Home > Uncategorized > It takes a theory to beat a theory

It takes a theory to beat a theory

from Yoshinori Shiozawa (originally a comment)

At around the same time that Fred Lee and Lars Syll visited the University of California and talked long on Sraffa with Axel Leijonhufvud, a paper by Avi J Cohen appeared in Eastern Economic Journal: “The Laws of Returns under Competitive Conditions”: Progress in Microeconomics since Sraffa (1926)? (Vol. 9, No. 3, 1983, pp. 213-220).

It was a short paper that counts only eight pages, but a decisive criticism of economics of perfect competition that was understandable for new economics students. After two sections of persuasive arguments, Cohen concluded that

Thus, on both short and long run levels, there is no adequate resolution of contradictions between the partial equilibrium theory of perfect competition and the empirical evidence of non-increasing costs. Instead of a constructive resolution, perfect competition continues to be justified by the unsatisfactory verbal and logical contortions, denials of empirical evidence and proofs by assertion that originated more than fifty years ago.

However, this was not a real conclusion, but a premise of his true inquiry:
How are we to account for this extraordinary state of affairs? 

After a few words on John Hicks’s position, Cohen noted this state of affairs could be understood as a normal state of scientific research:

Recent work in the philosophy of science sheds additional light on the situation. Hicks, while recognizing the dangers of the assumption of perfect competition, cannot conceive of any alternative for theoretical analysis. This restricted vision suggests Kuhn’s (1970) concept of normal science — problem-solving activity within the context of an accepted theoretical framework or paradigm. As the passage by Hicks implies, it is only the acceptance of the equilibrium paradigm (including perfect competition) that allows the posing and solution of theoretical problems.

Normal science is a period of steady refinement of the basic theoretical framework. During this period, contrary evidence does not lead to the rejection of the basic theory, but instead leads to the development of more detailed, secondary hypotheses that account for discrepancies between facts and the basic theory. Lakatos (1978), in developing Kuhn’s ideas about secondary hypotheses, formulated the concept of a “protective belt” of auxiliary
assumptions that protects the basic theoretical framework from empirical refutation.

The conclusive observation Cohen made is this:

Probably the most significant reason why the theory of perfect competition has persisted despite its problems is that no acceptable alternative theory has come along to take its place. According to Blaug (1978, p. 703), “Economists abhor a theoretical vacuum as much as nature abhors a physical one, and in economics, as in the other sciences, theories are overthrown by better theories, not simply by contradictory facts.”

This observation was made after a little less than 60 years after Sraffa’s paper, but it was also predictive because there was no big difference after the paper, for about 40 years.

What Cohen observed is not new. In fact, he only reconfirms the old dictum, i.e. it takes a theory to beat a theory. To beat mainstream economics, repeating criticism is not enough. We should build and present a theory that can surpass it.

  1. deshoebox
    February 13, 2021 at 4:42 pm

    Speaking as a person without a PhD in economics, the main problem I see with this argument (“It takes a theory to beat a theory”) is that conventional economics is not actually based on a theory. Yes, it’s been dressed up and mathematically elaborated over the generations to give it the apparent respectability of a theory. But there is no underlying theory at all, just a mass of dogma, demonstrably false assumptions, and poor logic. As has been said in this forum many times, economic activity is not like what physicists or geologists try to explain. All economic activities have a purpose, the individual human actors have their own purposes, and the range of what can be done in the economic sphere is largely determined and limited by. public policies. The distribution of wealth and income, for example, is not a “natural phenomenon” but is subject to legal and policy decisions about what you are allowed to do for money and which activities will be taxed at what rate to support necessary public services. The fact that economists generally ignore this part of reality underlies one of the main weaknesses of economics, as far as understanding or predicting anything in the real world goes. So no, it will not take a better theory to replace the ossified and nearly useless structure of conventional economics. It will happen when people develop analyses of economies and of the public policy foundations that necessarily underlie them based on thinking about what the economy is really for. The economy does not exist so we can have a few billionaires and also hundreds of millions of poor people, so people who own enormous yachts can oppress and underpay thousands of workers for the benefit of the few. It does not take a theory to see what is wrong with this picture and it does not take a theory to see what must be done to change it. A better world is possible and if economists want to be useful (as opposed to merely having lucrative careers of their own) they will bring their thinking down to the level of explaining what should be done at the policy level to create that world.

    • pfeffertag
      February 17, 2021 at 1:36 pm

      “there is no underlying theory at all, just a mass of dogma, demonstrably false assumptions, and poor logic.”

      That is incorrect.

      Economics assumes perfect competition within which homo economicus operates with the sole aim of maximising monetary return. That is a theory. It is a textbook example of a theory, expressing a relationship between idealised concepts. That is why it is understood by everyone irrespective of language or culture. And this is an essential part of why it is so powerful.

      Know thine enemy. Kidding yourself won’t help win the war.

      • February 17, 2021 at 4:29 pm

        Let me repeat a comment I made elsewhere today re: Lars Syll’s latest about economic models;
        >>>“Using known to be false assumptions, mainstream modellers can derive whatever conclusions they want.”

        Yes, all of neoclassical economics is based upon false assumptions shrouded in mathemagics.

        The neoclassical model can be reduced to the following:

        1. Consumers always pursue psychological ends, except when they don’t … but we won’t discuss when they don’t because that would require the ‘consumer’ to be a life form which must, like firms through their economic activity, support and maintain themselves from the remuneration they get for their ‘sales’.

        2. Because they pursue psychological ends, we can presume that they have ‘offer curves’ independent of their means. Thus D(p) = f(q) is a useful subjective assumption to make, contrary to all empirical evidence. Without D(p) = f(q), we could not construct a ‘demand curve’, er, our name for an ‘offer curve’. Just assume that a ‘consumer’ has a budget to spend and this difficulty goes away.

        3. Because the consumer pursues psychological ends, and because we are not mind readers, we can create preference functions reflecting that pursuit. We will, of course, have to restrict those functions in many ways to get the ‘consumer’ to behave properly, for if we don’t restrict the functions we will not arrive at the theoretical conclusions we reach by setting those restrictions.

        4. Again, we have no idea how the ‘consumer’ forms his or her budget because, we must point out once more that we are not mind readers. Thus, we ‘endow’ our ‘consumer’ with a budget or budget just like we endow consumers with preference functions restricted in such manners as to get those consumers to behave like we want them to behave.

        5. We must naturally further restrict the consumer into being unable to change his or her budget when faced with price changes. This means, naturally, and conforming to our theory, that the consumer, having to spend all of its budget, must by more when prices fall and must buy less when prices rise. This, mathemagically, gives us the ‘law of demand’.

        6. We do not ask and must never ask how the consumer comes to have a budget, for we like to talk about ‘effective demand’ but not talk about the possibility that effective demand has anything to do with remuneration or the distribution of income within economies. Thus, we create a ‘representative’ consumer out of our ‘micro-foundations’, for this allows us to ignore whether or not the distribution of income has anything to do with the paths or trajectories economies are on.

        7. Since we are only concerned with ‘consumers’:–i.e. those who have effective demand in this or that market–: we ignore non-consumers in this or that market by claiming that only the ‘welfare’ of ‘consumers’ matters at all. Bringing in people who might not be ‘consumers’ in this or that ‘market’ would severely complicate our ‘analysis’, for real people cannot avoid needing to consume because they are life forms and might suffer real consequences when they cannot ‘consume’ in this or that ‘market’.

        8. We insist that the circulating numeraire that is money must always have neutral effects regardless of its distribution. To show this we have invented ‘equilibrium’, especially long run ‘equilibrium’ which, of course, does not exist any more than short-run equilibrium does.

        9. Given that we endow our consumers with preferences and inflexible budgets, and restricted those preferences so that consumers ‘behave’ properly, we unveil what we call ‘theory’ everywhere. And we insist that you use our theory to defeat our theory, for it you cannot, that is your failing, not ours. BTW, you must accept our optimization techniques. These will show that if px of the X-good falls, then the consumer will maximize if and only if it acts as if, once home, it has equalized its Marginal Subjective Utilities between commodities. If, however, the consumer has a Uxy function = x^aY^a, this means that the consumer is effectively able to trade the volume of any good it has bought this shopping trip for the volume of any other good its shopping cart and break even. This idea stems out of the fact that traders exchanging goods expect to trade equal values, and on noticing this, the first great neoclassical economist (William Stanley Jevons) assumed that what is true for two traders must also be true for a consumer shopping for itself. That’s balderdash of course, but the mathemagics are really NEAT, permitting us to show how consumers ‘optimize’.

        There is nothing wrong with our theory, naturally, especially if you try to use it to defeat or replace it.

        Thank heavens we have our neoclassical theory. We’d hate to see anything depose it.

        >>>Regarding 5 above: It must be pointed out that if we do not force the consumer to spend all of its budget rather than allow it to modify the budget in the face of price changes, well, then we’d be unable to create the income and substitution effects we need to ‘prove’ all manner of things, including the ‘existence’ of Giffen goods and the measures of ‘welfare’ improvements or losses to, well, ‘consumers’. If some, of course, stop being ‘consumers’ in a market, these drop out of our ‘analysis’, because according to our analysis, only ‘consumers’ in markets have ‘welfare’ to gain or to lose. No one outside those markets should be considered as remotely suffering any ‘welfare’ consequences since, having dropped out of our analysis, only G*d knows what happens to them and that is more a theological and normative
        question than an economic one.

        RE: Competition. Actual liberal economists once felt it was a duty of government to ensure competition, for all manner of bad things happened –especially to prices and the distribution of income– if competition was not ensured.

  2. Jorge Buzaglo
    February 13, 2021 at 4:53 pm

    There are alternatives to neoclassic theory — for instance, post-Keynesian, Marxian, Structuralist, Feminist, Neo-Ricardian, Ecological economics. The problem is that the dominant neoclassicism is the apologetic ideology of the dominant class. The ideology of the dominant class is the dominant ideology in society at large, and therefore also dominant in academia, the media, etc.

  3. Craig
    February 13, 2021 at 7:26 pm

    Look, everyone here has a thousand times agreed that the current theory of neo-classicalism is a fallacious, balky and de-stabilizing enforcement of individual monetary scarcity and systemic austerity. We don’t need another palliative theory that merely tweaks the present nonsense.

    WE REQUIRE A PARADIGM CHANGE IN ECONOMICS AND THE MONEY SYSTEM…AND THE PHILOSOPHICAL INSIGHTS AND POLICIES OF WISDOMICS-GRACENOMICS PROVIDE THAT IN SPADES.

    • February 15, 2021 at 7:03 am

      I feel Lars Syll, deshoebox, Jorge Buzaglo, and Craig are missing a point. Macroeconomic models are required by ruling class just like divination based on astrology was required by princes in the Medieval period. Denouncing, detecting, and pointing out that macroeconomic models are wrong, flawed, baseless, unrealistic, and apologetic does not change the situation unless people cease to believe effectiveness of macroeconomic divination. Therefore, a theory that beats extant macroeconomic models and mainstream economics in general is not a new more precise forecasting model. We must turn over the whole philosophy of modern-day astrology.

      The following is a part of what I posted as a comment to Lars Syll’s article “Where modern macroeconomics went wrong” on September 16, 2017 (The later half of the third post on September 22, 2017 at 4:26 am. I have added a title in bold):
      https://rwer.wordpress.com/2017/09/16/where-modern-macroeconomics-went-wrong/

      Macroeconomics as astrology
      I willingly admit that a good macroeconomic model is necessary. If there is none, somebody would invent a substitute and it will be used. Macroeconomic model is a kind of astrology. Without sufficient knowledge of the world, princes need something to direct them. Astrology was one of them. Catholic Church was in principle against the use of astrology, but could not prevent it to be used in the end of Medieval Era. Macroeconomics is present day astrology. It does not matter if the prediction is true or not, or in other words, accurate or not. From necessity point of view, macroeconomics is necessary. For such a purpose, there is no need that it is a science. Astrology is not a science or a pseudo-science and yet it played a big important function in some societies. However, as for the possibility of macroeconomics, it is highly questionable if macroeconomics is a science at all.

      The geocentric system of Ptolemy was an “exact science.” When Kepler started to reconsider the orbit of planets, Ptolemaic system was exact up to 8 angular minutes. In other words, the maximum error of Ptolemaic system was only 0.14 degree. It is sure that it was much more accurate than any of macroeconomic models. (I am talking figuratively. Comparison of two predictive systems is not easy.) Despite its accuracy, Ptolemaic system was a wrong system. Further development of astronomy depended on the overthrow of the system. Economics today requires a Copernican revolution. Interestingly, in one place of his working paper, Stiglitz talks about “Ptolemaic attempt.” (p.2) But he feels no such necessity. He might be a guru of Ptolemaic system and may contribute still a bit for its improvements. However, the limit of further development is already visible.

      What we need is a prospectus for a Copernican revolution. Stiglitz provides no hints on this direction. The most urgent role of a methodologist like Lars Syll is, in my opinion, to contribute to this revolution. If his role is only to give a rough suggestion, it may be a big contribution to the future of economics.

      • Craig
        February 15, 2021 at 8:21 pm

        Yoshi,

        You and I are in agreement that we need a Copernican type-paradigm change. I’m also in agreement with you that the answer lies in the micro-economy, specifically in a conceptual change and policy regime there. So what am I missing? Or rather what are you missing that I am saying?

      • February 16, 2021 at 3:14 am

        Craig,

        as you know well, Copernicus showed an idea how to change the our planetary system including the Earth and the Sun to a system in which other planets and the Earth go around the Sun. However, his solar system was not accepted as true by the people of his time. Only a small number of scholars thought it might be a good idea to rearrange the celestial system. One interesting example was Tycho Brahe, who was the most ingenious observer before the telescope was known. Tycho continued to believe a modified version of Ptolemaic system. His system was more complicated than Copernican system but was more finely tuned to the observations.

        Solar system (heliocentric system) became more persuasive only after Kepler discovered his laws of planetary orbit. Observation through telescope was more influential. First, It shuddered the people’s mind that celestial world is eternally invariable. Second, the telescopic observation discovered the waxing and waning of Venus, which was impossible to explain by a geocentric system. We must note that more than 60 years were necessary before Kepler’s first law was discovered. Another 60 to 70 years were necessary before Newton’s Principia appears.

        Craig, you may be a Copernicus, but you lack all efforts from Kepler and Galileo to Newton. For example, have you read my second comment on September 22, 2017 at 3:33 pm in the thread I cited above? It may seem to you that these arguments are too scholastic and useless. However, without these continuous efforts, you may start a revolution, but you cannot complete it.

      • Craig
        February 17, 2021 at 2:56 am


        Craig, you may be a Copernicus, but you lack all efforts from Kepler and Galileo to Newton.”

        Actually there were antecedents “upon whose shoulders I stand” the same as has been the case before every other major breakthrough.

        For instance I was introduced to C. H. Douglas (the actual Copernicus of Economics and money systems) shortly after the GFC in 2008 whose universal dividend idea superseded the current UBI thinking by over 100 years, and whose compensated retail discount policy I have innovated into paradigm changing status thanks to being aware of Kuhn whose work was not available to Douglas. Keynes was probably the paradigm change’s Tycho Brahe. Regarding economics and money systems Kuhn and Steve Keen were my Keplers with Kuhn’s book on paradigms and Keen’s de-bunking of DSGE and affirming of Minsky’s Financial Instability Hypothesis. Again, so far as economics and the money system are concerned I am really just an innovator/new discoverer, i.e. the Kepler of Douglas.

        If I may be so bold my true insights are actually in cosmology, natural philosophy and the study of paradigm changes….and the application of those insights to economics and the money system.

      • February 17, 2021 at 8:10 am

        It is good that you are trying to dig deeper into the matter. Kepler arrived to his first law of orbital motion after a series of failed attempts based on unreasonable (but plausible from Platonic point of view) assumptions. It took Kepler at least five years after he obtained Tycho Brahe’s data to discover two of his laws of orbital motions. It was a daunting number of trials and errors. After this continued effort, he arrived at last his elliptic orbit, which was really revolutionary because it was a rejection of more than two thousand years of tradition that celestial bodies move along a circle. With his discovery, he could eliminate the eight (angular) minute gap between observed data and his orbital movement model. This was decisive, because no other explanations could provide such exactness.

        I admire Steve Keen. He is a powerful critique of mainstream economics. I learned Hyman Minsky for several years. His economics points an important aspect of financial economy. But, I feel they (both Keen and Minsky) still lack something decisive like the elimination of eight-minute gap by Kepler.

        You preach a new economic system (Direct and Reciprocal Monetary Gifting). I do not know the details of your plan, but my first impression was that you are neglecting the examination of sustainability of of your system. If it is the Universal Basic Income, I can believe that it works if the basic income is not too high, despite it may have various unexpected side effects. In the case of DRMG, I cannot imagine how it works. For example, I wonder what happens to retailers and loan tenders when you implement

        50% discount/rebate policies at the point of retail sale and point of loan signing (Craig on December 29, 2020 at 6:02 pm, a Reply to this article)

        Can producers and retailers continue to produce and supply necessary goods for consumption?

        You put in other post that your plan

        systemically RESOLVES its major problems (individual and systemic monetary austerity and price and asset inflation) and hence TRANSFORMS it into a system of abundance and fluidity. (Craig on January 5, 2021 at 4:19 pm, a comment to this article.)

        .

        This reminds me of what was promised when a communist society would be realized. It was a Utopia. But, it was not realized and left many side effects. Many of ex Soviet and East European countries are still suffering from non-democratic polities, which is one of many side effects or legacy of communism.

        A decisive step for you would be to prove that your system is sustainable economically and politically (with the minimum of democracy and political freedom). It will not be an easy work. It may require, for example, a more voluminous book such as Das Capital. Of course, it is a necessary condition. I do not know what would be sufficient conditions.

    • February 15, 2021 at 8:39 pm

      Craig: I have presented the PARADIGM CHANGE. The only thing I haven’t presented is what ‘utility’ is in equation form. If we have a need for an objective benefit:–say 80 units of a protein daily:-but if we only are able to obtain, say, 40, then (Objective Need minus Realization)/(Objective Need) presents a scale of needs realization or deficiency for any period you select:–week, month, year. Only part of that range –the part just above or just below– is sufficient to maintain health without temporary to permanent negative impacts.

      If, for instance, a firm needs to cover costs to break-even, clearly (Break-Even Objective Revenue Need minus Realized Revenue)/(Break-even Revenue Need) tells you if that firm is maintaining itself, doing better than maintaining itself, or likely to fail if this continues.

      The producer-who-consumes framework for all agents divides kinds of benefits expected from use as mattering a great deal for the kind of ‘producer-who-consumes’ we are talking about.

      It seems that having a new PARADIGM appears less important than continuing to critique the old one.

      I expect people to at least try to grasp what the NEW PARADIGM I present means if indeed they want to move to a new paradigm rather than continue simply critiquing on and on.

      • February 15, 2021 at 8:51 pm

        The equation I actually use is (Realized Benefit Minus Needed) Divided by (Needed Benefit)i.e. 40 Realized units of a protein minus (80)Needed Level all divided by (80) Needed Level = -.5. At this level of protein intake, serious harm will result over time if this were to continue.

        Either equation can be used but the interpretation of positive and negative differs.

  4. February 13, 2021 at 7:49 pm

    If you wish to construct a new theory you must be willing to abandon the old one.

    Here I do. (I am not showing what I am replacing it with here.)

    III. Money, Trade, and the Faux Demand Curve

    A ‘demand curve’ purports to show how much a good a consumer will purchase at different market prices. With prices on one axis and quantities on the other, a demand curve appears to show that falling prices lead to larger quantities being purchased by a ‘consumer’; or, alternatively, that as prices rise, that ‘consumer’ will buy less.

    In this section, I will show you that this relation of prices to quantities that economists refer to as a ‘demand curve’ throughout the Theory of the Consumer is not what it appears to be. Indeed, this relation has absolutely nothing to do with what quantities of goods consumers would likely purchase if confronted with different market prices for the good.

    In short, all demand curves are artifices based upon 1) their seeming plausibility for it is easily observable that more goods are bought when the prices for those goods fall; and 2) a failure to understand what money does and what trade values are./1 To show you this I now must make visible what is very well hidden by the theoretic.

    To do this I must simplify. The ‘simplification’ is so clear about the nature of the problem –namely, that all ‘demand curves’ are illusions– that you may very well ask, “Why hasn’t this been seen before?”

    Well, what was hidden was hidden very well. It could not be seen by anyone using the theoretics upon which all ‘demand curves’ have been constructed./2 It could only be seen by stepping outside the theoretic itself. Anyone studying the theoretic for its flaws could find many things to complain about, but the interior logic of the theoretic has appeared unassailable for the past 160 years or thereabouts. Many an economist, scientist, engineer who tried to find any flaw in the logic has been so captured by the logic that they been disarmed by it, much like the hundreds of thousands of students who have studied economics to become economists or who have taken a smattering of economics courses before moving into other professions.

    In my professional life as an economist, it puzzled me that I could never use the theory I was taught to resolve the research questions I competently did resolve. I thought perhaps that this problem –being unable to apply the theory to any questions before me– meant that I had an inadequate grasp of the theory itself. I did not realize then that I worked implicitly out of a very simple framework which I unconsciously substituted for ‘theory’ whenever I undertook ‘economic’ analysis. At the beginning of any study, I usually proceed to construct the data base I would need. Common to every data base I constructed was the very elementary idea that goods only exchanged for each other in markets if their money values were equal to each other: i.e. equivalent.
    In fact, I often established equivalency systems between goods in order to compare them. This variety of wheat, for instance, could be made equivalent to another if I used a benchmark ‘wheat’ crop yield as a numeraire, for instance. If you are interested as I was at the time in the ‘value’ of research into different varieties of crops, then it was essential to create a numeraire measure of yield based upon one crop, a measure which I could then use to assess such matters as the monetary value of new varieties and to establish what lands would have had to developed to grow crops had the new varieties never been developed.

    Which is to say that I instinctively turned to establishing an equivalency system set in terms a numeraire whenever I needed to. Since money itself is a numeraire, my habit of thinking in terms of setting very different things equal by using a numeraire led to me always using the equivalency expression px*x = py*y/3 directly setting quantitatively measurable ‘benefits’ flowing form the use of this instead of that into monetary or other numeraire ‘values’. Furthermore, I seldom realized that I always implicitly used this equation in its reduced form: namely, y = px/py*x, albeit in a multi-good framework which, quite frankly, is much easier for me to work in logically than it is to undertake mathematically./4/5

    This is important for readers to understand. I operated then and now outside of the standard theoretical framework by instinct and inclination; and, it is only because I have always operated outside the framework that I was eventually able to pierce through the mesmerizing illusions the Theory of the Consumer both cast and created. No one immersed in and looking out of the existing framework can see what one must step outside the framework itself to see. [So although what follows in this section here seems as plain as the nose on your face, to see that nose requires looking into a mirror which lets you see that nose. Without such a mirror, it is literally impossible to see that nose. Economists have not had that mirror until today.]

    What follows is the mirror I have constructed.

    I’ll have to bring you to some Desmos graphics to show you what it is made of.

    Though it’s said that a picture is worth a thousand words, these graphics don’t yet exist in economics. They will require some effort to understand.

    The first graphic entitled ‘A Word On Numeraires and Trade Values’ is at https://www.desmos.com/calculator/om9irnfcdf It says that voluntary trade only occurs when goods have equal exchange value in terms of whatever the numeraire may be. It says this with line equations presented graphically in forms that I am asking you to manipulate until you feel secure that you understand how changes in prices lead to different quantities of goods being traded for each other.

    The graphic at https://www.desmos.com/calculator/om9irnfcdf also illustrates how the Nominal values of all trades which might occur are easily determined. Nominal values are those measured and expressed in units of the numeraire good used as the standard measure, whatever that numeraire is. Finally, you will note that it took me nearly a thousand words to explain what each line you see means.

    If you aren’t used to ‘reading’ graphs, you might feel intimidated. Don’t be. In the first graph, for instance, you might explore how the lines themselves lead to different graphically displayed results even before you understand what the lines themselves represent. Then, if you’re at all like me, you’ll look at what the lines themselves mean, going back to the explanations of what they are and how the changes you have introduced are to be interpreted. That is a reverse Polish way of proceeding with doing coming before understanding but, hey, much of the time that’s how we learn.

    [A note to economists.]/6
    The second graphic is entitled “Constructing the ‘Faux’ Demand Curve” and is at https://www.desmos.com/calculator/gbysxslujs It is preliminary to your constructing a Hicksian ‘demand curve’ simply by following my easy instruction. The graphic shows how the number of units of X in a bundle will change if the unit price of X changes relative to the fixed unit price of the Y good brought to trade for the X-good. At all times, the total value of Trade itself is held constant by assumption. [This is done throughout the Theory of the Consumer which always constructs its ‘faux Demand Curves’ on that assumption.

    Thus, unknowingly, every economist misunderstands that what he or she takes to be a budget line from which he or she may ‘demand curve’ is simply a total value of trade line for two or more goods when only the price of one good is allowed to change. The actual effective demand of a consumer or aggregate of consumers bears no relationship to such a ‘faux’ demand curve.

    This ends this section.

    I have just removed one theoretical pillar from micro-economics. I have not replaced it yet. The other pillar is the Theory of the Firm. The framework I use –that every economic agent active in the economy is in fact a producer-who-consumes– obviously modifies in the latter theory in dramatic way

    • February 16, 2021 at 1:47 pm

      I agree with you that “all ‘demand curves’ are illusions.” They are pure invention of neoclassical economics. I wrote a paper on the origin of demand and supply functions in Britain: An origin of the neoclassical revolution: Mill’s “reversion” and its consequences. If you are a member of ResearchGate, you can read the draft version here.

      But, I do not understand why you emphasize so much the value equation (your equivalency system): px*x = py*y. Is this equation related to your “professional life as an economist”? What were your “questions before you”?

      • February 16, 2021 at 4:37 pm

        Yoshinori, you asked: “Was this equation related to my professional life as an economist?”

        We live in market economies, so, yes, it was definitely related, for ‘exchange’ is at the heart of all market economies (and, for that matter, equivalency systems based upon non-circulating numeraires.) Most studies I did required me to compare and contrast the ‘exchange values’ resulting from this versus that course of action or this versus that approach to a problem.

        Incidentally, Utility functions in X and Y like Uxy = X^aY^a reduce to y = px/py*x, for subjective utility has, in fact, been superimposed upon the underlying relationship of exchange. {William Stanley Jevons is largely responsible for this superimposition of subjective utility in ‘neoclassical economics’.

        My ‘producer-who-consumes’ framework includes ‘firms’. Most of your thought fits easily into that framework.

      • February 17, 2021 at 4:00 am

        Do you have a paper that explains or represents your economics in a concise way? I want to read it in a form of PDF. I have visited the linked web page, but it was not easy to read it.

    • February 16, 2021 at 7:34 pm

      I hadn’t realized until now that my comment of February 13th included footnotes that didn’t appear in the text of the comment. Here they are:

      1. All trade values are simply the exchange values goods have when traded for other goods. The values of the amounts of the traded goods must always be equal if a voluntary trade exchange is to take place.

      2. Actually there is more than one underlying theoretic form out of which one may construct a demand curve. One, I’ll get to it later, Is ‘Marshallian’. It is named after the brilliant economist and mathematician, Alfred Marshall. The other, a standard form originating with the writings of Sir John Hicks in his Value and Capital, is often used to derive a ‘faux’ Marshallian ‘offer’ curve using referred to as a ‘Marshallian demand curve’.
      In fact, it is logically and mathematically impossible to derive a Marshallian Demand Curve in a Hicksian framework. I will leave it to other economists to determine why I say this. (Three Clues: for Economists: 1.Marshall was never prepared to abandon satiation in the consumption of most goods;; 2. Marshall did not agree with the mathematical statement that the marginal utilities of all goods had to be equalized by consumers., a statement either implicit to or explicit within their subjective ‘Utilitarians’ framework while utterly absent in that of Alfred Marshall; and 3. Throughout Alfred Marshall, money is not treated as a good consumers may purchase but only as the Medium of Exchange.)

      3. The product of the unit price of X times the units of X must equal the product of the unit price of Y times the units of Y. Aristotle said this non-algebraically in Book V of his Nichomedean Ethics (a.k.a Nichomachian Ethics) –algebra was a much later invention within mathematics– for he well realized that this equivalency in values as measured by reference to a numeraier value was the base condition which had to be met for all voluntary exchanges of goods. I point this out only to show that, had algebra existed in Aristotle’s day, then he would have to be credited as the originator of this equation.

      4. Not included.

      5. Economists frequently created ‘Utility’ functions of the form Uxy =xaya and then set the partial derivatives with respect to goods X and Y equal to their respective unit prices. All such forms imply y =px/py*x. This underlies why the conclusions reached through the optimization techniques economists use are sometimes right instead of always wrong.

      6. If you are an economist, you will see immediately why demand curves in economics neither exist as constructed in the theoretic nor may be constructed ‘as if’ they could exist. They cannot. You will also see that the Hicksian framework for understanding demand, income and substitution effects in inadequate to the tasks it performs throughout mainstream (and even unorthodox) economics. Furthermore, the most proficient economists among you will see that the Hicksian derivation of a Marshallian demand curve is logically and mathematically impossible given what Marshall means as ‘offer prices’. I am not seeking to criticize the work of the late Sir John Hicks here, for he didn’t realize how those before him had succeeded in pulling the wool over their own eyes before his own. (Thank Jevons for that. He did it in his Chapter on Exchange Value.) Nor, not himself being Marshallian, could he have have begun to understand that Alfred Marshall’s formulation of ‘offer curves’ could not be derived in the manner he sought to derive Marshallian demand curves in his analytical framework. Had Alfred Marshall been alive when Hicks’ Value and Capital was published, he would have pointed out the inconsistencies between his own formulation of offer curves and those of the other marginal subjective theorists. Above all his own exposition of offer curves was a classroom toy. Hicks clearly did not realize this..

  5. Ikonoclast
    February 13, 2021 at 11:06 pm

    In the end, I would say it takes a praxis to beat a theory. Certainly, you need a new theory but that new theory needs to be put into practice and that practice needs to work. As the CasP theorists point out, capitalism, or any social system, is not an economic system, it is a power system. I won’t summarize the CasP argument as I am likely to summarize it incorrectly, at least on some points. I will leave it to the reader to pursue that reading.

    Click to access 20090522_nb_casp_full_indexed.pdf

    I am no historian of the processes that occurred in the overthrow of alchemy and its replacement by empirical science. Equally, I am no historian of the processes by which the humors theory of proto-medicine was substantially overthrown by the “germ” theory (as a theory of diseases of pathogenic origin). However, I would hazard a guess that a very large role was played by the fact that the new theories (based on empirical discoveries) worked better in practice. The power of a valid theory is that it works in practice and confers the instrumental and practical results of applied science and instrumental reason. Of course, “value rationality”, as in ethical or moral philosophy values, still has to be applied also to determine which applications of instrumental reason are considered ethical by the majority of people.

    Capitalism certainly works in practice but how it works, who it benefits and what its broader results are, have to be considered. To summarize, capitalism (a) takes from the poor and gives to the rich, (b) it differentially benefits the rich, obviously, and (c) it destroys the natural world and biospheric systems and thus the web of life. A simple revolutionary theory and praxis, as overall principles, would be take from the rich, give to the poor and stop destroying the world. That’s a theory and practice everyone can understand. There is no need for imaginary constructs (utils or representative agents) or fancy equations to put forward this very simple theory and praxis. If one is wading into an impassable mire when the goal is an El Dorado myth anyway, then one must turn back and wade out.

    It really is this simple except for two issues. One, the devil IS in the detail. Two, the rich, unless nullified in some way, will fight back; with mass killings and the unleashing of near unimaginable violence with proxies and now (very likely) drones. These are the practical problems of revolutionary change. But men and women who are comfortable enough to work out equations and algorithms, or program computers to do the same, will never act in the real world. Only the desperately poor will act when a critical mass of immiserated multitudes is reached. Then, we mere theorizers must decide where we stand.

    • February 13, 2021 at 11:25 pm

      What you are saying requires you to have a concept of effective demand by people (or firms), one which shows that the budgets people can form are mostly, for most people most of the time, formed out of their remuneration income. A quick and dirty way of looking at this can be found at https://www.desmos.com/calculator/liwlcxpqej

      • Ikonoclast
        February 14, 2021 at 12:23 am

        Forgive my political economy simplism, but we are probably in furious agreement. Effective demand for necessities surely is a given. The human need for food, for example, is a given as is the need for a suite of foods which provide all essential nutrients for good human health. Given that these are givens then we must produce and distribute such a foodstuffs basket or else we ail and die. Sometimes the poor do ail and die, not from a lack of production in recent historical times but from a lack of distribution.

        More important than theorizing effective demand for essentials (which after all is a given) is the issue of theorizing the minimum wealth condition or minimum income condition which permits all adult citizens to purchase all necessities (and reasonable amenity, development and prospects) for themselves and their dependents.

        The following comes from a theorist and analytical economist whose views I greatly respect. And she is one who is not even comfortable with my “ism” theorizing and essentializing when I use the word “capitalism”. Nonetheless, I find myself in very substantial agreement with her following reasoning.

        “For what it is worth, I can offer the following on ethics and morality of economics: Those who tell the public that ‘freedom of choice’, ‘free enterprise’ and ‘private ownership’ is a desirable and morally defensible aspect of a society act unethically if they don’t at the same time argue for a wealth distribution (which includes income as the time difference of a wealth quantity) such that each individual has sufficient wealth to choose at least a little bit of whatever is offered at market prices. [Source: theoretical models of competitive private ownership economies that check for the logical consistency of the models. These models are written in the language of mathematics]” – Ernestine Gross.

        A “little bit of whatever is offered at market prices” clearly and reasonably infers, in context, adequate life necessities plus levels of amenity, development and prospects which meet ethical community standards related to the needs and rights of all persons, including that the general right of substantial equality be instantiated in the delivery of real goods and services and not just part of parchment rhetoric: meaning the real delivery of life, liberty and the pursuit of happiness as the US Constitution promises all too emptily promises.

        The US system is notable (and it’s not the only one) for its grand and grandiose words and its parallel, signal and abysmal failure to turn these words into real actions for all the people.

      • February 14, 2021 at 1:25 am

        I agree, of course. Economics today lacks a theory of effective demand at either a personal or a firm level. If economics is not about our being able to provide for ourselves, especially with respect to necessities, then it cannot serve us.

        And it lacks this easy to create framework because its theory of the ‘consumer’ starts with endowing the ‘consumer’ with a budget rather than asking where the budget comes from or why the ‘consumer’ is spending the money ‘it’ has in the manner it does.

        See some preliminary thoughts I have about this: https://www.desmos.com/calculator/79guxuyvwj

    • February 15, 2021 at 7:52 am

      Iconoclast > In the end, I would say it takes a praxis to beat a theory. (February 13, 2021 at 11:06 pm)

      Do you include among your praxis the “struggle in theory”? As you are a politics-oriented social scientist, you must know Antonio Gramsci and his theory of  cultural hegemony. (Readers who first read the phrase are required to consult “Cultural hegemony” in Wikipedia.) Struggle in theory is a war of position. Without getting a dominant position in the struggle in theory, you cannot win in your political struggle.

      I do not deny the importance of political dimension, but I have an impression that those politicized people and policy-oriented researchers (with no serious reflection in politics) too easily consider they can win the war of movement without winning the war of position.
      The dictum “It takes a theory to beat a theory” should be interpreted at the level of war of position. Displacing it to the war of movement does not solve anything.

  6. February 14, 2021 at 7:41 am

    The central question we should argue here would be how to consider two contradictory positions: one by Lars Syll and one by me. It must be the intention of the editor (of this blog page) to pick up my comment.

    Lars Syll posted three times the articles with essentially the same title: Does it — really — take a model to beat a model? No!

    (A) February 12, 2021 5 comments (no comments by me)
    https://rwer.wordpress.com/2021/02/12/does-it-really-take-a-model-to-beat-a-model-no-2/

    (B) September 13, 2020 18 comments (8 comments by me)
    https://rwer.wordpress.com/2020/09/13/does-it-really-take-a-model-to-beat-a-model-no

    (C) January 12, 2020 58 comments (13 comments by me)
    https://rwer.wordpress.com/2020/01/16/does-it-really-take-a-model-to-beat-a-model/

    Evidently my post copied here contradicts Lars Syll’s repeated contention. There were rather long discussions on the same theme. I myself posted many comments on two older articles (B) and (C). Although there were many and various arguments, it is sad to see that we have not learned much from past discussions.

    I hope that some of discussants in this thread will find a positive way out from these eternal arguments.

    • Craig
      February 14, 2021 at 5:57 pm

      The answer to Yoshi’s and Lars’ questions is both yes and no. Yes a new theory is necessary, but a theory is a mere abstract mental model so no, what is required is a paradigm change which is BOTH a new mental model AND a temporal universe breakthrough change resulting from a new insight and/or tool enlightening the ways to apply the new paradigm theory/concept.

      It’s time we added personal and policy action to these endless abstract ruminations don’t you think?

  7. Ikonoclast
    February 14, 2021 at 10:11 pm

    I think Lars Syll is arguing that it doesn’t take a model to beat a model because empirical tests can beat (refute) a model if the model is wrong Of course, when that happens you are still left without a viable model with its desired explanatory and predictive power.

    Being left without a model for the physis (that which is investigated by the hard sciences) is a problem in one sense but not a problem in another sense. It is a problem because we cannot understand and manipulate the physis as we wish. It is not a problem because the physis runs whether we understand it or not. The wind still blows, the seeds still grow and the rain falls on the just and the unjust alike.

    However, when we have a prescriptive model to run the nomos [1] (and neoliberal or market fundamentalist capitalism is such a model) then when we can’t go model-less. The ensuing situation would be completely anarchic. Thus, in this case it does take a new model to beat (replace) the existing model.

    I started out thinking I supported Lars Syll in this matter. I now think I can see Yoshinori Shiozawa’s point as well. Whether neoliberal market fundamentalist capitalism is refuted or not refuted yet depends on your a prioris, your overall moral philosophy and your metrics (and whether the metrics are ideological. ethical or scientific or some amalgam thereof. There are senses in which neoliberal capitalism is already refuted, senses in which it is not yet refuted and even senses in which it is highly probable that it will soon be refuted comprehensively and undeniably.

    Examples are:

    (a) Neoliberal capitalism is not yet refuted because it is extant, running and successful by the standards and metrics of its theorists, apologists and beneficiaries.

    (b) Neoliberal capitalism is refuted because inequality, human damage and ecological damage have been continually worsening under its ascendancy.

    (c) Neoliberal capitalism will be refuted by the collapse of the natural world it is destroying.

    Note 1. Here I use the term “nomos” in a slightly restricted sense which excludes empirically validated (or unrefuted-after-many-trys) models of the physis but includes all other human concepts.

  8. JD
    February 15, 2021 at 1:26 am

    I would be very interested to know (somehow not having absorbed this over the years) just what theory conventional economics is based on. Is there a simple way to state or summarize this theory? I’m being serious and would like to hear what you all consider to be the fundamental theory underlying economics.

    • Ikonoclast
      February 15, 2021 at 3:09 am

      JD,

      “There is no royal road to geometry.” – Euclid.

      “Reply given when the ruler Ptolemy I Soter asked Euclid if there was a shorter road to learning geometry than through Euclid’s Elements.The “Royal Road” was the road built across Anatolia and Persia by Darius I which allowed rapid communication and troop movement, but use of ἀτραπός (rather than ὁδός) conveys the connotation of “short cut”.” – Wikiquote.

      Equally, there is no royal road to understanding “economics”. Indeed, many heterodox thinkers would say the proper subject is political economy, not economics. The term “political economy” originally meant “national economy” and still does but it also carries the connotation that economics is really all about politics, power and control of the institutions and corporations which run the “economy” and order less powerful people around.

      Remember the “golden rule”. He who has the gold makes the rules. He who makes the rules, gets the gold. ;)

    • February 15, 2021 at 4:19 pm

      JD: I would be very interested to know (somehow not having absorbed this over the years) just what theory conventional economics is based on. Is there a simple way to state or summarize this theory? I’m being serious and would like to hear what you all consider to be the fundamental theory underlying economics.

      JD: Current economics is based upon the following critical defects:

      1. The presumption that all production must be for ‘markets’ and for ‘consumers’.

      2. ‘Consumers’ are defined as a) those with the ability to pay for goods who b) buy those goods in ‘markets’. The theory as constructed thus omits from any part of its theoretic anyone without the ability to pay for the goods markets provide. In effect, this leads to the notion that only ‘consumers’ in ‘markets’ matter and that only these –those who can buy within a market– have any ‘welfare’ to speak of. For all practical purposes, this means, a person who cannot afford to purchase food, shelter, or any necessary goods to maintain himself or herself suffers no ill-effects as a consequence, since that person is not a ‘consumer’ in any of the markets for those goods.

      3. Unlike ‘consumers’, ‘producers’ must be able to sustain themselves through their economic activity. The theory of the Firm (er, producer) is based upon the firm having to at least break-even in terms of the remuneration they obtain from the sales of their ‘output’. And though the ‘firm’ buys goods and services it uses, the ‘firm’ cannot possibly be considered to be a ‘consumer’ of goods and services, perhaps even in competition with other ‘consumers’ for all manner of inputs … like, for instance, water, energy, crops, et cetera.

      This separation between ‘consumers’ and ‘producers’, along with the notion that the welfare of the former can only come from their market activity as consumers divorces their consumption activity from any issues related to their being able to provide for themselves, unlioke ‘firms’. Incidentally, it also means that the ‘consumer’ cannot be a life form of any kind, a ‘producer-who-consumes’ all manner of things to sustain its own activity.

      The separation is mostly based on the idea that the ‘consumer’ pursues only psychological ends known as pleasure or satisfaction which, apparently, are simply functions of the quantities of goods which only markets can provide (1 above). The cosnumer is said to have an ‘offer curve’ which is independent of the consumers means (i.e.. actual ability to pay for goods out of income). And, oddly, the ‘consumer’ can only maximize its pleasure of satisfaction if it is equalizing the satisfaction it can obtain between all of the goods it can buy. The reality that two traders would equalize the values of the goods they trade with each other is said to reflect what a consumer must be doing when out shopping for goods, for, if there are no benefits other than psychological to having goods, then one can omit from any consideration the fact that goods are used instrumentally by their purchasers to obtain real benefits. Thus, the ‘consumer’ in economics does not buy a sandwich to obtain nutritional benefits from eating it, but only to obtain pleasure or satisfaction from having it.

      As you can see, there is no concept of effective demand arising out of ability to pay arising itself out of the remuneration one obtains from economic activity in the above theory. Since total effective demand in an economy depends on such things, this also means that ‘macro’ economics is built upon the defects contained in the ‘micro’ economics.

      I could go on. I suggest you look at my other posts on this thread.

    • February 16, 2021 at 7:08 am

      JD,

      why do you want to know “what theory conventional economics is based on”? Economists and non-economists who join the discussion here are opposed to “conventional economics” or what is called neoclassical or mainstream economics. Reasons of their opposition are quite diverse. If you really want to know the theory on which the conventional economics is based, you are addressing to wrong persons. But, as there are many textbooks of economics and many books of the history of economic thought, you should at least read one of each: a textbook of introductory economics and a thin book that covers whole history of economics from the time of mercantilism to at least the arrival of rational expectations hypothesis (REH) and implementation of dynamic stochastic general equilibrium (DSGE) models.

      If you want to know theory/theories on which unconventional economics are based, I can reply my own ideas.

  9. deshoebox
    February 15, 2021 at 5:04 pm

    Ikonoclast and Larrymotuz, thank you for your responses. Very helpful. But there must be more, no? There must be some even more fundamental “theory” underlying economics, some formulation that at least appears to make sense. Otherwise why would people say “It takes a theory to beat a theory”. After all, if the “theory” on which economics rests only concerned the imaginary and counterfactual actions of nonexistent entities and considered the death from starvation of a person who had no money to be unexceptionable from a “theoretical” point of view, then surely virtually any other theory would beat that theory.

    • Craig
      February 15, 2021 at 6:26 pm

      @JD, deshoebox and Larry,

      What you’re wanting to know regarding the “underlying theory of economics” is the current zeitgeist/ethic of the age which is Power. Monopoly is granted, created and exercised power. Money is the power to consume and to direct and control production. Finance has been granted a virtual monopoly on the sole form and vehicle for the creation and distribution of credit/money, namely Debt as in Burden Only, and hence in the words of Illinois senator Dick Durbin “they own the joint”.

      Integrate the new concept of monetary grace as in gifting intelligently and effectively into the economic process and you’ll not only break up Finance’s monopoly power you’ll change the paradigm in that area of human endeavor….and you’ll also lay a firm, continuous temporal universe and conceptually aligned foundation for the new zeitgeist, that is, the conscious ascent of human ethics and wisdom AKA grace as in love in action and systemic policy.

      Let us begin.

      • February 15, 2021 at 6:46 pm

        Please excuse my many typos!

      • February 15, 2021 at 6:58 pm

        Yes. I agree completely. A central problem is how market frameworks effectively make money a ‘permission slip’ one must have. Current economic theory posits a neutrality of money which is impossible all of the time given the place such permission slips must play in any theory of effective demand and, also, given that our mechanisms for the distribution of those permission slips are deficient, leading to inequalities in the distribution of money that guide the economy in ways which are not satisfying and unhealthy for most people most of the time.

    • Ikonoclast
      February 16, 2021 at 2:24 am

      deshoebox says, “surely virtually any other theory would beat that theory.”

      Yes, one would think that if economic theories competed on logic and argument. However, they do not compete on logic and argument at the applied economics or applied political economy level. They compete on power, specifically via modes of (social) power from rational, calculative and persuasive power, plus outright rhetoric, propaganda and finally open violence even including the use of the state’s monopoly on legal violence.

      Remember, if a bar-room brawler punches you out after you scientifically and logically debunk his climate change denialism then he has “won the argument” then and there. If the state run by a president like Trump recently was, comes along and says it’s basically okay to punch out climate change realists and even clear them from the town square with the riot squad plus sack them any and all of them from all employment and university postions, then the false theory beats the empirically supported theory. The ignorant but more powerful “win” the argument… until natural forces destroy them too.

      It really is worth reading the books and papers at the Capital as Power website. I am more expressly “ontological” in my thinking. They are more sociological and anthropological in their thinking (if I may say that). In both cases, we are seeking to ground political economy in the empirically real not in the deontological prescriptions of capitalist economics.

      • February 16, 2021 at 4:17 am

        Actually, the current theoretic consists solely of ontological arguments divorced from the reality that people cannot ‘offer’ to buy any quantities at various prices when they have no means to do so, which is the basis for excluding all life forms from the Theory of the Consumer and also the basis for the suggestion that there is such a thing as a demand curve.

        You think abstractly, yes, but hardly ontologically when you call for economic theory to develop based on empirical evidence of how people actually behave and the role that money, or lack of it, plays in the choices which they, at times, must make.

    • February 16, 2021 at 2:38 pm

      If deshoebox considers that

      the “theory” on which economics rests only concerned the imaginary and counterfactual actions of nonexistent entities and considered the death from starvation of a person who had no money to be unexceptionable from a “theoretical” point of view,
      he is wrong. This is one of bad effects which I was and am afraid of when Lars Syll continues to provide caricatured pictures of mainstream economics. Many intelligent students were trapped in the charm and beauty of mainstream economics. It continues even now. Iconoclast is wrong when he explains that mainstream economics is powerful only because it serves rich class and its representatives. Mainstream economics is also powerful by its logic, philosophy of science, statistics, and what they call evidence.

      A theory that can beat the mainstream economics must be more powerful than the latter. Mainstream economics has a thick and strong protective belt. It can gainsay and argue against almost all criticisms against it.

      • February 16, 2021 at 2:47 pm

        I am sorry! I have forgotten the slash in the second tag. The correct text is the following:

        If deshoebox considers that

        the “theory” on which economics rests only concerned the imaginary and counterfactual actions of nonexistent entities and considered the death from starvation of a person who had no money to be unexceptionable from a “theoretical” point of view,
        he is wrong. This is one of bad effects which I was and am afraid of when Lars Syll continues to provide caricatured pictures of mainstream economics. Many intelligent students were trapped by the charm and beauty of mainstream economics and it continues even now. Iconoclast is wrong when he explains that mainstream economics is powerful only because it serves rich class and its representatives. Mainstream economics is also powerful by its logic, philosophy of science, statistics, and what they call evidence.

        A theory that can beat the mainstream economics must be more powerful than the latter. Mainstream economics has a thick and strong protective belt. It can gainsay and argue against almost all criticisms against it.

      • February 16, 2021 at 2:51 pm

        I am terribly sorry. There was another mistake. Here is (I hope) the correct text:

        If deshoebox considers that

        the “theory” on which economics rests only concerned the imaginary and counterfactual actions of nonexistent entities and considered the death from starvation of a person who had no money to be unexceptionable from a “theoretical” point of view,

        he is wrong. This is one of bad effects which I was and am afraid of when Lars Syll continues to provide caricatured pictures of mainstream economics. Many intelligent students were trapped by the charm and beauty of mainstream economics and it continues even now. Iconoclast is wrong when he explains that mainstream economics is powerful only because it serves rich class and its representatives. Mainstream economics is also powerful by its logic, philosophy of science, statistics, and what they call evidence.

        A theory that can beat the mainstream economics must be more powerful than the latter. Mainstream economics has a thick and strong protective belt. It can gainsay and argue against almost all criticisms against it.

      • February 16, 2021 at 3:56 pm

        No. Deshoebox is correct. The Theory of the Consumer is so constructed that consumers are only those with the ability to pay for what markets provide. Those who cannot pay are not ‘consumers’. These appear nowhere in the Theory. Because they are not consumers, they have no ‘welfare’ for they are not included in the theoretic. Welfare in the Theory of the Consumer exists only for ‘consumers’. Consumer Surplus can exist only for ‘consumers’. {When Depuit concluded that the greatest ‘welfare’ benefit occurred when a public good was provided for ‘free’, this was precisely what he meant: That ‘potential users’ and ‘consumers’ are two different categories, so that welfare was a broader concept than benefits to consumers alone, for welfare extended to everyone.} As it is Consumer Surplus as a welfare concept cannot possibly apply to non-consumers … whose bio-psycho-social well-being is utterly ignored by the theoretic!

    • pfeffertag
      February 18, 2021 at 2:08 am

      deshoebox, all these replies are too sophisticated. I state the underlying theory in my reply to your post above (February 13, 2021 at 4:42 pm).

      “Economics assumes perfect competition within which homo economicus operates with the sole aim of maximising monetary return.”

      Rational Choice theory expands that to an “agent” who maximises “utility,” the agent, like homo economicus, being an individual human being. This seems to remove all hope of falsification since anything the “agent” does can be construed as maximising utility.

      Psychology, which is supposed to be the study of human behaviour, does not recognise these theories. Indeed it does not seem to even know about them. As I have several times pointed out, psychology has nothing to show for a century of intense effort whereas economics has a body of theory—however much disputed.

      Ptolemaic theory (which was a genuine scientific theory) rested on the underlying theory (or axiom) that the heavens orbit the earth. That is fundamentally incorrect and I doubt that the underlying economic theory is that far off course.

      As I have also said a few times, economic theory would need to be broadened to include behaviour outside of the narrowly economic (though there is no help to be found in academic psychology). Several people have expressed a similar opinion however I see no tendency to that—no openness to it—in the comments here.

      • February 18, 2021 at 2:46 am

        Actually, it very much is that far off course. Indeed, though the equations used within Ptolomaic astronomy were based upon axioms, they also managed to capture the actual movements of planets well enough to form predictions useful for agriculture. But that was because they actually had to take account the visible motions of the planets.

        Economic theory is not tested against actual human behavior in terms of what people buy or why they buy what they do. Indeed, the behavioralist rage in economics is to try to get people to behave more closely to what theory predicts on the grounds that the theory says they are irrational if they don’t.

        The ‘consumer’ in economics is an imaginary entity, a hat upon which equations said to describe the behavior of a ‘consumer’ can be put. Like the man who wasn’t there today, I wish, I wish, he’d go away … replaced by human beings who are always there.

  10. February 15, 2021 at 6:45 pm

    Deshoebox: “There must be some even more fundamental “theory” underlying economics, some formulation that at least appears to make sense.”

    Theory is neither more nor less than a set of related hypotheses which appear to accurately reflect the ‘reality’ it seeks to understand. Ptolemaic astronomy had that ‘appearance’ even though it was axiomatic-deductive (like modern economic theory). It was, mathematically speaking, the most advanced ‘science’ of its day. And, because the mathematics was periodically revised to take into account empirical observations, its ‘celestial mechanics’ were, in fact, incredibly complex and very useful. [Modern economics ‘mechanics’ are, however, not based upon emperical observations of what people do, but has retained the axiomatic approach of Ptlomaic astronomy and argues that when its predictions are wrong, that’s because people are not themselves behaving as ‘rationally’ as they should be, so, in effect, the theory cannot be falsified on the basis of what people do. This leads to the conclusion that people must be made to behave as ‘rationally’ as the ‘consumer’ hypothesized in economics rather than the theory being modified through observations of how people ‘behave’.

    If “Economic Activity” is taken to be the ‘Market Economy’, then the hypotheses will seeks to explain only how the ‘Market Economy’ works. If ‘Economic Activity’ is taken to be “all activities we –human beings– can engage in in order to provide for ourselves’, then we have to place the ‘Market Economy as a subset within such activities–within the ways we could be providing for ourselves–rather than treat it as the only way we must employ to provide for ourselves. I’ve noted elsewhere that the Scottish government now provides menstrual products free to all users of those products, not merely to those with the ability to pay for them. The government, as the buyer, naturally gets to set standards for what it is buying, but it has clearly also departed from the ability to pay principle as the only distributive principle we can have and which only market frameworks depend upon. The ‘market’, in other words, can be an ineffective distributive mechanism for some goods. {Naturally, market producers for profit are upset at the reality that their buyer sets the standard for what they produce, but, that said, they are still making a profit, albeit not perhaps as high as they would like.}

    The ‘producers-who-consume’ framework I use says that 1. we use goods instrumentally to produce goods {Consumption is always “USE”} to provide benefits to ourselves either directly from what we produce or from the remuneration we get through our ‘sales; objective benefits usually, which, for some like the ‘owners’ of firms, are the profits they hope to obtain, profits those ‘owners’ then use to provide for themselves by buying goods for their personal use; and 2. we ‘consume/use’ goods to directly meet our needs and wants, some of which are biological –as organic life forms we must replace what our bodies use daily– and some of which are bio-psycho-social/cultural, these latter framing what is acceptable traditionally, legally, morally, or ethically. {The Classical economists generally accepted as a given that all economic activity was sanctioned:–boundaried by a framework of legal, moral, and ethical traditions which it was the duty of government to uphold. These are, in a sense, the ‘invisible hand’ which is supposed to guide markets into doing no harm. Profit-seeking alone is no such guide, except as to where the money is and whom to produce what for.}

    A central problem with modern theory –unlike that of the Classical economists– is that it departs from our needs to provide for ourselves by casting all economic activity into a market framework where ability to pay steers the use of resources as well as what is produced and for whom. By so doing, it departs from the very notion of what effective demand is, why we buy what we do, and how effective demand underlying all sales should operate. It currently operates in manners that exclude most from benefiting greatly from their own economic activity, and it does so by letting the wealthy decide who gets what amounts of monetary remuneration for their economic activity.

    A ‘fundamental’ theory must start with the idea that all economic activity is intended to provide for ourselves. Once the ‘market’ is seen as only one of the ways we have of providing for ourselves, NOT the ONLY WAY, the theory will develop away from the framework it is now in and which casts a thrall over most economists.

    • i
      February 16, 2021 at 3:03 am

      Excellent reply. I like your overall approach. I haven’t examined your approach in fine detail yet so I can’t yet say whether I agree (or disagree) with all your fine detail. But straight off it looks a lot better than what I call bourgeois, capitalist or neoliberal economics.

      • Ikonoclast
        February 16, 2021 at 3:06 am

        Oops, the “i” above is me, Ikonoclast, when it gets out of moderation. I mishit a key or two when posting.

        I was saying, if I can now say it again without falling foul of the duplicate reply block…

        larrymtouz, Excellent reply. I like your overall approach. I haven’t examined your approach in fine detail yet so I can’t yet say whether I agree (or disagree) with all your fine detail. But straight off it looks a lot better than what I call bourgeois, capitalist or neoliberal economics.

    • pfeffertag
      February 18, 2021 at 7:18 am

      larrymotuz February 18, 2021 at 2:46 am

      “Actually, it very much is that far off course.”

      No. And complaining (yet again) that economic theory doesn’t correspond to reality is irrelevant. No theory ever corresponds to reality.

      The basic Ptolemaic axiom that the heavens go round the earth is simply wrong. Just plain wrong. The axiom that homo economicus operates within perfect competition is not wrong in that way. It is only wrong in the sense that every science theory is “wrong,” namely by interrelating idealised concepts. In other words it is correct—as far as anyone knows.

      As for reality, its correctness is confirmed empirically by our daily experiences. We all know people who approximate the homo economicus. Trump is an example but any entrepreneur who is rich and who never has enough fills the bill. And the economy IS a competitive environment. We see this if we compare it with the Soviet Union, Maoist China, Pol Pot’s Cambodia, or North Korea.

      The basic axiom of extreme homo economicus and perfect competition is a correct scientific expression. It’s been around a long time and is not only confirmed empirically but has actually served quite well—again, compare with those command economies. The present theory is rock-solid (at this level) and no one is about to come up with a better formulation.

      What could be done to improve the correspondence with reality? More, additional, theory. In the way you might add a theory of air resistance to a theory of gravity to better describe a falling object. This is not introducing epicycles (which were ad hoc work-arounds and as such not scientific) but by theorising behaviours not narrowly economic. Not everyone is oriented to money like homo economicus. These people count! Theorise them! Theorise their orientations! Theorise their environments!

      • February 18, 2021 at 10:14 am

        The basic axiom that consumers pursue only pleasure or satisfaction is every bit as wrong as the basic axiom that the heavens revolved around the earth. The idea of income and substitution effects requires that consumers are unable to adjust the budget in the face of price changes. That, too, is as wrong as the axiom of perfect motion is Ptolemaic astronomy.

        If you wish to say differently, prove it. As for homo economicus operating within perfect competition, such perfect competition does not and can not exist. Competition was seen to be a duty of governments to ensure wherever that was was possible, but it was not ‘perfect competition’, just the most feasible. That, maintaining the goal of having the most feasible levels of competition dates back to the Physiocrats whose ideas of free entry and exist into markets were advocated by Adam Smith.

    • February 18, 2021 at 9:29 am

      It will be interesting to see who (larrymotuz, Iconoklast, davetaylor1, and others) can rival pfeffertag, who is well prepared to defend his contentions. I do not know his basic position in economics, but he knows how neoclassical economists defend their theory as science. Neoclassical economics defenders are tough disputants for those who do not know their enemy.

      • February 18, 2021 at 8:12 pm

        Yoshinori: Elsewhere in this discussion, you said: ” My impression is that he is concerned with too specific questions and his plan of rebuilding consumer theory is not yet very far from utility maximization. I reject such a problem setting as a whole.” I could not reply due to the lack of a ‘reply’ button so to speak.

        Somewhere on this thread I point out that I use a very different measure of ‘utility’, one based upon benefits from use.

        I say that I use the equation: (Realized benefit minus Needed Benefit)/Needed Benefit) is the measure I use for different agents, all of whom are producers-who-consume.

        I think that, when speaking of ‘firms’ as users of goods (Consumers themselves) this translates into something like

        (Amount of realization minus Targeted Goal) Divided by (Targeted Goal). The goals of the firm matter, of course, for if the goal is a level of profit, a rate of expansion, a level of market penetration –non-homogenous benefits sought– this formulation clearly is not one of ‘utility maximization. (Which is not to say that I don’t understand how you might think I was talking about some form of ‘utility maximization’, for I hadn’t explained that thinking of mine.} It also jibes with your thinking, Yoshinori, about the defects lying within the Theory of the Firm and how these are currently modelled.

        When I turn to persons, I use the same equation to go into welfare considerations affecting people.

        This equation abandons any and all forms of ‘utility maximization’.

        I hope to begin writing the paper I have promised later this week if my health allows.

      • pfeffertag
        February 19, 2021 at 1:35 am

        To larrymotuz at February 18, 2021 at 10:14 am (the lack of a “reply” button is odd)

        “The basic axiom that consumers pursue only pleasure or satisfaction is every bit as wrong as the basic axiom that the heavens revolved around the earth.”

        Not so. There exist people (not “consumers”—such vocabulary can only restrict thinking to the present paradigm) who LARGELY pursue satisfaction and to some extent we all do. (Leave out “pleasure”—it’s a distraction.) The theory’s “only” is a theoretical necessity; it makes the theory unambiguous, which “largely” or “sometimes” or any other realistic description would not. Science theory is never a description of reality.

        “If you wish to say differently, prove it.” No theory can ever be proved; surely we don’t need to go over that. All you can do is find supporting evidence and I gave some in my last post. It is up to you to show that that evidence was false or inappropriate.

        “perfect competition does not and can not exist” Science theory is never a description of reality.

        “Competition was seen to be a duty of governments” No it wasn’t. Exactly the contrary is the case. Governments restrict competition and when they lift the restrictions, as in the Soviet Union, Maoist China, Pol Pot’s Cambodia, and North Korea, the economy picks up as people exercise their natural tendency to compete. In all those cases the government was reluctantly (even desperately) admitting defeat and giving in to the devil of capitalism.

        It is this natural tendency which homo economicus plus perfect competition theorises—in its necessarily exaggerated way. Necessary because any realistic description (“some” people, “part” of the economy) is ambiguous so can’t be universally comprehended. The tendency to compete includes a satisfaction in winning which implies a tendency to monopoly. When democratic governments try to curb monopoly, it is possibly the only circumstance where government actually supports competition. Non-democratic governments quite like monopolies (Russia for example).

        But there is more to the economy than the market which is to say there are people who have natural tendencies other than competitiveness. These people have to be theorised. And the theorising cannot be as a replacement for homo economicus within perfect competition; it must be in addition. For example, there are the people I have called homo hierarchicus (and described on another thread) who get satisfaction from ensuring social order. They are very much at home in the government restricting competition. These people do earn money and pay mortgages but they are not money oriented. They and their environment (which is vital to the economy) need to be theorised—and that theory will necessarily focus on order and ignore the money-mortgage aspect. The underlying environment of homo economicus in competition is correct but inadequate for it is only ONE environment.

        Much rubbish is written about science. Science theory is a relationship between idealised concepts. Always. (That’s a falsifiable statement.) In the natural sciences the concepts are measurable because there are units of measure. In social science there are no units; the only unambiguous measure is all or nothing, presence or absence. Hence perfect competition, hence the extreme of homo economicus.

      • February 19, 2021 at 3:38 am

        There are no ‘people’ in the neoclassical framework. I use the word ‘consumers’ when referring to that framework because the ‘consumer’ is no more than a set of equations in it, so there isn’t even an entity remotely relating to human beings within the neoclassical framework. A better word for ‘consumer’ would be ‘purchaser’ (if one was actually there) for to consume is always to USE FOR A PURPOSE.

        Nor have I said that psychological ends are unimportant. I have said that no life form could act as if it was the only end.

        You clearly don’t seem to understand that a theory about an entity which neither exists nor can –as whatever it is is incorporeal without any need to maintain itself in any fashion– does not remotely resemble human beings even though some appear to think it does. As for my other comments, they stand.

  11. Ikonoclast
    February 15, 2021 at 11:00 pm

    This is a reply to JD but also a general comment for all participating on this thread,

    It is difficult for me to define “economics”. Margaret Thatcher remains infamous for (among other things) saying: “There’s no such thing as society.” I would turn that on its head and say, “There is no such thing as economics.” By contrast, there certainly ARE societies.The subject under analysis is political economy or social economy.

    Of political or social economy I would say that it is about:

    The personal, social and political actions and decisions, of a compound, complex, convoluted, imbricated and involved cooperative-competitive nature, undertaken by humans in society, to effect individual and social resource collection followed by goods and services production and distribution via gifting, selling and buying, for the purposes of acquisition for use or storage, with a view to the survival and amenities of both individuals and society at large. Fully involved are both the operations of social modes of valuation via instrumental rationality (based on claimed-to-be objectively commensurate calculations) and via value rationality (moral philosophy and ethics) and the operations of social modes of power ranging the gamut from rational calculative and persuasive power to open violence and these once again are of a compound, complex, convoluted, imbricated and involved cooperative-competitive nature. All of these operations will be subject to the state, capacities and limitations of human biology, human knowledge and belief systems, the state of technology, the general state of the society in question and the surrounding state of nature (ecosystems and biosphere) in which exists the political or social economy or, more fully, the civilization in question.

    This is a first cut attempt at a definition. The definition is intended to cover all known political economy systems to date, identifying the elements general to all of them while not adding ideologically conditioned elements existing in only some systems, past or present. For example, I talk of “goods” in the most general sense but not of commodities and more especially not of a commodity system, which appears only in some political economies over the course of history, albeit in many or all today.

    • February 15, 2021 at 11:20 pm

      Economics is about how and if we provide for ourselves. Naturally, this has a political dimension –especially the ‘how’ part for, often, the ‘how’ we provide for ourselves, is a political matter, as is ‘what’ we provide for ourselves.

      The ‘market’ provides only to those with an ability to pay for what it provides. That means that, although the market is useful, it cannot provide for those whose abilities to pay for what it provides is insufficient, and, as it happens, for most with lower incomes and thus little ability to pay for what ‘markets provide’, an unintended consequence of ‘market-only’ provision is losses to their bio-psycho-social welfare.

      An economics which focusses solely on how ‘markets provide’ is inadequate as theory.

      Yes, economics has a political dimension, for all questions about how and if we provide for all of us or only those with the ability to pay are what ‘political economy’ is about. Economics thus has a normative dimension if framed properly as the study of how we provide for ourselves. Such a question cannot be answered solely by looking at benefits to consumers without also looking at the costs to those unable to consumer in some markets relative to others.

      • Ikonoclast
        February 16, 2021 at 2:04 am

        larrymotuz, I certainly agree with that. My long, awkward and convoluted definition (of political or social economy) was intended to highlight issues which are denied by bourgeois or capitalist economics yet are fundamental to all political economies. Capitalist economics sets up normative “fundamental categories, existents or “primitives” such as private property; sets them up by prescription in given forms and then claims they are of natural or natural law origin, thus deriving them and their implied axioms and deduced theorems deontologically and then applying those empirically.

        The purely deontological derivation of prescriptive rules for human behavior tends almost inevitably to “fall foul”, sooner or later, of empirical reality. This is at all levels from human nature, to societal nature to the nature of nature (the physis) itself.

        Of course, it should be no surprise that deontological reasoning should fall foul of the ontologically actually existing and the actually and emergently occurring. At least, it doesn’t surprise me.

    • February 16, 2021 at 4:21 am

      I do not have any difficulty about defining this scientia called economics. It is about how we provide for ourselves as individuals, communities, and nations, and it takes into account whether we do or not and why. This is not what the current theory says, nor is it how it defines itself.

  12. Gerald Holtham
    February 16, 2021 at 5:43 pm

    Larrymotuz, you make some good observations but you assert an homogeneity in “economics” that does not exist. Where a country has a significant subsistence-agriculture sector, for example, estimates are made of the value of its output, though it is not marketed. It gets counted towards GDP and, if the country is well run, public policy concerns itself with how to raise production and welfare in the sector. Comparison of GDP between countries where a non-market sector is important often use purchasing-power-parity measures rather than market prices. It is true that most economics concentrates on commercial transactions in both production and consumption but no-one thinks that encompasses all the economic activity in a country. Every first year student is warned that if someone marries their housekeeper GDP falls even if no activity alters. Far less is GDP taken to be a measure of welfare. There are many attempts to construct more inclusive measures of social welfare, allowing for income distribution, use of non-renewable resources and subtracting purely remedial expenditure such as defence and policing.
    As far back as 1990 Daly and Cobb produced an index of sustainable economic welfare and more recently Andrew Scott has been producing measures of healthy life expectancy and Richard Layard produced a happiness index, concluding that the easiest way to raise welfare was to focus resources on mental health.
    There is also an extensive economics of public goods, for example, which are not marketed and cannot be appropriated; the literature is abundant.
    My own view that it would be more productive to read and critique progressive developments in the subject and help them to improve rather than banging on about the limitations of year-one economics text books or the economics featured in the Wall Street Journal. Many subscribers to this blog have their hearts in the right place but their criticisms of economics don’t hit the spot because they think the writings of Milton Friedman or Samuelson’s text book define the subject. It’s a bit like assuming US politics is defined by Donald Trump. Granted that’s a large, ugly part of it but it’s far from the whole story. Ditto “economics” as described by you.

    • February 16, 2021 at 6:20 pm

      Frankly, mine is an economics of non-homogeniety, not homogeneity. Benefits can be many things, from money, to heat or energy from fuels, to the nutrients in foods. It is precisely to break out of the ‘homogeniety economics’ which theory builds-in that I have chosen to use an objective benefits framework. I have read much of the public economics you refer to, but I am not interested in critiquing it so much as I am replacing a deficient theoretic. I am doing so from the Theory of the Consumer perspective.

      Take subsides for instance, theory predicts that a subsidy on milk will increase the ‘demand’ for it. That’s not what the empirical evidence shows. What it shows is that milk consumption in most households does not rise, but falls. What happens is that the ‘savings’ on milk open up opportunities to purchase foods that were previously out of reach. And, yes, it happens that some people previously unable to purchase as much milk as they needed, will buy more, but they will not generally be spending more on milk than they did before the subsidy. The ‘net’ shows declines in the value of milk purchases.

      My framework supports public goods provision as a distributive mechanism. At the same time, it more than allows for examining questions previously not addressed anywhere in the theory, including how subsidies work when nutritive benefits from other goods may be desired by people ill-able to afford them before the subsidy on another product they use to obtain nutritional units of one kind or another.

      The non-homogeneity which Yoshinori talks about in terms of production and the goals of firms applies also to all other forms of consumption (for production, as the use of inputs, is also considered to be a form of consumption in my framework).

      • February 16, 2021 at 6:27 pm

        Gerald, I should add here that my framework also supports private goods production with other than ability to pay mechanisms used for the distributive side where benefits to all users are a substantive goal due to the nature of the product itself.

    • February 17, 2021 at 4:27 am

      Larry, your example of milk seems to me a simple subsidy version of a Giffen good. Such a case can easily argued in the first course of neoclassical economics. A good institutional design is important on a policy level. But does it provides a good criticism of mainstream economics? Deshoebox seems for me to be confusing economics and welfare policy design. Are you working on social welfare field?

      • February 17, 2021 at 4:46 am

        You believe Giffen goods exist? NO, they don’t exist. Yes, they can be explained, but you must step outside of neoclassical theory to explain them …. for, in neoclassical theory the ‘consumer’ is not a life form. If you respond that neoclassical theory allows for benefits from consumption, rather than merely says that ‘utility’ is a satisfaction or a benefit but then proceeds ‘as if’ only satisfaction motivates consumers, you are correct, but you have to step outside the framework of that theory to explain what is happening. Even Marshall understood this.

        All necessities can operate like what’s called ‘Giffen goods’ merely because they are necessities. I could have used a bread subsidy, for example, or just about anything that we require as human beings to provide some forms of essential benefits.

        When that’s the case (as it is) calling anything a Giffen good means only that you accept the neoclassical theory. You don’t and I don’t.

      • February 17, 2021 at 5:11 am

        Thought I’d give another reply to this, Yoshinori.

        Namely, do you realize your are arguing that milk is a Giffen good when it is subsidized but not a Giffen good when it isn’t?

        You asked also if I have a paper to read. How about I write one and send it to you? My health is poor so I decided to at least get out the graphics. I cannot say how long it might take to write.

      • February 17, 2021 at 8:42 am

        Larry, you are mistaken in the implication of my pointing of Giffen good. It is not important whether it exists or not. I am saying that your milk example is easily treated by neoclassical economics and within its framework. Your argument for refusing neoclassical economics is not persuasive for neoclassical economists. As I argued here, a theory that can beat the mainstream economics must be more powerful than the latter. You must know your enemy, their logic and its strength.

        If you write a paper, please make it readable for all participants here. I can wait (as long as I am alive!).

      • February 17, 2021 at 12:00 pm

        Yoshinori, when you say “Your [Larry’s] argument for refusing neoclassical economics is not persuasive for neoclassical economists”, you sound like pfeffertag trying to save face by defending the indefensible: economists not listening to what they don’t like, or liking new lines of thought less than they dislike thinking they are being thought wrong.

        Inferring your definition of ‘economics’ from how you use the word, I see you pointing not at economics but at what Aristotle long ago distinguished from it as ‘chrematism’, i.e. money making as against household management. When the money being made is worthless, then the whole chrematic so-called “FIRE economy” and its “derivatives” are worthless and can be eliminated. Even banking becomes mere accounting. You so-called “economists” don’t like the sound of that, so you refuse to think about it and never get round to evaluating the alternatives which have been offered.

      • February 17, 2021 at 12:12 pm

        To me it is very important whether a good called a Giffen good exists or not, especially as the mechanics used to ‘explain’ its ‘existence’ are the very mechanics underlying the construction of the faux demand curve constructed in neoclassical analysis.

        The very idea that 1) neoclassical economists can endow a ‘consumer’ with a ‘preference function’; 2) further endow it with a budget; 3) insist that this consumer must spend all of the budget; 4)never modify this budget in light of price changes; 5) construct income and substitution effects by following this process … and then claim they actually have a theory is absurd!

        Yes, I will write a paper.

      • February 17, 2021 at 2:08 pm

        About a century before Aristotle was born, there was in China a legendary master of war called Sun Tzu (Sun Mu). He wrote

        If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle. (The Art of War, Chapter 3, Article 18, translation by Lionel Giles)

        Criticism is a battle of logic. A good criticizer of a fine theory such as neoclassical economics needs that he or she can correctly infer according to the logic of the criticized theory and argue how the theory is wrong by some specific reasons or evidence. Dave does not seem to satisfy this condition. Please know your “enemy” at least at the same level as larrymotuz does.

      • February 17, 2021 at 5:45 pm

        Yoshinori, do you know yourself as “JUST an economist”? Writing as a logician rather than an economist, my argument all along has been that what is wrong is the logic of the so-called economists, whose view of truth doesn’t include a timeline to allow for the possibility of things going wrong in practice. Truth requires a complex number with four possibilies to represent it, for besides being true or false it can be either with or without an error being detected. The evidence is on my side even if it has been in electronic computing that it has been laid bare. Again, either the neoclassical theory doesn’t work or it is succeeding in doing the opposite to what it says it doing.

        There is anyway no point in criticising neo-classical economics with its own faulty logic and dishonest axioms, like redefining ‘economics’ to mean chrematism (money-making). As Egmont Kakarot-Handtke wrote in an RWER article some years ago (and I agreed), it is “Time to scrap the lot and start again”. Which is what Larry is saying here, and J M Keynes (whose doctorate was in logic) was already saying back in 1936, albeit in geometrical language which high-flyers like yourself, not familar with logic, might be expected to understand:

        “The classical theorists resemble Euclidean geometers in a non-Euclidian world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight – as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required in economics”. [GM p.17].

        In his Preface Keynes had said “Those who are strongly wedded to what I shall call “the classical theory”, will fluctuate, I expect, between a belief that I am quite wrong and a belief that I am saying nothing new. It is for others to determine if either of these or the third alternative is right. My controversial passages are aimed at providing some material for an answer”.

        So are mine.

      • February 17, 2021 at 7:14 pm

        Dave: Well said. Keynes understood that it was the issue of effective demand which had to be addressed. He was uncertain how to address it, for the Theory of the Consumer simply assumes its existence, when, in fact, effective demand cannot be assumed to exist. When neoclassicals ‘endow’ consumers with it –by endowing them with manna-from-heaven budgets– they ignore the central issue that Keynes was pointing towards. Hicks’ “Mr. Keynes and the Classics”, in fact, ignores the very issue Keynes was pointing to while also managing to misunderstand Alfred Marshall’s ‘toy’ construction. Marshall well new that an economics based upon the benefits people got from their use of goods would have nothing in common with his classroom ‘toy’.

        In 1956, Oxford at the Clarendon Press published Hicks’ “A Revision of Demand Theory” in which he sought to revise the first three chapters of his “Value and Capital”. he begins it by saying, “By the theory of demand as I shall use the term in this book, I mean nothing else but the conventional theory of consumers’ choice, which finds a place, in some form or other, in all modern textbooks of economics.” Thus, as he says, he keeps within the bounds of conventional theory.

        Which is his error, of course. While he goes on to say that ‘We need rules which will tell us something about the behavior, not of material rules, but of human beings”, not once does he ask himself if human beings could behave in the manner conventional theory says the must behave.” So he not only does not look at objective benefits from the use of goods or the factors behind effective demand either of individuals or in aggregate, but, as the theoretic has developed, he cannot … and he does not. What he manages to do is make a plea for conventional theory to be better cast into econometric forms. And though he says that “Plain economics is solely concerned with the objective consequences of economic events”, nothing in the theory of utility CAN examine, much less shed any light upon, the objective consequences of economic events. Nor, though Hicks say that Welfare is important, does he ever examine if ‘welfare’ can be defined as the changes in consumer surplus of consumers rather than human welfare which has, I believe, some very objective measures.

        Thank you, Dave.

        {Owing to chronic fatigue due to health conditions, I come and go periodically. When absent I am mostly abed.}

      • February 18, 2021 at 7:30 am

        I agree with Egmont Kakarot-Handtke that “it is ‘time to scrap the lot and start again'”. By consequence, I agree with Dave and Larry on this point. The problem is “from where and how” we start again. Can we start from nothing? By no means. Please read my comment on January 19, 2020 at 2:02 am that was reproduced here recently (Larry must have read it). I have an impression that many participants to this blog (RWER blog) are thinking that building a new theory is easy to do, that a piece of new idea is sufficient to implement it. However, rebuilding a new theory requires study even neoclassical economics seriously. We cannot rebuild a good theory by mocking and ridiculing it. This is the second meaning why we must know the enemy (of course, with sharp critical mind).

        I do not believe the neoclassical consumer theory is good. On this point, we have the same opinion as Larry. Probably I have much radical opinion on this point than him. But, I have to suspend my judgment, because I am now waiting to read the paper that Larry is planning to write. My impression is that he is concerned with too specific questions and his plan of rebuilding consumer theory is not yet very far from utility maximization. I reject such a problem setting as a whole. My position (why I reject utility maximization) is written in my papers: (1) A Guided tour of the backside of agent-based simulation (2016). (2) Microfoundations of evolutionary economics (2019) [Chapter 1 of a book with the same title]. If Dave, Larry and readers of this thread want, I can send them PDFs of the papers. (If you click my name and open my home page, you can find my e-mail address at the bottom of the page. Please send me an e-mail naming which paper or chapters you want to read.) However, my criticism of neoclassical consumer theory is only a negative result. I am endeavoring to find or build an alternative consumer theory. I am now thinking that some in the tradition of psychological economics starting from G. Katona and P. Earl and more recent researchers I cited in Section 6 of my paper: A new framework for analyzing technological change (2020) are most promising.

        I wrote these details, because criticisms against extant theories and constructing a new theory (or theories) are two completely different things. Lars Syll is mistaken on this point. It seems he believes that a new theory is easy to build once the old extant theory is wiped out. This is, I believe, the biggest fault of his philosophy of economics. He is neglecting the history of economics (although he seems to have started from it).

        As for effective demand, I have much more radical opinion than Dave and Larry. You may not know that our book is written in order to reformulate the principle of effective demand. You may not know that we have deconstructed Keynes’s formulation of the principle (that of Chapter 3 of the General Theory). Our formulation is partly inspired from the notion of employment function(s) in Chapter 20. See at first Marc Lavoie’s review of our book.

        Dave does not seem to consider which parts of General Theory are to be discarded and which theory should be retained. Keynes is no infallible saint. Despite his great efforts to escape from “classical theory”, he could not escape completely from Marshallian tradition. On the contrary, he remained Marshallian in almost everywhere except a small number of doctrines. This caused a various troubles, but Dave does not recognize them. Anti-Keynesian (counter-)revolution in 1970’s had its origin in Keynes himself. Citation from Keynes has no authority upon me unless if it is supported by reasonable arguments. We are now asked to go beyond Keynes. One of troubles Keynes disseminated was his term “classical economics” (classical theory, classical economists, etc.). I know this is rhetoric to impress readers the revolutionary character of his theory, but it dispersed various confusions by identifying classical economics (up to Ricardo) and neoclassical economics.

  13. Ikonoclast
    February 17, 2021 at 1:25 am

    Would it be too simplistic to say we need both a plan and the power to execute it? A plan implies theory. Try creating house plans (like an architect) without theory. You need the axioms and theorems euclidean geometry (in your head or in the programmed engine / finite state machine of a 3D drafting CAD program.) You need theory (and praxis) input from engineers, surveyors and so on. I could continue but that would be to belabor the analogy. Thus, to build a new economy we do need theory and we do need a new plan. Only via theory, hopefully theory tested against empirical reality and a then new plan derived from theory could we build a new economy; one not neoliberal, one not market fundamentalist and in all likelihood one not capitalist.

    There is plenty of theory around; not meaning it is banal, trivial and all alike just like a bunch of pretzels in a packet. In the broadest sense, ecological theory, impact science (not just production science) and a wealth of ways of looking at humans and society are available in the “not-economics” faculities, particularly but not only the hard sciences, social sciences and even the philosophy department. I would suggest we look everywhere EXCEPT in the conventional economics departments. But the need is to generate an integrated theory both empirical and consequentialist (that is NOT deontological).

    Equality, sustainability, pragmatism and consequentialism need to be the paradigms along with a kind of Popperian tinkering (call it progressive reform if you will) which nevertheless is committed to continuing until capitalism is reformed entirely out of existence Or reformed until empirical outcomes demonstrate that about the right level of capitalist minimalism for the economy has been reached. We’ve tried state minimalism (minarchism) in the USA, at least, and it has been an unmitigated disaster for the 99% of people, the climate, the ecology / web of life and the entire biosphere. It seems a fair hypothesis that capitalist minimalism should be the next experiment since the capitalist maximalist experiment IS leading to extinction.

    As I said at the start, we need both a plan and the power to execute it. Power is the problem. The majority of the people do not have effective power nor access to power currently. Or if they potentially have it they are not using it or being prevented from using it. The elites have the power and they are using it. Their main modes of power are capital and access/ to the use of the state’s monopoly on legitimate violence on their behalf. The police, courts and military are deployed in the main in the interests of the rich. The elite stranglehold on policy and legislation is demonstrated in this study.

    Click to access gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf

    The majority of the people need to take the reins of power and not by the populist, reactionary path attempted by Trump’s supporters. There has to be a revolution to implement a new plan. Expecting radical change without revolution is like expecting rain without clouds. I think the problem here is that people are talking economics when they should be talking revolution.

    How do we effect a revolutionary change? In broad terms, we need to take power away from capital. But capital IS power: (a mode of power in our system as per CasP theory backed by its empirical analysis). It is the fact of concentrations and differentials of capital in elite hands which we need to take away. The clear path is to break up the big capitals (in anti-trust fashions but going further.) Equally, the clear path is to radically reduce the private ownership of big capitals. Take apart the corporations and divest the billionaires (start with the billionaires). Break permission to personal ownership of capital down to a mandated level. If the 68-95-99.7 distribution rule holds for wealth (capital) then set the manadated rule at the current 2nd standard deviation. That is to say the top 5% should be broken back to the 2nd. standard deviation line.

    Somehow the 95% have to overrule the 5% and break them back. How to get there and do it? That’s the question.

    • February 17, 2021 at 2:10 am

      Iconoclast: Yes, you need a theory first but you also need a plan.

      The theory I am replacing the Theory of the Consumer is currently used to justify just about everything that is wrong with respect to the distribution of incomes in society … and once dethroned from its pre-eminence, it will no longer be able to be used, as economic theory is now used to justify only using the ‘market’ for either remuneration or the distribution of some, hardly all, goods or services. Taking away their arguments, currently supported by ‘theory’ has been my central task. The political task obviously will remain.

    • pfeffertag
      February 19, 2021 at 11:18 pm

      To Ikonoclast

      “Only via theory, hopefully theory tested against empirical reality and a then new plan derived from theory could we build a new economy”
      Absolutely. But the theory would surely require the US to abandon direct national election of the chief executive (which doesn’t work anywhere) which isn’t going to happen.

      “There is plenty of theory around” Is there? Not in the social sciences there isn’t. Nor in philosophy. The 2014 Gilens-Page paper is interesting but we really don’t learn anything from it we didn’t know already—an accurate reflection of the state of social science.

      “I think the problem here is that people are talking economics when they should be talking revolution.”
      Not only talking economics but talking within the narrow conventional paradigm, the sort of talk that has been going on for 50 years.

      Isn’t it off-topic to discuss politics on this economics blog? Well, since you started it… As that 2014 paper confirms, the US’s democracy is broken—assuming democracy means rule by the people. There’s trouble ahead. The lot of the lower socio-economic strata is not going to improve and sooner or later they will elect another Trump and the US’s brand of cronyist, strong-man demagoguery will be further extended. (Failure to get elected will prove the election was stolen.)

      The US is on its way to becoming another presidential Latin American country—crooked politicians, corrupt courts, gangster rule, drugs, mass poverty. However, because the US has an enormous military, it won’t be irrelevant as they are. This will be a problem for Canada and the rest of the world.

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