Here, CR stands for Critical Realism and GTM Grounded-Theory Method. Lee’s criticism of critical realism is not confined to Lawson-like one. Lee thought that critical realism and grounded-theory approach both have serious defects and those defects can be overcome by synthesizing the two. This seems to be the most important message of Chapter 1 of his book that Lee left for us.

  7. pfeffertag
    November 16, 2020 at 12:45 am

    Thank you Ken, for the references. There isn’t a great deal of discussion of ideal types so I am glad to have them. However I wasn’t suggesting no one had written about ideal types. I said no one in social science uses ideal types. That still stands.

    I don’t know those particular references but experience tells me they will be full of abstract pontificating about ideal types with no actual examples. That’s a guess; more confidently I know that they will follow the master, Max Weber, and assume ideal types may be invented. This damns them immediately for it is not how science works. It can’t so work because invention requires definition, which is telling Mother Nature what she is made of. Science is modest; science assumes that Nature is as she is, and that to get her to reveal her mysteries one must woo her, not to command her. Though idealisations are extremes which do not actually exist in reality, Nature sets them.

    Social scientists have been trying to dictate to Nature for a century. She treats them with scorn. It’s a pity: our modern world is dramatic evidence of how responsive Nature can become after her secrets have been exposed.

    “Scientists use types routinely. Whether they are labeled ideal is a matter of choice for each scientist.”
    That’s not right. No scientist assumes nature is a free-for-all. (No modern scientist talks about idealisation anyway.) It is not a matter of labels; it is a matter of concepts and there is no choice. For example, Newton said the force of gravity is given by multiplying the two masses and dividing by the square of the distance between them (F=m1.m2/d/d). Those idealised concepts, F, m, d, are set by nature. Nothing else will do for this relationship and if there are other advanced civilisations in the universe they will have the same concepts. Nature decides and Newton, not known as a modest man, was very aware of it. He also wrote about idealisation, as did Galileo.

    There are always boundary problems so yes, a theory has to be interpreted in order to apply or test it. This a matter of judgement and of definitions. You can describe the sociology of science as you like but the bottom line is that science theory—consisting of interrelationships between ideal types—has changed the world. So has economic theory. Economic theory is weak compared with the natural sciences but is an enormous success compared with the other social sciences.

    “As to the ideal types cooperation and coercion yes they exist. It is just that often it is difficult to figure out where one stops and the other begins.”

    A pertinent illustration. Like you, I think they exist but you and I don’t actually get to declare it. That is up to Nature—and she only reveals them in relationships. Lone concepts require definition so cannot exist in science theory. Got to figure out the relationships.

    The boundary problem is why idealisation is needed. In social science, idealised concepts can only be present or absent, nothing in between. That is how economic theory works—no one speaks of 50 per cent market clearing or 30 litres of competition—and it is how a properly conducted social science must work. In recent decades, some economists have posited incomplete markets and incomplete competition. They are thrashing around trying to squeeze the competition premise for a few more drops of theory. It won’t work.

    As for looking at “a series of interactions,” you can forget it until you have a theory. Only a theory can tell you what to look for. First get a theory, see what it predicts, then take a look at reality. Looking without theory is what social science has done for a century.

    The resource wastage is mind-boggling. Right now in every university there are dozens of social science academics hunched over their screens pressing the statistics buttons. They have been doing this for a generation, ever since computers became readily accessible. What have they found? Nothing. I imagine they might occasionally find a few (very few) correlations with some administrative application (this approach is effective for Google and Amazon) but that doesn’t yield theory. No theory because they are correlating phenomena which they infer from reality—which they, human beings, define. Worldwide there must be hundreds of thousands of these people, fostering their academic careers, producing nothing.

    When I asked for examples of ideal types I was hoping you would come up with something. Actually I do know an example of social science idealisation outside of economics. It is the saw, “Democracies never war against each other.” Note both democracy and war are absolutes. There is no talk of correlations or any suggestion of degrees of democracy or of a mild or serious war—nothing of that ilk. Such “nuances” are not possible for there are no agreed units to measure levels of democracy or war.

    Because the “democratic peace” is an idealised claim, it is falsifiable (the only falsifiable claim in social science?) and it has generated a large literature of people trying falsify it or trying to falsify the falsifiers. This simple assertion may be the only scrap of proper scientific theorising in social science—and it appears to contain the answer to the greatest social scourge of our species. Such is the power of theory.

    Craig, I don’t know anything about wisdom. All I am on about is how to improve economic theory and how to make social science into a science. It seems like a worthwhile pursuit.

    • Ken Zimmerman
      November 16, 2020 at 2:59 pm

      There is some pontification in these, of course. That is the ‘nature of elite’ scientists. But the Swedberg source is good in most respects. As to specific use of ideal types check out: IDEAL-TYPES AND THE MEDIEVAL CHURCH David L. d’Avray; Managerialism: an ideal type Sue Shepherd; Material and Spiritual Conceptions of Development A Framework of Ideal Types Darren Noy; The Emergence and Challenge of the Modern Library Building: Ideal Types, Model Libraries, and Guidelines, from the Enlightenment to the Experience Economy Nan Dahlkild.
      Your view of science and science theory seems reversed to me. All science and all science theory are ultimately based on experience, explicit or tacit. In the words of Lennon and McCartney:
      “The Fool On The Hill”

      Day after day, alone on a hill
      The man with the foolish grin is keeping perfectly still
      But nobody wants to know him
      They can see that he’s just a fool
      And he never gives an answer

      But the fool on the hill
      Sees the sun going down
      And the eyes in his head
      See the world spinning ’round

      Well on the way, head in a cloud
      The man of a thousand voices talking perfectly loud
      But nobody ever hears him
      Or the sound he appears to make
      And he never seems to notice

      But the fool on the hill
      Sees the sun going down
      And the eyes in his head
      See the world spinning ’round

      And nobody seems to like him
      They can tell what he wants to do
      And he never shows his feelings

      But the fool on the hill
      Sees the sun going down
      And the eyes in his head
      See the world spinning ’round

      He never listens to them
      He knows that they’re the fools
      They don’t like him

      The fool on the hill
      Sees the sun going down
      And the eyes in his head
      See the world spinning ’round

      Or more correctly in terms academics might understand.
      The traditionalists who portray science as “pure theory” do so in order to place it beyond criticism. That view of science is frequently an adjunct to reactionary political views because it supposedly offers a source of unchallengeable authority, like religion, and thereby serves as a support for authoritarianism. But many open-minded scholars, radical feminists, and environmental activists reject that notion and refuse to bow down before a deified Science.

      The beginning of science, to paraphrase Goethe, was not the word but the deed-not the proclamations of brilliant theorists but the creative handiwork of ordinary people.

      In the Scientific Revolution of the sixteenth and seventeenth centuries, practical advances came first and theory followed along behind-usually far behind.

      A People’s History of Science, Clifford D. Conner.

      The two millennia immediately preceding 3000 BC had witnessed discoveries
      in applied science that directly or indirectly affected the prosperity of millions and demonstrably furthered the biological welfare of our species…artificial irrigation using canals and ditches; the plough; the harnessing of animal motive-power; the sailing boat; wheeled vehicles; orchard-husbandry; fermentation; the production and use of copper; bricks; the arch; glazing; the seal; and—in the early stage of the revolution—a solar calendar, writing, numeral notation, and bronze.
      The 2,000 years after the revolution produced few contributions of anything like comparable importance to human progress. Perhaps only four achievements deserve to be put in the same category as the fifteen just enumerated. They are: the “decimal notation” of Babylonia (about 2000 BC); an economical method for smelting iron on an industrial scale (1400 BC); a truly alphabetic script (1300 BC); aqueducts for supplying water to cities (700 BC).

      Man Makes Himself, V Gordon Childe.

      Nature does not set the parameters. Humans experiencing set all the parameters. Often, I admit humans screw up and set up situations in which they hide or misrepresent their own experiences of what is not human based on what is. Accepting that drawing such a line is always problematic and evolving over time. And you are correct that theories can change humans and thus the theories of the world human invent which in turn changes the actions humans take, with this interactive loop/feedback continuing. This is how civilizations are constructed. And types play a big part in this. For example, today we are dealing with the results of 400 years of struggle between the good human and evil human notions of human nature. All around us we see the struggle and its consequences of battling over the nature of the person who stands before me. Wars are fought and societies rise and fall in this battle.

      I agree that the basis of all the definitions, struggles, taken-for-granted, and actions of humans is relational. Another word for this in my book is evolution. The ultimate relational development. And the types that evolve thus are based on a certain historical pattern. They are present because they evolved to be present. Not because they must fill a pre-set slot. That is why it seems they can only be present or not be present. The process in linked together through its relationships of evolution. As evolution continues the results might change. For example, as we now see democracy might come to represent oligarchy or capitalism might come represent state intervention. Both actual events in the world today. So, as I said the evolutionary process can and does change “the basics” of situations. Even down to the basic nuts and bolts. But you are correct that it may be possible for humans to isolate a moment in time so that some notions and relationships are taken as unchangeable. Or, as you suggest are taken as ideal.

    • November 16, 2020 at 10:32 pm

      Says Pfeffertag: “Only a theory can tell you what to look for. First get a theory, see what it predicts, then take a look at reality. Looking without theory is what social science has done for a century.”. That’s what I’ve said, except that one must first look at reality, not initially to theorise but to see what is wrong with it. HOW one theorises depends on the theorist.

      He goes on: “both democracy and war are absolutes. … “nuances” are not possible for there are no agreed units to measure levels of democracy or war”. Ken agrees: “Today we are dealing with the results of 400 years of struggle between the good human and evil human notions of human nature. All around us we see the struggle and its consequences of battling over the nature of the person who stands before me”.

      What G K Chesterton saw was wrong with this way of thinking (and C E Shannon’s “Mathematical Theory of Communication” demonstrated) has long been proverbial: “You can’t squeeze a quart into a pint pot”. To consider a practical example: can one fit a million in a five-digit decimal number format? In the UK a crucial Covid tracing system went disastrously wrong because an academic overlooked such a limit in a spread sheet format.

      The types, then, are not “good vs evil” but due to humans having a functionally specialised split cortex and academics “using only half their brains”: using wordy “pots” within the wordy side of the brain to try and contain “quarts” of visual, tactile and emotional information. If Ken wants agreement on “units”, it is at this level it is needed: the argument needs to be conducted in terms of four units rather than two. If Pfeffertag wants social scientists to guide their looking with theory, Myers-Briggs personality typing is as good a place as any to start, looking at the reality of brain architecture for justification of its statistics. It is not that one side of the brain is better than the other: in betting parlance it is “horses for courses”. A book index efficiently points to the right page, but one needs to have read the page before one acts on it.

  8. ghholtham
    November 16, 2020 at 10:26 pm

    pfeffertag thinks equilibrium is a minor aberration in economic theorising. It seems central to me. Even if we start theorising coercion and co-operation as he advocates, if we assume a priori that forces at work will lead to a stable outcome or a stable smooth growth path we shall mislead ourselves. We shall start to deform our axioms of co-operation, coercion or our auxiliary assumptions so that we can get the desired unique equilibrium. Our theorising will become as arid as economics has become these past forty years. Theory must start from observed persistent tendencies of human behaviour and go wherever they lead. It cannot start from the observation that everything is not incomprehensibly chaotic and therefore must be in “equilibrium”. Start from there and you end up with rational agents who know everything, whether they are competing or co-operating. Natural systems can evolve with only occasional large discontinuities but it is doubtful if mechanical equilibrium is a good way to model that phenomenon.
    You could argue, I suppose, that equilibrium turned out to be more fruitful for a time than Marx’ Hegelian dialectics but it is surely played out now in most contexts. It was the insistence on modelling “perfect equilibrium” back in the 1970s that led to rational expectations, which required “representative agents” for analytic solutions to models and so to all the characteristics that have bled all realism and utility from macroeconomics. Certainty equivalence and equilibrium became not tools or convenient assumptions, “ideal types”, but obligatory for any theorising that could be admitted as “economic”. When an economist says “yes, but in equilibrium..” you know you are heading for bravo sierra gulch.

    • November 16, 2020 at 10:49 pm

      Gerald, you need to read what Jesper wrote about equilibrium in ‘effective demand’:

      “Unfortunately Yoshinori [Gerald], you are mistaken in your rigid interpretation of ‘equilibrium’. Keynes (and I) [and I] are arguing within a dynamic simultaneous and open macroeconomic system – path-dependent (if you like), which (only) occasionally might end-up in a ‘stand still’ with substantial unemployment – this is what Keynes called an ‘equilibrium’ in the lack of a better word; but so misleading to his neoclassical colleague (and still is – even today)”.

      I’ve repeatedly illustrated this with the cybernetic paradigm of a ship aiming to stay on course, only achieving a static equilibrium when it has docked in the right port.

    • Yoshinori Shiozawa
      November 17, 2020 at 6:28 am

      One of those complaints concerns equilibrium which seems to me to be peripheral, or maybe too technical. What is plainer is that economic theory assumes competition. The whole theoretical structure depends on competition. If fancy mathematics leads from perfect competition to perfect equilibrium I suppose I must accept it, but what competition certainly leads to is destruction. Destruction is guaranteed if competition is genuine. The history of humanity (and evolution itself) shows that competition means vanquishing rivals. It follows that to keep the destruction within bounds (to turn it into “creative destruction”) there must be rules and the rules must be enforced.
      (Pfeffertag on November 14, 2020 at 10:58 am in this thread)

      Both Pfeffertag and Gerald Holtham posed important points of arguments. I support two of them, of course, on different reasons.

      As for “equilibrium”, I support Gerald. It is not a “periferal” nor “too technical” problem. It lies at the center core of the economics, not only for the mainstream economics but also for the majority of heterodox economics. Pfeffertag has written in his post on November 12, 2020 at 11:41 pm that “economic theory does seem to have hit the wall around 1970”. There were, are, and will be various arguments on why economics hits the wall. In my opinion, it is the equilibrium framework that is most likely to be blamed. I have the same opinion as Gerald that “It was the insistence on modelling “perfect equilibrium” back in the 1970s that led to rational expectations.”

      As for competition, it is important but we must admit that it is a very vague and ambiguous concept. Pfeffertag did not specify what he means by competition. Perfect and imperfect competition is badly formed concepts, depending much on what we usually say price competition. (Monopolistic competition is much better.) Price competition is usually argued in the framework of price equilibrium, either in partial or general equilibrium. I doubt if the notion of price competition as formulated in general equilibrium theory like that of Arrow and Debreu (and partial equilibrium theory as Marshall’s) is a good tool to analyze the modern industrial economies.

      Pfeffertag mentioned Schumpeter’s concept of “creative destruction” (in the citation above). I agree with his opinion that “to keep the destruction within bounds (to turn it into “creative destruction”) there must be rules and the rules must be enforced.” Moreover, rules are necessary in order to keep the market reasonably competitive. The neoliberal thought of “liberalization” is strongly supported by economics that considers that economy tends to a harmonious “equilibrium” state. With this respect, too, we must question “equilibrium framework”, which is pervasive in the economics from mainstream to heterodox economics including Post Keynesian one.

      As for competition other than price competition and a framework for analyzing it , please read my recent paper: A new framework for analyzing technological change in the Journal of Evolutionary Economics. If you, Pfeffertag, have any difficulty to get the copy, please send me an e-mail at y@shiozawa.net .

      • November 17, 2020 at 11:17 am

        ” Pfeffertag did not specify what he means by competition.”

        Gerald did not specify what he meant by equilibrium.

  9. Meta Capitalism
    November 16, 2020 at 11:28 pm

    [I]f we assume a priori that forces at work will lead to a stable [i.e., stationarity] … [w]e shall start to deform our axioms … [and] our auxiliary assumptions so that we can get the desired [outcome]. … Theory must start from observed persistent [a priori assumed stationarity assumption again! Ignoring reflexivity again!] tendencies of human behaviour and go wherever they lead.

    .
    Circular logic at work in my view. Statistical analysis works in nature because certain material realities in the material world that are not influenced by the reflexivity of human behavior and its reflexive mind-meanings and value-judgment choices that alter the very human reality under investigation (i.e., the economy). Physicists rely on stationarity because physical laws remain unchanged for century after century. Reflexivity undermines stationarity.
    .

    False stories and bogus statistics In March 2015, the British tabloid newspaper the Daily Express ran the headline ‘Chocolate accelerates weight loss; Research claims it lowers cholesterol and aids sleep’.14 Similar stories appeared in other media. They were based on an article published in the International Archives of Medicine, which describes itself as a peer-reviewed open access journal – one of many such journals, some reputable, some less so, which have emerged in the era of digital publication. The report was based on research, of sorts; the authors had indeed established that a group they selected which had followed a low-carb diet supplemented by chocolate had lost weight relative to a similar group denied the chocolate. The weight loss was described as ‘statistically significant’; beneficial effects on cholesterol and sleep had also been observed, but were below the levels which classical frequentist statistics regards as significant.
    .
    The study did report its results accurately, but was in fact a spoof created by German scientists and journalists to expose the low standards of peer review operated by some supposedly scientific journals and the gullibility of newspapers and their journalists and editors. And their credulousness exemplified, in extreme form, the widespread abuse of probabilistic reasoning in science and economics. What was meant by ‘statistically significant’ in this ‘research’ was that the probability that the weight loss observed in the study would be the product of chance was less than 5%. But, as we have shown above, any claim about a probability is derived from a model which describes how the observed data were generated, and the validity of the claim depends on the validity of the model. What is the model here?
    .
    The experiment was a poorly conducted example of what is known as a ‘randomised controlled trial’ (RCT), considered the ‘gold standard’ of research to judge the safety and efficacy of new drugs. RCTs are now also increasingly fashionable in economic research.16 The objective is to select two groups of people who differ in only one respect – in this case, the amount of chocolate they eat. It is very difficult to make sure that the groups are identical in all other respects, although clinical researchers go to extreme lengths to try to achieve this result – for example, they insist on ‘double blind’ trials in which neither patients nor doctors know who is receiving the drug and who is treated with only a placebo.
    .
    Even in the best-designed randomised controlled trials, there will be many inescapable differences between the subjects of the trial and the control group. The researchers noted that the chocolate-guzzling subjects slept better; perhaps this was a result of their greater chocolate consumption, but probably not. Perhaps they were just, on average, more relaxed individuals. The implicit assumption is that the two study groups were identical in all relevant respects other than their chocolate consumption, where ‘relevant’ means anything that might affect their weight gain or loss. If that assumption were true then the observed difference would be registered in only one out of twenty such trials. But it is hard to imagine that this assumption was true, or how one would know that it was true.
    .
    And there have been many, perhaps less formal, trials in which people have eaten lots of chocolate and failed to lose weight. None of these made headlines in the Daily Express. Researchers tend to report only positive results because negative results are not interesting, and this is true of more serious scientific research than the chocolate ‘study’. Just as newspapers do not publish accounts of safe streets and accident-free roads, academic journals do not accept papers that demonstrate that eating chocolate does not make you thin. Research chemists understandably highlight studies which show positive effects of the compounds they study, and pharmaceutical companies have powerful incentives to publicise the effectiveness of their products while burying, literally and metaphorically, their failures.
    .
    The chocolate ‘study’ is a reminder that even if the drugs are entirely useless and the study truly randomised, a ‘statistically significant’ result will be obtained, on average, in one trial out of twenty. Unless all trials are reported, the claims of statistical significance are meaningless. And no one will ever report all trials, because people do not waste time and money pursuing to the end lines of research that do not even appear promising.
    .
    In response to criticism of this kind, some pharmaceutical companies have agreed to much more extensive publication of negative as well as positive results of clinical trials. This greater openness helps to alleviate the problems, but does not eliminate them. A paper a decade and a half ago by John Ioannidis, who holds chairs in both Medicine and Statistics at Stanford University, was entitled ‘Why Most Published Research Findings Are False’, and has become one of the most widely cited scientific papers. Ioannidis asserted that the claims made in a majority of papers in academic journals had proved incapable of being replicated in subsequent studies. (Kay, John. Radical Uncertainty: Decision-Making Beyond the Numbers (pp. 242-245). W. W. Norton & Company. Kindle Edition.)

    • Meta Capitalism
      November 17, 2020 at 2:27 am

      Like climate systems, economic and social systems are non-linear. As a result, the evolution of the economy, like the climate, is difficult to forecast. And economic forecasting is necessarily harder than weather forecasting because there is a stationarity in the underlying physics of weather systems which is missing in the underlying structure of economic systems. There are no fixed laws of motion governing the path of the economy. (Kay, John. Radical Uncertainty: Decision-Making Beyond the Numbers (p. 102). W. W. Norton & Company. Kindle Edition.)

      • Meta Capitalism
        November 17, 2020 at 2:37 am

        In 1939, Keynes published a review of the pioneering statistical study by the Dutchman Jan Tinbergen. That study was one of the foundations of the new subject of econometrics.4 Keynes’ main criticism of the new approach was that it assumed stationarity of relationships: ‘the most important condition is that the environment in all relevant respects, other than the fluctuations in those factors of which we take particular account, should be uniform and homogeneous over a period of time’.5 Keynes said of Tinbergen, ‘The worst of him is that he is much more interested in getting on with the job than in spending time in deciding whether the job is worth getting on with.’6 With prescience, Keynes foresaw temptations which subsequent generations would not resist. (Kay, John. Radical Uncertainty: Decision-Making Beyond the Numbers (pp. 340-341). W. W. Norton & Company. Kindle Edition.)

      • November 17, 2020 at 12:08 pm

        “Keynes said of Tinbergen, ‘The worst of him is that he is much more interested in getting on with the job than in spending time in deciding whether the job is worth getting on with.’ ”

        Well found, Meta!

        Yoshinori, busy selling his book, likewise finds it difficult to concede that one can have an equilibrium – or (effectively) a stationary point – in a rate of change. The structures within which flows occur evolve, but at a rate of change which is negligible in comparison to the timescales of flows circulating within them. This oversight, I can agree with him, “lies at the center core of the economics, not only for the mainstream economics but also for the majority of heterodox economics”.

      • Meta Capitalism
        November 17, 2020 at 12:50 pm

        stationarity (mathematical/statistical term): as assumed in modelling, 333, 339, 340–1, 349, 350, 366–7, 371–2, 382; and astronomical laws, 70; China and Japan’s turn inwards, 419–20, 430; economics as ‘non-stationary’, 16, 35–6, 45–6, 102, 236, 339–41, 349, 350, 394–6; and the environment, 362; evolution as ‘non-stationary’, 407, 428–9, 430–1; financial sector as non-stationary, 16, 202–3, 268–9, 320–1, 331, 333, 339, 366–8, 402–3, 406; and frequency distribution, 58, 69–70, 87, 202, 247, 327; ‘Goodhart’s Law’, 36; and insurance underwriting, 327; and mortality tables, 57, 69; and natural phenomena, 39; and opinion pollsters’ models, 242; and planetary motion, 18–19, 35, 373–4, 392, 394; and progress in science, 429–31; and ref lexivity, 36, 394; and resolvable uncertainties, 37; and risk-averse individuals, 306; and scientific reasoning, 18–19, 35, 236, 373–4, 388, 392, 429–31; and Value at risk models (VaR), 366–8 (Kay, John. Radical Uncertainty: Decision-Making Beyond the Numbers (p. 526). W. W. Norton & Company. Kindle Edition.)

        .
        All of which refutes the false claim that:
        .

        Stationarity of the economic process enables human agents to behave in a rule-based way. The process gives a cue for the action, and we draw benefits from some constancy of the process. (Shiozawa, Yoshinori; Morioka, Masashi; Taniguchi, Kazuhisa. Microfoundations of Evolutionary Economics (Evolutionary Economics and Social Complexity Science) (Kindle Locations 1172-1176). Springer Japan. Kindle Edition.)

  10. ghholtham
    November 17, 2020 at 1:22 pm

    Reflexivity makes stationarity and any kind of equilibrium less likely not more likely. It reinforces the point I was making, though judging by the tone of Meta’s reply, he seems to think the opposite. Keynes did not have a subtle and different view of equilibrium he was just using formal methods unsuited to his argumentation because he hadn’t got better ones. Hicks developed his conception into the notion of temporary equilibrium. Moreover, all equilibria in dynamic models imply stationary rates of change. If that’s your point Dave, there is no news in it. If you are making a different point, try again because it isn’t clear.

    • November 17, 2020 at 10:45 pm

      If by reflexivity you mean physical circulation you are right, but the effect of information feedback on cyclic actions depends on the timing of the feedback relative to the action. Negative or integral feedbacks reduce change, differential feedbacks reinforce it. In view of what Keynes was trying to achieve, Gerald, your rejection of his insight is to put it mildly ungenerous, and “throwing the baby out with the bathwater”. As it happened, my interest in economics and mathematics dates back to 1953, when I was taught the value of the calculus in economics by a mathematician interpreting “stationary points” at the peak and troughs of two-dimensional graphs (static models) as the maxima and minima of a production process (a dynamic reality). The same mathematics came up in electrical engineering a year later as “the maximum power transfer theorem”. Hick’s formula is that of Wheatstone’s Bridge in electrical engineering, not of an information system like an economy, but the electrical flows could be those of a telephone system, and the telephone system could be a broadband internet system with – like an economy – many processes time-sharing communication channels.

      As the understanding of money has gradually become more abstract, the model of equilibrium in economics has gone from equal weights on each side of a grocer’s balance, via equal ratios both sides of a Wheatstone Bridge, via monetary prices supposedly balancing value (though usually not), to a PID control system that attempted to balance aggregate Employment, Interest and Money simultaneously but used D to grow money until the system became chaotic; to what is now proposed: using Fullbrook’s fraction-of-total resource pricing to ration credit, localise distribution and balance resource use with regeneration. It is of course much easier to ridicule such a necessary aim, Gerald, than to help articulate it and make it happen.

  11. ghholtham
    November 17, 2020 at 3:14 pm

    The difficulty here is that people do not distinguish stability from stationarity. Economists look at a system that is usually broadly stable and model it as an equilibrium system, ie something with a fixed point, a point of stationarity. Stability is not an absolute like stationarity. Something is either stationary or it isn’t but something can be fairly stable, ie not move much or only within limits. In any stable system, I conjecture, there will be stationary elements or things only moving very slowly. but that usually leads to – and we are dealing with -an evolving system not one driven to some ineluctable equilibrium, either stationary or in the form of constant growth rates and constant ratios between variables.
    In so far as I can understand other contributions we all agree about that. People seem to be arguing for the sake of it. No-one has claimed human behaviour is stationary, is not evolving under cultural influences or is does not involve self-reflection and learning. The fact remains that the social world is comprehensible, not everything is a mystery, quite a lot of behaviour is predictable even if social outcomes under a welter of different influences are very hard or impossible to predict. Absolute prediction anyway is not the point. We’ll never predict history if only because of the ‘unknown unknowns’ . The effort is to arrive at fairly good conditional statements of the form “if you do X in these specific circumstances (enumerated) the result is likely to be Y”. Economics for all its faults can offer a number of such statements. The sad fact is it could have offered most of them fifty years ago and the rate of progress is pathetically slow – for reasons well-rehearsed on this blog.

    • Craig
      November 17, 2020 at 5:13 pm

      When you linearize an abundance of individual demand and guarantee not just no inflation, but beneficial and guaranteed price and asset deflation with a 50% discount/rebate policy at retail sale….you’re creating both stability and stationarity….instead of delusionally claiming general equilibrium or just as delusionally believing that the alternately goosed and smothered financial chaos created by the paradigm of DEBT ONLY is a free market.

      Steve Keen wants the new monetary paradigm of Gifting because he advocates for “a modern debt jubilee” and QE for the people. Michael Hudson wants us to look at finance as a parasite and MMT wants to end austerity all of which are accurate assessments and can only be accomplished by monetary gifting. These are all signatories of this blog with books for sale on the site.

      What they are missing is the significance and power of a 50$ /rebate policy at retail sale, and for a booster shot of stability and ecological sanity another 50% discount/debt jubilee policy at the point of note signing for big ticket and green consumer products.

      I CHALLENGE Keen, Hudson and any advocates of MMT here to examine the efficacy, post haste effects and rationality of these policies and their related regulations.

      Or they can remain puzzlingly silent despite the fact that their own intentions are fully aligned with a new paradigm of Monetary Gifting and the above policies would accomplish those intentions much faster and more effectively than any lesser palliative reforms.

    • Yoshinori Shiozawa
      November 19, 2020 at 7:12 am

      We should be more reflexive on confusions that arrive from ambiguity of terms. In this sense, Gerald’s proposal to distinguish stationarity and stability is important. There were many confusions around these two when we talk about equilibrium.

      Another important point that came to be clear through arguments from
      Dave Taylor on November 17, 2020 at 12:08 pm to
      Gerald Holtham on November 17, 2020 at 1:22 pm,
      Dave Talylor on November 17, 2020 at 10:45 pm, and
      Gerald Holtham on November 17, 2020 at 3:14 pm,
      is the necessity to distinguish time scales of each process. Economics analyses must have an appropriate framework to treat different scales.

      Hicks proposed temporary equilibrium and called the time span in which equilibrium is achieved a “week”. He thought his temporary equilibrium shifts from week to week and this makes economic dynamics. However, we have to question if this picture correctly reflect the complex time scheme of decision making. A purchase of foods may be done in an hour. The volume of production of a product in a factory is determined by the shop director every morning. Investment for a new production capacity may be made each three month. Themes of research and development are normally decided once a year, and so on. Each time span has its reason. Temporary equilibrium forgets this multi-layered time structure.

      My fundamental stance is to abandon equilibrium concept as a key tool of analysis. It blurs causal processes that lie under what we want to study. I wonder why many economists who support critical realism does not seriously question equilibrium framework.

      • November 19, 2020 at 10:41 am

        Yoshinoi, thanks for clarifying a lot of points here. I’ve been arguing against “automatic” equilibrium (c.f. Phillip Miroski’s “Machine Dreams”) in favour of the PID servomechanisms or cybernetic methods which we humans need to use to stay on course, i.e. equilibrate our speed, direction of motion or whatever with that needed to approach a target.

        Unfortunately, resistance to the proven PID concept has meant that the argument has not moved on to clarifying what can be seen in examples: that the methods of navigation are used not just by ships of state but now learned and used by millions of individuals in boats of different sizes. Similarly, developments in digital technology have enabled centralised computers to be replaced by personal computers which can be searched to generate state level overviews. I’m not saying that economics should be about “paddling our own canoe”: more that freedom to do that is what privatisation is suggesting while in fact the privateers (pirates) are building bigger and bigger search engines. Covid lock-downs have been giving us a taste of what life may revert to when the oil runs out, when we will need to learn HOW to “paddle our own canoe”, only mass-producing and trading internationally where that is environmentally safe and advantageous (as against for monetary profit). I have lots of ideas on how to do that, but they are not being heard because we haven’t even got as far as agreeing the need for them in principle.

      • Yoshinori Shiozawa
        November 19, 2020 at 12:46 pm

        Dave, this may be again my bad habit but forgive me to say this.

        Your picture of equilibrating the economy by PID feedback is far from what is normally talked by or understood as equilibrium. Equilibrium in the standard understanding is a state, not a movement, path, or trajectory. That must be one of the reasons why you are so often misunderstood. I do not think that the standard notion is a good framework, but it would be necessary to take note that most of economists have different notion than yours. If not, you will be misunderstood each time when you say something about equilibrium. You must coin a new concept that can be used in comparison to automatic equilibrium. (This was a good naming.) How about “cybernetic equilibrium” for what you picture?

        Sun Wu said (in his Art of War):

        If you know the enemy and know yourself, you will not be imperiled in a hundred battles.

      • November 19, 2020 at 5:31 pm

        Yoshinori, in a physical terms I agree with you: equilibrium in a u-tube with equal gravitational force at each end (a constant position) is not the same as a constant rate of change of position.

        Mathematically you are missing the point: that using the same word for both forms of constancy is a way of saying that the same reasoning process can be applied to both. We don’t want to use a different word for the adding of apples as distinct from adding bananas, so we abstract the physical and add the residual ‘units’. When adding units in decimal notation, the rules are the same whatever the digit, whether it represents units, millions or even millionths.

        I’ve just tried to say the economy is not “a ship of state”, it is lots of individuals using PID logic co-operating systematically (more or less making good each other’s limitations) in every type of sub-system from families to United Nations. At the moment these groups are being told they have no alternative but to compete as groups. I am denying that, saying that at the individual level there is the alternative of ‘giving way’. The rule of the sea is for large vessels give way to smaller ones, keeping to the right of traffic they are approaching. (Likewise with road traffic and giving way at roundabouts). That way all vessels are free to go where they want to, i.e. people can more or less do what they want, which at times may be “paddling our own canoe” but at others (or for some of us) may be to travel as passengers or crew on a larger vessel, these even including “ships of state”.

      • Yoshinori Shiozawa
        November 19, 2020 at 7:03 pm

        Dave, if you think that

        the economy is lots of individuals using PID logic co-operating systematically (more or less making good each other’s limitations) in every type of sub-system,

        there is no big difference from my picture of the economy.

        I have been saying that the economy is a system of agents (typically firms and households) who behaves according to improvable routines or habits (an structured sequences of CD-transformations) and interact by exchanging what they have or produce. Only one thing I want to point here is PID feedback is not a good metaphor for describing human behavior. You are too much simplifying and disfiguring human experiences. Please compare it with the arguments in Chapter 1 of our book Microfoundations of Evolutionary Economics (2019).

        As for the economy itself, if it is a network of interactions of exchanges, you must know how the prices are are determined and how the productions are connected by input-output relations. In short, you have to know how the economy as a networked system works The core theory is presented in Chapter 2 and Chapter 4 of our book. Our book supposes no rational agents, no utility functions, no demand function, no supply function, and no equilibrium of demand and supply, although it can formulate effective demand and involuntary unemployment.

      • November 19, 2020 at 7:43 pm

        There have been so many comments here (61 as I write) that I’ve struggled to keep up, and have only just read David Ruccio’s original post. I am perhaps most in sympathy with Robert Locke’s original comment, adding (what I see as ‘catholic’ – for everybody – economics back into the mix). Ruccio is however right about the ejection from it of Marxist thinking. That had the problem that I’ve experienced of fair comment being turned on its head by self-serving centralisers: jobs for all becoming slavery under Hitler and Stalin, and my Chestertonian case for home ownership being sold by Thatcher as an opportunity for a home mortgage.

        What I forgot to mention above was that focus on post-Covid localisation brings real markets back into play, where one can haggle with the farmer and see the goods, unlike the so called stock markets selling future prospects and fake investments.

  12. pfeffertag
    November 18, 2020 at 11:14 am

    To davetaylor1:
    “HOW one theorises depends on the theorist.”
    Does it? Can you demonstrate that? I doubt “depend” carries any meaning here.

    Must a theory really be preceded by seeing what is wrong? The answer is no. Though dissatisfaction would indeed be a motivator, so would curiosity, or financial reward, or fame. A theory comes from a human mind. How it gets there is an open question. Discussion of where theory comes from is speculation. Probably the mind that invents a theory is one steeped in the relevant field—but that is surmise. What is not surmise is this: scientific theory does not depend on its theorist.

    Your next paragraph is mysterious. What idealisation of the concepts of democracy and war have to do with Ken’s opinion of human nature I cannot fathom. Nor can I see the relevance of fitting quarts into pint pots.

    “If Pfeffertag wants social scientists to guide their looking with theory, Myers-Briggs personality typing is as good a place as any to start…”

    I fear you have it backwards. MBTI is entirely empirical, a solid example of what’s wrong with social science, namely looking without theory. Although it and its knockoffs give inconsistent results and have no academic recognition, they are widely used by personnel officers desperate for some objective measure. You can hardly blame them, given that the academy has not come up with anything.

    Any MBTI statistics will be rubbish. As I pointed out above, the statistics from hundreds of thousands of social scientists for a generation are vacuous—just a colossal waste of resources. That is what comes of looking without theory. If you disagree, if you think they have produced something, what is it?

    • November 18, 2020 at 2:59 pm

      Pfeffertag

      Sounds like you want to argue rather than recognise the facts! You question my saying ““HOW one theorises depends on the theorist”, then refute yourself by saying “A theory comes from a human mind. How it gets there is an open question”.

      Ken was here responding to you, not me, but previously he has argued with Hume and against me that reality is all in the mind, which idealises democracy and war.

      On MTBI you obviously don’t know what you are talking about. Jung had a problem with sane people being judged insane, and theorised that differences being taken as abnormal were in reality normal. Led by this, the Myers-Briggs research developed it and confirmed it statistically. It’s types are in any case not ideas: they represent more or less use of different parts of the brain. The justification of that began with problems in Gall’s theory of phrenology (about bumps on the head), leading the writer and art critic G K Chesterton to study different types of personality and in 1904 the unfashionable artist G F Watts, who told the story of his paintings in their titles. The end of his 1904 novel “The Napoleon of Notting Hill” reveals its principle characters represent the two sides of the brain, verbal and visual. This can be partially confirmed from the effects of brain damage, explains the antagonism of the verbal Right for the visual Left, and has been rediscovered and become commonplace in recent years since surgeons separated the two.

      “the statistics from hundreds of thousands of social scientists for a generation are vacuous—just a colossal waste of resources. That is what comes of looking without theory.”

      I agree. Economic theory should be based on communications science, not sociology. That’s where you will find the theory of not trying to fit quarts into pint pots.

      • Ken Zimmerman
        November 18, 2020 at 3:45 pm

        I do not want to be drawn into what I consider a pointless and lost discussion, but Dave your statement about what I have said is correct only if I contended that ‘reality’ is wholly ‘in the mind.’ My position was and remains that humans construct ‘reality’ in interactions with humans and nonhumans they encounter. ‘Reality’ is in the interactions. Or, more accurately is the interactions. Using the vocabulary of social science, ‘reality’ is relational.

      • November 19, 2020 at 10:57 am

        Apologies for caricaturing your position in pursuit of brevity, Ken, but caricatures can sometimes be surprisingly revealing.
        In logic, your relational ‘reality’ is second order: a characteristic of sets of realities. All the best.

  13. pfeffertag
    November 18, 2020 at 11:15 am

    ghholtham
    “pfeffertag thinks equilibrium is a minor aberration in economic theorising. It seems central to me.”
    I do not. However I did imply that it is nowhere near as central as competition. That seems to me to be a statement of the obvious. Equilibrium is predicated on competition. Traders compete to win; they do not strive for equilibrium. Anti-trust legislation is to preserve competition. If equilibrium follows from that, fine—but it follows; it does not precede.

    The whole discussion here about equilibrium just exemplifies the aridity of the economic theory debate. The meaning of, and the centuries-long foundational role of, competition in economic theory is not in dispute. Apart from equilibrium, many concepts are built on it (supply, demand, comparative advantage, marginal value, Pareto optimum…). They all depend on competition. Economic theory assumes, and rests on, competition.

    New theory is needed, not this endless chewing over the technicalities and deficiencies of mainstream economics. New theory is needed because the foundation, or premise, of the current theory, namely competition, has been milked dry. Neo-liberal theory has run out of steam. Theory on a new foundation is needed. Newton is exhausted, Einstein is needed.

    “Theory must start from observed persistent tendencies of human behaviour and go wherever they lead.”
    Nooooooooooo. Have I really been so unpersuasive? I said, “Only a theory can tell you what to look for. First get a theory, see what it predicts, then take a look at reality.” This statement is banal in philosophy of science circles but because this is economics, I supported it with argument. You are of course free to doubt it but it behoves you to produce some sort of evidence.

    • November 19, 2020 at 8:43 pm

      So I can agree with all this. A theory based on Einsteinian foundation is needed – and I know one exists, for I have developed it – but apparently it is not yet wanted. Changing one’s mind is like a crab changing its shell. One is left very vulnerable until the larger understanding hardens.

  14. pfeffertag
    November 18, 2020 at 11:17 am

    To Yoshinori
    “As for competition, it is important but we must admit that it is a very vague and ambiguous concept. Pfeffertag did not specify what he means by competition.”

    Competition is not vague at all; on the contrary, everyone knows what it means. That is all humans and much of the animal kingdom as well. Compare with “equilibrium”!

    You can forget about specifying. That sort of talk simply doesn’t belong in science theory. If the scientists don’t understand the relationship without the parts being defined, they aren’t doing science. Proof: the concepts of force, mass, and time, which are the foundation of everything that exists, have no agreed definitions. Nobody can define them; everyone knows what they are. To define something is to tell nature what she is made of. Scientists assume that nature is out there, waiting to be discovered.

    Science theory requires you to specify relationships between ideal types which are understood by all scientists in the field without definition. That is the situation; that is what scientific theory and successful economic theory does. More of that is what is required to get over the 50 year stagnation.

    • Yoshinori Shiozawa
      November 18, 2020 at 3:37 pm

      Thank you for your reply, Pfeffer. I said the concept of competition is “vague and ambiguous” because “competition” means at the same time the popular or common notion used in everyday life or in laws (anti-trust law, etc.) and notions attached to technical terms and theories in economics (perfect, imperfect, etc.). They are all different notions and we must differentiate each of them. The concept of competition may not be “vague” if we add appropriate modifier (I admit it) but it is ambiguous because it stands for many ideas.

      I posed this point of argument, because I am thinking that the theory of price competition (represented by e.g. Arrow-Debreu competitive equilibrium) is disastrous. It is not only flawed but also toxic. I do not deny that firms compete with their product prices. I believe it is perfect as a mathematical model. But, the competition it represents is only a small part of everyday life competition. At fixed prices, producers appeal to advertising, send sales promoters to retail shops, tries to reduce unit cost of production, endeavor to develop a new popular products, etc. These efforts are all neglected in the price competition.

      You think that economics went wrong around the 1970’s. Probably, you are thinking that the malaise of economics is restricted to macroeconomics, while microeconomics is sound and valid. Is it supportable? I do not think so. Microeconomics needs a radical reformulation from the very basis. What do you think of it?

      • November 19, 2020 at 8:18 pm

        Economics went wrong when it began to over-emphasize and formalize mathematically ‘subjective utility’ in the 1860s and 1870s, In effect, the mathematical formalization, using declining marginal utilities, imposed a very simple understanding of ‘demand’ and a greatly simplified mechanics of the price system upon the theoretic. Hicks’s Value and Capital preserved that simple mechanics as if one could understand individual or other ‘demand’ without reference to any other influences affecting people’s decision-making. There is a far more complex set of factors affecting economic decision-making.

        Furthermore, a central defect is that markets and market behavior do not provide for everyone and cannot be expected to. Economic theory lacks the dimension of public good production either at a low and common market price or freely so to speak. As Cournot put it, the maximum welfare of people using a bridge was only achieved when the price to users was zero. Public goods may, in short, be ‘marketed’ at some low price, but they do not have to be marketed at all.

        I am reading your (and your colleagues) Microfoundations of Evolutionary Economics with great interest. What I have read so far does not talk about public goods, marketed or not.

      • Yoshinori Shiozawa
        November 20, 2020 at 3:45 pm

        Larry Motuz, thank you for your kind words. No, we do not talk about public goods. Our theory is only a core of a new economics. There are many fields we did not yet study. But I believe our theory is open to be linked to many fields.

        One example is inflation. Drawing on our theory, we can argue when inflation emerges. If wage rate(s) remain constant, there would be no inflation except following three cases: (1) when the prices of primary materials such as petrol and rare metals, or of imported goods rise enormously, (2) when the final demand increases suddenly with an substantial growth rate, and (3) markup rates increases suddenly and widely. Otherwise, increase of quantity of money cannot influence the price level. This is a clear refutation of quantity theory of money.

        If you are interested in public goods and services, please develop such a theory.

      • November 20, 2020 at 6:14 pm

        Yoshinori, you should be very cautious re: “Otherwise, increase of quantity of money cannot influence the price level.” Though I agree with your three points, the distribution of increases in the money supply very much affects the path then taken by Ag. Demand in many markets. BTW, Milton Friedman’s conclusion that this distribution doesn’t matter in the long run depends upon the following things:; 1) long run equilibrium; 2) his capital goods are infinitely durable, cannot be reproduced or used up nor bought or sold; 3. there is neither borrowing no lending; and 4. all exchange is in services. As his puts this last requirement: “The only exchange is of services for money, or money for services, or services for services.” {Source: His essay “The Optimum Quantity of Money”}.

        Those are ridiculous assumptions upon which to base any conclusion that money supply increases have neutral long run effects on the dynamics of Aggregate Demand or Aggregate Supply in any market much less all of them taken together.

      • Yoshinori Shiozawa
        November 21, 2020 at 2:03 am

        Larry, you are right. Money supply may influence the aggregate demand. Even if that is true, what I have stated on inflation is still valid. If there occurs an inflation through this channel, it only means that condition (2) is violated. You may feel that I am claiming something almost tautological. I admit it. But, please think that even if it is near to tautology, I have made clear the structural mechanism through which inflation occurs. It is no more simple correlation between the quantity of money and the inflation rate. Of course, this is still a very small step. There are many things to do before this rough observation arrives to be a theory.

        As for AS and AD, I doubt the relevance of the concept Aggregate Supply. I have just started to argue with Jesper Jespersen. Please observe and follow how it develops. My first comment starts with this “Reply”:
        https://rwer.wordpress.com/2020/10/22/what-is-effective-demand/#comment-174602

  15. ghholtham
    November 18, 2020 at 11:24 am

    Dave, the point of Hicks temporary equilibrium was precisely to deal with a situation of “many processes time-sharing communication channels” as you put it. Temporary equilibrium deals with a situation where there are fast and slow processes occurring at the same time. The fast process resolves but only conditionally on the state of the slow process which is still working out. I don’t think I am short-changing Keynes, who, of course, I venerate but you are certainly short-changing Hicks. The notion that Keynes had a new interesting definition of equilibrium is, I fear, just hagiography. Lindahl had a claim to invent temporary equilibrium as a way to simply analysis of a dynamic process. Hicks took it on. He sometimes worked things out using differential or difference equations, I gather, but never published them. He regarded it as economics only when he could translate the findings into words.
    The Keynesian revolution is an interesting example of ideas being ripe and ready to bear fruit. Lindahl and Kalecki both anticipated Keynes in different ways. Lindahl had the method and Kalecki had the model but they did not have the impact that Keynes did and he is responsible for the wide dissemination of the ideas. If you wanted to make a noise in those days it helped to be in Cambridge, UK, not Poland or Sweden. Hicks forced the General Theory into an equilibrium frame and he is often criticised for that – although ironically Keynes liked Hicks’ IS-LM model. In his later work Hicks regretted IS-LM and used temporary equilibrium to look at dynamics. Nobody is perfect though; Hicks disliked sociological explanations in economics and he never understood econometrics.

    • November 18, 2020 at 3:12 pm

      Gerald, as I had never come across Keynes until I read him and formed my own judgement, that can’t be derived from hagiography. I haven’t read Hicks (so I may be wrong about what he had in mind), but nor have most of those who take his formula for granted. I’ve just learned something from my way of interpreting it. You won’t, if you don’t judge what Keynes had in mind by what he did, which was a lot more than write books.

      • November 20, 2020 at 6:46 pm

        Dave, implicit in all of the ‘indifference’ analysis in Value and Capital is the notion that ‘consumers’ can never be subjectively ‘satiated’ in their consumption of any good or service. This exclusion of ‘satiation’ is somewhat essential to setting marginal utilities (underlying indifference curves) equal to prices, a practice common to all the marginal utilitarians of the 1860s and 70s (except perhaps for their predecessor Gossen whom they hadn’t hear of, and oniy if read Gossen very kindly).

        If satiation actually exists in some commodities or services :: er, your house has five window openings so you don’t want to buy more than five windows even if you accept a subjective diminishing marginal utility of windows as a general rule [I don’t accept it as a general rule for either objective benefits or subjective satisfaction] :: then indifference analysis, because it does not allow for limits in the purchase of any goods, yields ‘demand curves’ which are anythng but. And these yield ‘equilibria’ which are also anything but.

        In short, you aren’t missing anything by NOT reading Hicks. Any ‘new’ economics micro-foundations cannot be based upon his analysis nor the ‘demand curves’ derived from his analysis.

        AS for Keynes, his ideas in the General theory (and elsewhere) do not confuse Aggregate Demand with Equilibrium. Somewhere (I forget where) he said that one could imagine the Atlantic Ocean in equilibrium, without a wave or ripple marring its mirror surface. But, that said, to expect that would ever happen was another matter entirely.

      • November 21, 2020 at 12:18 pm

        I agree with what you are saying, but do you agree with what I’m saying? That Hicks may have the correct terms in his formula but be treating them in the wrong way? (Like a power distribution circuit instead of a telephone or – better- a multi-user internet type system, where the rules of communication and its addressing apply in addition to those of their power distribution). Keynes having been a mathematician, he wouldn’t have confused mathematical Aggregate Demand with physical Equilibrium, and indeed his arguing (contra Yoshinori et al) that Savings does not equal real Investment shows he didn’t. While using the same word, pursuing an equilibrium is not the same as reaching it.

      • November 21, 2020 at 5:08 pm

        Dave, you asked me if I agreed with you “That Hicks may have the correct terms in his formula but be treating them in the wrong way?”

        I don’t. His ‘mechanics are solely based upon how subjective preferences and prices alone –to the exclusion of all other factors which influence or compel choices– determine the bundles/baskets of goods that ‘consumers’ make.

        That’s somewhat akin to suggesting that a radio dial determines what people listen to along with there preferences of course, ignoring all that makes for a radio.

        [I happen to think that Hicks was brilliant in terms of what he accomplished in Value and Capital, but that’s another matter.]

      • November 21, 2020 at 5:33 pm

        So was Hicks saying that of Keynes’s theory? Actually, what I was saying that there are four different ways of looking at it: like what people were actually listening to, the radio dial as a an indication of where to find it, which channel the dial was referring to, and the system of broadcast-transmitter- channel-radio receiver actually making it happen. If Hicks was seeing it as a radio dial, I’d have been saying Keynes had been, but had now discovered the channel switch.

      • November 21, 2020 at 10:38 pm

        What Hick’s did in his famous article about Keynes and the Classics amounted to casting Keynes General Theory into the theoretic of neoclassical economics, particularly with respect to equilibria. Keynes, however, was not talking at all about the neoclassical theoretic nor could his thought readily be ‘fit’ readily into that theoretic. The ‘bed’ into which his theory was made to fit was a Procrustean bed. There was both some ‘stretching’ and some ‘cutting off’ needed to make what Keynes said ‘fit’.

  16. ghholtham
    November 18, 2020 at 11:43 am

    Pfeffertag: You make your points clearly but they are erroneous so it is a pleasure to disagree with you. You use the term competition very broadly so it embraces the study of monopoly, game theory and principal-agent problems – an example of persuasive definition. It would be more accurate to say economics focuses on the interaction of individuals or groups who are trying to do the best for themselves in some sense. The interaction may be competitive or not. The theory of comparative advantage , for example, points to gains from trade and says nothing about competition.
    But in studying those interactions economic theory has been reluctant to accept that they may rumble on without a single resolution or with many possible resolutions. It has not only looked for a single stationary point, it has tended to assume one and then work back to say how people must behave to achieve “equilibrium”. The next, fatal step is to assert that’s how they do behave.
    I am a Popperian too but the interaction of theory and observation is more complicated than you allow. Conjecture followed by refutation – ok. But where does the conjecture come from? It must be based on some sort of experience. “First get a theory” you say. Think what an unhelpful statement that is.

    • November 20, 2020 at 7:04 pm

      I like your second paragraph.

      You ask: “but where does the conjecture come from?” In economics today, the ‘conjectures’ are either axioms or deduced from axioms, much like Ptolomaic astronomy. If 1. the earth is stationary, 2. at the centre of the visible universe; 3. all objects in the heavens orbit the earth; and 4. these objects display perfect motion (that is always circular motion), then the complex celestial mechanics which result when taking observations of these heavens into account, ‘fit’ beautifully complex mathematical functions.

      Note that the complex mechanics of Ptolomaic astronomy was predictively USEFUL.

      Sad to say, that isn’t true of the complex price mechanics of neoclassical economic theory. Nor do these generally ‘fit’ observations. Like for the reality that a stopped clock tells the time accurately twice a day, economics very, very occasionally manages to be ‘right’. And, like the stopped clock, it isn’t ‘right’ because the mechanics work.

  17. Craig
    November 18, 2020 at 5:22 pm

    Every body of knowledge and mental discipline requires BOTH science AND an integrative mindset. Thus it becomes dynamic, interactive and inclusive of truths in seeming opposite perspectives, that is, Wisdom.

    Then one needs to decipher the pinnacle concept of Wisdom, namely grace as in love in action, then pragmatically apply its (grace’s) relevant aspects to the temporal problem under discussion, like A Gift/Gifting for instance.

    Then economics and the human species might actually get somewhere in the existential problems that it faces.

  18. Craig
    November 19, 2020 at 4:25 pm

    If economists want to create equilibrium they must consider doing so with an important enough factor that it cannot be stopped. The graceful flow of Time for all practical purposes CANNOT be stopped, but the dynamic moment can be imminently experienced if we drop our habituation to abstract clock time and let go of the distractive chatter we all “normally” walk around with.

    In a monetary economy money, abundantly, directly and reciprocally distributed at a strategic and important point in time, like retail sale which is the terminal ending and resetting point of the economic/actually productive process for every consumer product, is precisely that releasing and freeing factor. All other observations, while perhaps being occasionally helpful in the human world of other intentionedness, pale to insignificance in comparison.

  19. pfeffertag
    November 21, 2020 at 5:45 am

    To ghholtham and Yoshinori
    As far as I am concerned, competition includes everything where people (or animals) compete to win. We have seen the mills of economics grind for nearly three centuries and they have surely ground the distinctions and ramifications of competition exceeding fine. Competition—the basis of economic theory—is done. Pondering its real or imagined variations will not reform economic theory. Real progress must lie in putting it aside; economics must theorise on a new basis.

    Such new theorising has to ADD to neoliberalism. Not amend it (fruitless attempts to amend economic theory have been going on for 50 plus years), and not replace it (for it is quite successful). To theorise a landslide we need Galileo’s gravity theory of a perfect sphere on perfect plane but we need to add theories of friction and colloids (or something) which have nothing to do with gravity but are in addition to it.

    No, I don’t think the malaise is restricted to macroeconomics. Competition is the basis of all economic theory.

    “But where does the conjecture come from? It must be based on some sort of experience.”
    Not “must.” Nobody knows where it comes from; it arises in a human mind. It might have got there from a discussion with colleagues or while dozing before a fire. It is not helpful to think that looking at reality without theory is useful. It isn’t. It has been failing for a couple of generations now, implying that it is high time to face up to the fact that one must first get a theory, see what it predicts and then look at reality. The fruitless, look-first behaviour continues at staggering scale throughout the social sciences. All those correlations—quite useless.

    Comparative advantage. This is for benefits in a competitive environment. Where it concerns governments it is a contract which is normal economic behaviour. In practice the agreement will be the product of negotiation (which is a competition) and the action will also be in a context of competing with countries who are not part of the agreement. Contracts and partnerships are reciprocal deals rather than acts of cooperation; they are made warily, as a sort of necessary evil committed knowing that the other side will cheat given an opportunity. As far as I can see, all economic theory assumes an environment of competition, and actions are in order to better compete.

    But competition is more than just its manifestations. Competition in economics is more profound. It is psychological. “Trade advantage” almost means “win” which directly means competition. Almost. The step between is a cast of mind, a view that presumes richer is better—and to seek to be richer is to seek to compete.

    Contrast that with the cast of mind which says the important thing is social well-being, that competition for material wealth is disruptive and unfair, that consumption is socially and environmentally destructive. This mindset is never interested in wheeling and dealing and negotiating contracts with a view to getting rich. Never. This mindset is the foundation of the political left. The contrast highlights how pervasively and deeply grounded economics is in competition.

    Despite the advances of neoliberalism in the last two generations, the left mindset, which I label as “cooperation,” is widespread and has significant economic effects (as the supporters of neoliberalism—politically, the free-market right—frequently complain). Though everyone knows the cooperation mindset has economic effects, economics has no theory based on it. From the neoliberal economic theory perspective it is just a disruption to be minimised. It follows that economic theory needs to theorise cooperation. I expect its importance would rival that of competition.

    How does the left influence economics? Via government restriction, through voting and demonstrating (the free-market right does not demonstrate; it spends money to influence lawmakers). There is also no theory of this government regulation (despite the literature on bureaucracy). I call its social relations “coercion” and presume it is of importance comparable to competition and cooperation.

    Coercion, too, is a cast of mind. In political terms, the coercive mindset includes the traditional right which has a view that elevates duty and responsibility, that wants the right person in the right job respecting rank and rules, and which says people need training and are best organised hierarchically. (This traditional right depends on competition and cooperation along with coercion. There is also a mindset of coercion alone which knows people are delivered up to a world ruled by fate and luck, where attempts at competition and cooperation are asking for trouble.)

    In discussing the left and the traditional right I am here making the same point as my post above (November 14, 2020 at 10:58) where I talk of activism and rules.

    Those three ideologies: free-market right, left, and traditional right, are represented politically in every land where freedom of assembly obtains. Evidently they are fundamental human positions—yet only the first is theorised in the scientific sense.

    To base scientific theory on political ideology is hopeless (that’s another vast and confused literature). More promising are the three social relations of competition, cooperation and coercion. We know the first one works, everyone knows what they are (which is helpful when there can be no dependence on definitions), and they are mutually independent (each can obtain without the other two). The fact that no further positions are universally represented politically gives some assurance that they are complete. What justification is there for theorising only competition?

    Competition does have a certain priority for cooperation and coercion serve competition. Ultimately, that is their purpose. The fisherman’s coop and the highwayman with a pistol are cooperating or coercing to advance their competitive positions. But these two social relations need to be theorised. Economics will not progress by carping about current economic theory but by developing supplementary theory at a fundamental level. The current situation where economics has a body of theory based on competition may be viewed as a marvel compared with the chaos that reigns regarding cooperation and coercion.

    It’s a big, big problem and it is an economic problem because they affect economics.

    • November 21, 2020 at 10:42 am

      There is another fundamental option besides competition, cooperation and coercion, and that might be described as keeping your head down, or being satisfied with niche markets.

      At the animal level, I suggest this is all about immature humans thinking of themselves as lions, and fighting each other over the females. What they don’t seem to see as they seek access to every female in sight is how pedestrian the life of a lion is, compared with that of the birds, who have the freedom of the skies and in mating a niche strategy enabling them to stick to one faithful mate for life.

    • November 21, 2020 at 4:36 pm

      Pfeffertag, there is, in fact, no justification for thinking only of ‘competition’. That ‘habit’ of thought historically arose because of Western economic and social conditions of the 17th and 18th centuries wherein ‘production’ and ‘distribution’ was basically by private agents (guilds, corporations, and like agents) who exercised levels of control over all economic activity that the Physiocrats came to argue for the ‘free entry of all who wanted to produce, buy and sell in markets’. This idea termed ‘laissez-faire’ boiled down to permitting ‘competition’, for it made for people generally becoming much more able to provide for themselves. Philosophically also, the arguments made were themselves rooted in arguments about human liberty being based in the equal human dignity of all persons, a clear break with prior thought of ‘rights’ being based in a divine social ordering of mankind.

      Which is to say that the focus of economics upon ‘competition’ to benefit mankind is historically rooted in the attempt to wrest free of mindsets and regulations which were in part the remnants of an earlier feudalism.

      Because of its focus on private good production with ‘consumers’ of that production, modern economic theory lacks any understanding of how we can or might provide for some of our needs through public goods, marketed or not. Clearly, since ‘markets’ cannot and do not provide for all, an economics of public goods cannot be based upon an economics which focuses exclusively upon economic efficiency alone.

      • November 21, 2020 at 5:49 pm

        I don’t share this understanding of the medieval system, which wasn’t that God appointed kings, but that if you had the king’s job or whatever you had the responsibility to act like one.

        The medieval market was also interesting. In the guild system, prices were set by producers who knew what was involved, so that markets couldn’t be cornered and rivals left broke. Unlike capitalists doing just that and blaming it on customers who didn’t (and environmentally still don’t) know the costs involved..

      • November 21, 2020 at 8:49 pm

        Let me clarify, Dave.

        The feudal system of reciprocity and reciprocal obligations, even ‘economic’ ones, was based mostly upon social status, and even where it was not, it barred free entry and exit from all markets. The remnants of that early system were what was being dealt with in the 17th and 18th centuries: particularly the lack of entry and exit, which is why I emphasized these and the philosophical context behind the ideas of ‘laissez-faire’ surrounding the benefits of increased competition. The casting of the framework of economics into for-profit production market and exchanges in those markets began at that time and has persisted since.

        Even if current neoclassical economic theory adequately dealt with the mechanics of prices, it remains in that framework. It doesn’t, of course, adequately deal with either those mechanics nor has moved beyond ‘for-profit’ markets.

      • Yoshinori Shiozawa
        November 21, 2020 at 6:42 pm

        Dave, the problem of the medieval market is that there was no competition. because the price is ruled by the guild. In modern industrial economy, producers determine prices but there is competition. This is a big difference.

      • November 21, 2020 at 7:42 pm

        Exactly. But why?

      • November 21, 2020 at 11:11 pm

        Why?

        The remnants of the feudal system did not allow for competition is ‘why’. Moreover, the institutions of feudalism had been appropriated by some for their benefit. A farmer, for instance could not sell to the highest bidder nor necessarily had any ability to decide what to grow. He was, through regulations, required to sell to the institution or organization which had the exclusive right to buy in his area. He was prevented by law and regulations from trying to sell to anyone else; and, at times, from being able to decide what to plant.

        On this note, Dave, the early acceptance of taxation on the part of the Lords of Estates was due their view and their arguments that the obligations they had under feudalism cost them far more. They accepted the ‘burden of taxation to escape the feudal burdens they annually bore. This ‘history’ has been lost in current discussions, especially ideological ones. And I have yet to see a modern economist refer to that history in ‘welfare’ economics.

        But, such matters are important to understanding where we are and how economics became shaped to see competition as beneficial.

      • November 22, 2020 at 9:52 am

        Agreed the medicine can sometimes be worse than the ailment, but my “why” was because producers need an adequate income and customers need fair prices. Would-be wholesalers would say craftsmen overcharge, wouldn’t they? But enjoy the Chesterton Song against Grocers (i.e. grossers), which always reminds me of Mrs Thatcher, daughter of one:

        “The hell-instructed Grocer
        Has a temple made of tin,
        And the ruin of good innkeepers
        Is loudly urged therein;
        But now the sands are running out
        From sugar of a sort;
        The Grocer trembles, for his time,
        Just like his weight, is short”.

        [From “The Flying Inn”, which is admirably analysed in John Coates’ “Chesterton and the Edwardian Culture”].

      • November 22, 2020 at 1:49 pm

        Pfeffertag: “Competition does have a certain priority for cooperation and coercion serve competition. Ultimately, that is their purpose.”

        This comes back to a point I didn’t get round to discussing feudalism with Larry Motuz: that evolution is always in the direction of becoming able to do what previously one couldn’t. Thus a new type of control system starts with no control but learns first direct P control, then I control of side effects, then D control temporarily changing course to avoid danger, which tends to become permanent if overdone, starting the cycle off again but pursuing new ends, here money-making rather than a father-figure disciplining his still poorly-controlled kids. In my theory the father-figure model gave rise to feudalism, but it evolved into money-making.

        On this basis pfeffertage is right: the I and D feedbacks serve the purpose of correcting the P feedback, but eventually the purpose of the enterprize changed – from ensuring fair shares for all to money-making for a few. What obscures this is the new chrematists high-jacking the old name ‘economics’, so it is now understood to mean something like “efficient enough to make money”: the “beehive” model rather than “the birds”. Didn’t Mandeville say as much?

        Says pfeffertag: “As far as I am concerned, competition includes everything where people (or animals) compete to win”. As far as I am concerned, competition arises from an attitude of mind at a stage in growing up when one competes with others to get to know oneself: i.e. one’s strengths and weakness. On that basis, “grown-up” competition should be ‘micro’: evaluating products, not for lives and livelihoods.

        We seem to be agreed that competition, cooperation and coercion are all sometimes necessary. To get anywhere, it seems to me, we must try to agree on what they are for.

      • November 22, 2020 at 10:05 pm

        What obscures this is the new chrematists high-jacking the old name ‘economics’, so it is now understood to mean something like “efficient enough to make money”: the “beehive” model rather than “the birds”.

        Yes, the orientation of economics as a discipline was hijacked to mean that economics came to solely be about competition and production and exchanges which were ‘efficient’. And efficiency in consumption came to mean maximization of subjective preferences in such for-profit economies, efficiencies realized if and only if is ‘rationality’ meant maximizing subjective utilities given the hypothesis that, at the margin, prices could be set equal to declining marginal subjective utilities.

    • Yoshinori Shiozawa
      November 21, 2020 at 6:30 pm

      Thank you, peffertag, for explaining your total picture for the further research agenda.

      Your proposal to coordinate competition, cooperation and coercion is interesting and worth trying. But, in order to do so, a right theory of competition is required. Theories of cooperation and coercion are still in a burgeoning state. Theory of competition is advancing as my new paper shows. It includes a refutation of (mainstream) endogenous growth theory that only admits the contribution of human capital and abstract technology knowledge. In other words, it excludes the possibility that workers cooperation contribute enormously to the increase of the productivity. Mainstream growth theorists do not admit it although there are many books such as Toyota Kata and The machine that changed the world that support the fact, i.e. cooperation between the workers on the production site contribute enormously to the productivity increase. Thus, a theory of competition and cooperation may emerge from this small starting point.

      If you admit the failure of the mainstream macroeconomics (a tandem team of New Classical and New Keynesian economics), the next thing we should do, I believe, is to dig deeper into the reason where economics went wrong. It has a chance to become stepping stone for the further research agenda that you propose. Of course, if you have a concrete idea based on which you can develop one or both of cooperation and coercion, I have no reason to oppose that you try your ideas. Let us try to cooperate when you get your new theory (theories).

      • Craig
        November 21, 2020 at 8:48 pm

        pfeffertag, Yoshi and Dave,

        To coordinate competition and cooperation, and to neutralize coercion you need the most unitary and integrative of opposites (competition and cooperation) concept known to man, namely the natural philosophical concept of grace….applied to the economy via the money/financial system.

        Everybody here dances around the central problem of the monetary and financial paradigm (Keen’s staring the paradigm in its face, but only offering up structural reforms): The Neo-classical Synthesis ignores Money, Debts and Banks.

        No more dancing, nit picking and failure to analyze on the paradigmatic level. Apply the policies of the new paradigm in the most strategically effective way at the most powerful point in the economic process and then regulate the systems so as to keep it aligned with that new concept.

      • pfeffertag
        November 22, 2020 at 11:12 am

        There is no question of neutralising coercion; government regulation will always be necessary. Competition and cooperation are not opposites, though they are in conflict and it takes coercion to make them work together.

      • Craig
        November 22, 2020 at 8:30 pm

        “Competition and cooperation are not opposites, though they are in conflict and it takes coercion to make them work together.”

        I would suggest that mutual self interest is a much better way of ENABLING their cooperation. And that is precisely what a 50% Discount/Rebate price and monetary policy at the point of retail sale accomplishes.

      • pfeffertag
        November 23, 2020 at 5:34 am

        Hmm, “better” is normative. Theory can only be descriptive. Self interest won’t work anyway. Cooperation is not an act of self interest; the left denies self interest as contemptible and regards its imputation as an insult to human dignity. Compromise is needed in order to live but people such as teachers and nurses are not in it for the dough.

        Competition and cooperation are in conflict across the board and the only resolution is coercion. Take, for example, a firm of moderate size. It is nominally a cooperative enterprise formed to compete in the market, but is itself necessarily organised as a hierarchy. In a hierarchy you compete with your peers, cooperate with your superior and coerce your subordinates. If it can, the firm may coerce through buy-out, restrictive territories or dumping; if it can it may cooperate with other firms by fixing prices or divvying up the market. To keep the firm as an honest competitor takes coercive laws and a coercive government agency (itself hierarchically organised).

        Hierarchy is inevitable. All life forms attempt to influence their environment. Animals influence their fellows of the same species. There is variation in this ability. Social animals recognise the variation, ergo hierarchy.

  20. ghholtham
    November 22, 2020 at 5:09 pm

    pfeffertag

    It is not coincidental that no six-month old baby has ever produced a scientific theory. Of course interesting conjectures must rely on experience of some sort. I agree that we cannot say what sort of experience or prescribe it but most theories of merit have followed a lot of observation. Darwin’s theory of evolution via natural election notoriously followed his trip to the Galapagos.. of course the theory could not simply be extracted or inferred from the data, we agree about that. But no data no theory in that case and many others.
    Your definition of competition is so broad there is no arguing with it. In fact it is so broad it rather empties your plea for studying co-operation and coercion of any content. Both co-operation and coercion are presumably engaged in because people mean to derive some benefit from it. That makes them forms of competition on your definition. If something can be competition without being zero sum it encompasses nearly all forms of purposeful, goal-oriented behaviour. Economics certainly studies that and not all economics assumes zero sum (eg comparative advantage). It doesn’t do it very well though – too much equilibrium theorising.

    • pfeffertag
      November 23, 2020 at 11:51 am

      You can build knowledge from observation but it is not scientific knowledge. Higher animals learn from their parents and through experience—presumably induction. This sort of knowledge guided humans for hundreds of thousands of years. They built bridges, developed transport and made weapons. About 1600AD things changed. The advent of scientific knowledge transformed the bridges, transport and weapons in a few centuries.

      A crucial feature of this new kind of knowledge was the subordination of observation to theory. As I have said a couple of times, the social sciences (except economics) have been observing for a century and it has brought no theory. It is doubtful whether they have even acquired knowledge of the pre-scientific sort. The mind of the theorist may be as you describe but that supposed background leaves no mark on the theory. If such an approach did help in the natural sciences, the bitter fact is that observation without theory hasn’t worked in the social sciences and doesn’t help. Inasmuch as the countless thousands of academics processing statistics think they are doing something, their delusion would be a hindrance to progress.

      I did not define competition. I did make some clarifying remarks. It isn’t as broad as you say; the Good Samaritan, for example, is clearly excluded. All I said was that competition includes doing deals—a mundane, even obvious, feature of competition. I thought I described the mindsets specifically rather than broadly.

      The terms competition, cooperation, and coercion are signifiers, words to label three modes of social relations. (THE three modes—there aren’t any more.) It is not a matter of defining but of distinguishing between the mindset and social relations of what may be termed the individualist right, the left and the traditional right. There are always boundary problems but their cores are very different and if you keep the terms alongside each other the contrast clarifies. They are orientations which imply specific kinds of social structure and social interaction. The cooperative mindset does not do deals. Reciprocation is anathema to it.

      To call comparative advantage cooperation, is like saying the bees cooperate with the flowers: it dilutes the meaning of cooperation, applying it to any interaction at all. There is a version of “I Pencil” on the internet with comments appended from Milton Friedman where he calls Read’s complex web of trading “cooperation.” It is a nice word, cooperation, so Friedman is happy to adopt it. Is meeting to haggle, cooperation? Is adhering to your negotiated agreement, cooperation? If so, the word loses its useful meaning and we would need another. Suggestions welcome.

      Conversely, if doing deals is not reckoned as part of competition then competition would be so confined it would be non-social. In some sociology writing it is actually so regarded. Forming alliances for gain is pretty much the only social interaction for the competition mindset. Comparative advantage is basically very simple: I can produce product X cheaper than I can buy it but I am better off buying it and devoting myself to product Y. Pure self-interested behaviour. It is when it concerns countries, and doing deals, that it becomes interesting.

      “Both co-operation and coercion are presumably engaged in because people mean to derive some benefit from it.”
      No, a thousand times no. That is mainstream economics propaganda. It is an insult to human beings, a perfect illustration of the misanthropic perspective of neoliberalism. Cooperation is explicitly not with a view to self-benefit. Of course there are people who act because they see a personal benefit but the coerced act because they see no alternative and the last thing on the Good Samaritan’s mind is that he hopes for a reward or to be able to later call in a favour.

      • November 23, 2020 at 4:33 pm

        “You can build knowledge from observation but it is not scientific knowledge. Higher animals learn from their parents and through experience—presumably induction.”

        I’ll say again, science means acquiring knowledge you haven’t already acquired, so all that knowledge from newly discovered countries, of the varieties of plants etc was just as much science as Bacon advocating taking things to bits to see how they worked, and a lot more than Hume’s statistics, seeking agreement on what the scientific elite think.

        “The terms competition, cooperation, and coercion are signifiers, words to label three modes of social relations. (THE three modes—there aren’t any more)”.

        No! Three points are necessary to define an area (contain a diverse content), but four are needed to define a social system. The fourth mode (keeping your head down, which is what most consumers do), may seem anti-social, but the system then has three partially social modes besides your three Cs: i.e. coercion, cooperative distribution and consumption; cooperative distribution, consumption and cooperative reproduction; consumption; coercion, cooperative reproduction, and cooperative distribution of what has been produced. The competition takes place within the coercive function: in what to produce and who is to produce it.

        So Yes! regarding the unselfish motivation of your Good Samaritan, or my birds busy feeding their chicks.

      • November 23, 2020 at 4:38 pm

        Apologies. Seventh line up, a stray “competition” got left in while reordering the text.

      • November 23, 2020 at 4:42 pm

        Wrong again! (Keeps one humble, I suppose)! For the stray “competition” read “consumption”.

      • Craig
        November 23, 2020 at 4:44 pm

        Well, these are very nice and well thought out responses…that get us absolutely no where.

        The monopolistic paradigm of money and finance is where the deepest problems of economic theory exists. Perceive their pattern, and then based on historical paradigm changes and their imminent and accomplished signatures discern a concept that fits seamlessly within those systems and yet transforms it for the benefit of all agents.

        Then find another problem to resolve.

      • November 23, 2020 at 11:21 pm

        Well thank you, Craig! So if we had been talking about electricity, you would have said its deepest problem was the battery being the wrong way round, not how to connect the PID components in its circuitry? I’ve perceived your pattern and the historical succession of evolving paradigms. Though I have not solved your problem, which I had taken for granted, I have resolved it. The love of money is the root of all evil, being in psychological terms the narcissistic adoration of a lie.

      • pfeffertag
        November 24, 2020 at 4:23 am

        davetaylor1
        Competition, cooperation and coercion are not three points. Each is a matter of degree, so they are three dimensions. Therefore they form not an area but a volume. Since we have no units of measure each can only be theorised as all or nothing, present or absent, yes or no.

        That is, we would have to theorise perfect competition, perfect cooperation and perfect coercion. Economic theory only does the first.

        Here is where the deep problem of economic theory exists.

      • Craig
        November 24, 2020 at 4:32 am

        The narcissistic love of money is anecdotal and relatively rare. The actual problem is a shallow and frenetic cultural failure to self actualize grace/graciousness which a ubiquitous, universal and numerous time a day experience of its economic aspect, namely gifting, is a giant step toward individual and cultural transformation. So be it.

  21. November 23, 2020 at 8:21 pm

    All communities have traditions, social morés and laws. The latter are written or unwritten rules for behavior. Cooperative and competitively acceptable behavior is expected to take place within those morés and laws, for these establish the boundaries of what is and is not acceptable behavior.

    Unacceptable social behaviors often lead to shaming shunning those who practice such behaviors. In that sense, both socially and legally unacceptable behaviors have consequences.

    Which is to say that’coercion’ –whether that is shaming, shunning, expelling, fining or imprisoning– is a human practice which all cultures implement, for it is meant to ensure cooperative behavior and impugn non-cooperative behavior.

    Whereas I view exploitation of all kinds as social and economic issues, the uses of coercion, what is acceptable coercion and what is not, and how coercion is used are primarily political issues, not economic ones.

    • pfeffertag
      November 24, 2020 at 4:26 am

      larrymotuz
      “All communities have traditions, social morés and laws.”

      1. And precisely there is where the coercion lies. It lies not in the punishments for non-compliance but in the compliance. The traffic light is coercive. When you make your child’s allowance conditional on good behaviour, that is coercive. Coercion is quite separate from punishment and has nothing to do with exploitation. (The word “coercion” has a pejorative connotation but its alternatives of prescription and compulsion don’t seem to suffice—and are not much better, anyway.)

      2. In a simple society some uniformity of way of life can be expected but not in modern industrial societies. These have a variety of more or less conflicting ideologies or orientations. Not a great variety, though. Just four: the left, the free-market right, the traditional right and populism. That’s it. A billion people living in the developed world can be so classified.

      These four occur everywhere they are allowed and yet this is not recognised or taken into account in academic research which, like economic theory, assumes all people are the same or at least are an amorphous mass. The survey taker, game theorist, etc records age, sex, and education but not which of these four mindsets the subject conforms to. So the results are mysterious. Millions of papers have been written which show what? Nothing. Game theory tells us that women are a standard deviation less competitive than men (assuming US sophomores are a reliable measure). What’s the use of that?

      3. “and how coercion is used are primarily political issues, not economic ones.”
      No doubt about it. That’s the problem for coercion (all regulation) has huge economic influence yet it is not theorised.

      • November 24, 2020 at 11:31 am

        At your 1., pfeffertag, I am not coerced to obey traffic lights, I coerce myself because I can see that it is rational to do so. Apart from that, what you you say in 2. is exactly what my theory points to, precisely because most people (figuratively speaking) give way at traffic lights. (In terms of C E Shannon’s “redundancy” theory, they have time enough to be able to do so). As I see it, the need for coercion only arises for the few idiots who don’t. However, perhaps in some mindsets the “fear” of retribution weighs more heavily than common sense?

      • November 24, 2020 at 6:35 pm

        I believe we are on the same wavelength here. Traditions, customs, morés, and laws establish the frameworks (an Invisible Hand in Adam Smith’s writings) within which cooperation, competition, and coercion operate. Coercive strategies exist to ensure cooperation with the ground rules so to speak. The politics of elective legislatures surround who gets to make the legal rules

  22. pfeffertag
    November 24, 2020 at 1:21 pm

    The following from the New York Times, 23 November 2020

    Albert Einstein described scientific theories as “free inventions of the human mind.”

    • Craig
      November 24, 2020 at 4:48 pm

      Here’s a quote for you:

      “Science is human consciousness observing the details of its evolving temporal reflection.”

      Me

    • Meta Capitalism
      November 25, 2020 at 12:07 am

      Einstein characterized understanding in physics in this way,[19] Physical understanding is achieved when appropriate models are available. Appropriate models must be compatible with the evidence. The assignment of the model structure to the empirical data must be reliable and justifiable. (Weinert 2004, 84, The Scientist as Philosopher)

      [19] Einstein, “Was ist Relativitätstheorie?’ (1919), 127

      • Meta Capitalism
        November 25, 2020 at 12:37 am

        Between abstract and concrete phenomena, models provide understanding of the material world. Models provide visualizations. But since the decline of mechanical models, in the wake of the retreat of the mechanistic worldview, visualization comes in many different shapes and forms. A popular form of visualization is the analogue model. The atom may be modelled on the analogy with the solar system. An electric current may be presented on the analogy with a system of water tubes. Map analogies became prominent in the early literature on Minkowski’s geometrical interpretation of Einstein’s Special theory of relativity. The analogy aids the visualization but does it aid the understanding? Probably not. This answer is rooted in the nature of analogue models … Useful visualizations, which really contribute to physical understanding, must be guided by appropriate concepts. We must possess a good conceptual grasp before a helpful model can be constructed. At one stage the atom was represented as a sphere of positive electricity with electrons swimming in concentric rings around it. There was no nucleus. This was Thomson’s plum pudding model of the atom. Then Geiger and Marsden discovered that, under suitable conditions, small particles could be deflected from an atom. Rutherford provided an understanding of this phenomena of scattering by postulating the existence of an atomic nucleus. This was the nucleus model of the atom. This example shows that useful models depend on the provision of empirical data and the existence of appropriate concepts for the physical structure (molecular or subatomic) to the detectable phenomena (the behaviour of gases or atoms) in terms of which the measurable processes can be interpreted. Einstein characterized understanding in physics in this way,19 Physical understanding is achieved when appropriate models are available. Appropriate models must be compatible with the evidence. The assignment of the model structure to the empirical data must be reliable and justifiable. (Weinert 2004, 84, The Scientist as Philosopher)
        .
        Take the question of causation in the atomic domain. A classical notion of causation based on results of the Newtonian-Laplacean worldview would lead to the denial of causation in quantum mechanics. Yet, as we shall see from empirical discoveries, causal accounts abound in quantum mechanics. Or take the notion of time. Its compatibility with relevant empirical evidence must be guaranteed by an appropriate notion of physical time before an adequate modelling of relativistic phenomena can succeed. Thus models play a vital part in physical understanding. However, not all models will do. What, then, is a model? (Weinert 2004, 84, The Scientist as Philosopher)

        19 Einstein, “Was ist Relativitätstheorie?’ (1919), 127

    • Meta Capitalism
      November 25, 2020 at 12:53 am

      Einstein consistently ignored the idealistic implications of the block universe. It is perhaps not surprising that Einstein also grew more suspicious of the view of the physical world as a block universe, once Gödel had claimed that the relativity theory provided ‘proof’ of the idealists view of time. For Einstein, at least in his later years, was a realist. This means that he was committed to certain philosophical presuppositions. He believed in the reality of a spatio-temporal causal order of the universe. And he believed that a causal order of nature was a deterministically predictable order of nature. This is very clear from his contributions to quantum mechanics. But how can such a causal, asymmetric order be compatible with the idea of the block universe? Einstein was not such a naïve realist to think that the spatio-temporal causal order of a real, external world was reflected, mirror-like, in our scientific theories. In fact, he held that the fundamental concepts and laws of a scientific theory were free inventions of the human mind. Furthermore that ‘a theory can be tested by experience but there is no way from experience to the setting up of a theory.'[69]

      [69] See Einstein, Mein Weltbild (1977), 115, 38-9; Einstein, ‘Autobiographical Note’ (1949), 89; Born, Einstein’s Theory (1962), 334. Holton, ‘Metaphor’ (1965) describes Einstein’s pilgrimage from early positivism, influenced by Mach, to rational realism. (Weinert, Friedel wip. The Scientist as Philosopher [Philosophical Consequences of Great Scientific Discoveries]. Berlin: Springer-Verlag; 2004; p. 137. )

  23. November 25, 2020 at 11:30 am

    This is very well captured, Meta:

    “Physical understanding is achieved when appropriate models are available. Appropriate models must be compatible with the evidence. The assignment of the model structure to the empirical data must be reliable and justifiable. (Weinert 2004, 84, The Scientist as Philosopher)”.

    To make it relevant to “the limits of mainstream economics today” I think we need to add Shannon’s mathematical theorem about not trying to put a quart into a pint pot. If the only ruler one has is circular, then the only exact linear correlations with it are the Cartesian orthogonals in space (N,S,E & W) or in time, clock numbers modulus 4 (the quarter hour points on a rotating hands clock). Knowing that, the theory of evolution can only get us from one phase to the next, but it can be verified at each level like the successive digits can be checked in an arabic-form (algorismic) number. So we find human brains have four parts and our economic system architecture four functions that have overflowed into chrematism. Just as having a million means we still have a thousand, so the evidence for the earlier stages of economic evolution is still there if we are prepared to look for it.
    .

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