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What is economics?

from James Galbraith and current issue of RWER


Economics is a policy discipline. It is engaged with the problems, large and small, of social organization and the general good. As such it co-evolves with circumstances. It is historically contingent. The application of economic ideas to specific problems under specific circumstances may succeed or fail, and in the latter case, people with different ideas normally rise to prominence.

Capitalism is an economic system whose characteristics and problems have preoccupied economists since the 18th century. It is not the only such system; there were economists before capitalism going back to Aristotle. And there have been economists under competing systems: socialism and communism had economists of their own. Today it is common to speak of “varieties of capitalism” (Hall and Soskice, 2001) these too foster economists of differing views and perspectives. Economists and economic theories are a byproduct of the social order that spawns them.

The world to which economic policies are ultimately addressed is a complex system. Yet economists seeking to develop appropriate policies are necessarily guided by simplifications and heuristics. The question before the discipline – and the challenge of this volume – is to decide what sort of simplification is best suited to the task. In the spirit of C.S. Peirce and of modern science, this paper argues that appropriate generalizations, simplifications, heuristics and principles are to be derived from a study of the actual world. While these may deploy mathematical tools and draw on insights from the behavior of mathematical systems, the latter by themselves are inadequate, especially where they start from the dead dogmas of the neoclassical mainstream: ex nihilo nihil fit. Later in this paper, we will sketch out elements of research strategies that seem suited to a complex economic world. Before reaching that point, we must first draw the critical distinction between the practice of economics in the sense meant here, and the academic discipline that presently describes itself as economics. 

Neoclassical dogma    read more

  1. August 2, 2021 at 1:22 pm

    Thanks to James Galbraith for helping clarify these issues , see also my “Economists V. Ecologists”, NYTimes , Oct 24 , 1971 and ” “Time to Defrock Economics ” , June,2021 at http://www.ethicalmarkets.com

  2. August 2, 2021 at 10:17 pm

    This is a wonderfully erudite paper, putting coherently what I already know but as an intuitive thinker find as difficult to express in words as what I see when doing a jigsaw. What it doesn’t see are the elephants in the room:

    1. This very fact of the difference between Left and Right thinking (as against doctrines);

    2. The commonality that all its variants see economics as it now is, looking back no further than Adam Smith and rather than seeing morality pragmatically, accepting immorality as empirical fact and assuming economics serves government whether or not governments are serving non-erudite people.

    3. The key issue highlighted on p.72 of “The Great Transformation”: that Labour, Land and Money are fictitious commodities, i.e. money is not a store of value but an accounting device.

    4. Nowhere does it mention Christian insights, the development of Catholic social teaching, information theory, logic circuits and clock numbers, despite seeing “Paul Samuelson (1947) cast the pall of J. Willard Gibbs over economic formalization”.

    Being a father hoping to see my children grow up and become independent of me, I understand the highly relevant Christian story of the Prodigal Son, realising that such Prodigals grow up and seek luxurious office in management if not government. The other son had also grown up, so his father just offered him advice, not government.

    Looking back to the Einsteinian Big Bang, dark energy cannot be detected, so we can know only we what we assume and definitions pragmatically able to represent verifiable phases of its evolution. Working with digital electronics and radio communication I have seen how these involves circular clock numbers, sine waves and topology rather than Gibbs counting votes.

    Since money is worth nothing there is no point in banking it, but every need to account for our use of the credit others afford us. We can generate our own money with credit cards, but local and company “banks” remain needed as accountants and “financial doctors”.

    Santa Fe complexity and chaos theory is recognised here, but not how simply it and Keynesian economics reduce to the phase transitions of complex number and the advance of clock number time generating new types of feedback in Shannon’s information feedback [broadcast rather than homeostatic] type of error control. Pre-war radios already used positive feedback to amplify gain: too much demonstrably resulting in loss of signal quality, generation of harmonics by signal chopping, then square wave oscillation generating chaotic harmonics. These are masked when the radio is tuned in, but audible between stations.

    What is still new is being able to re-envisage the economy as like the internet, with some people earning their keep supplying the infrastructure and the majority earning it like PC users doing whatever they need to do. As NOT like what it still is, so is usually seen as: a centralised power distribution grid primarily supplying banks and big business.

    Good for you, anyway, Jamie! I’ve got most of your father’s books.

    • August 3, 2021 at 7:09 am

      PS. A clarification. I so love the story of the elephant in the room that I tend to use it as a figure of speech instead of saying what I mean more directly. My point was, that any missing pieces are obvious to a jig-saw puzzler like myself if presented with his jig-saw already done.

  3. Ken Zimmerman
    August 3, 2021 at 8:38 am

    The quote from Peirce is unfortunate. His intent could be misunderstood. His intent is to focus on ‘trial and error’ as the beginning point for all knowledge. Which can turn later into an accepted process for research or a scientific fact. But it is not able to reveal truth in any absolute or universal sense. But the process can reveal truth, contextual truth.

  4. August 3, 2021 at 4:39 pm

    What is economics?
    Comment on James Galbraith on ‘What is economics?’

    James Galbraith’s first sentence reads: “Economics is a policy discipline” and it is false. Because the premise is false the rest of his argument is false.

    Economics is a science. The first thing to know about science is that it is ontologically different from politics. The strict separation of science and politics is imperative because politics corrupts everything. This happened to economics.#1

    There are two economixes: political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

    Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. Economics is a failed science, or, in Feynman’s term a cargo cult science. The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel is a fraud because there is NO such thing as economic sciences.

    Right policy depends on true theory. Economists do NOT have the true theory. So, economic policy guidance (left/center/right does not matter) NEVER has had sound scientific foundations. Economists are NOT scientists but clowns/useful idiots in the political Circus Maximus.#2 James Galbraith is no exception.

    Science is defined by material/formal consistency: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)#3

    The fact is: the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, Pluralism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and ALL got the foundational economic concepts of profit/income/value wrong.#4, #5, #6

    The fact that economists have in 200+ years not gotten their foundational concepts right is disqualifying. To this day, economics is proto-scientific garbage, economic policy has no sound scientific foundations, and in their utter incompetence economists are a hazard to their fellow citizens.#7

    Economists are stupid or corrupt or both. Stupid because Walrasian microfoundations and Keynesian macrofoundations are provably false. And when the foundations are false the whole analytical superstructure is scientifically worthless. Corrupt, because economists push a political agenda under the guise of science.#8 Of all moral evils, this is the worst.

    Egmont Kakarot-Handtke

    * RWER blog

    #1 For details of the big picture see cross-references Political Economics/Stupidity/Corruption

    #2 For details of the big picture see cross-references Failed/Fake Scientists

    #3 For details of the big picture see cross-references Proto-Science/Cargo Cult Science/Science

    #4 Wikipedia, economics, scientific knowledge, or political agenda pushing?

    #5 The GDP-death-blow for the economics profession

    #6 For details of the big picture see cross-references Profit/Distribution

    #7 Econogenics: economists pose a hazard to their fellow citizens

    #8 Political fraud and the silence of academia

  5. August 5, 2021 at 10:52 am

    I would rather agree with Ken and Egmont than disagree with them: Ken because his anthropology has thrown up the fact that primitive cultures are often much more ecologically sensible than our own, and Egmont because – some years ago now – I totally agreed with him that our economics had become a disaster zone and it was time to “scrap the lot and start again”.

    However, Ken seems to think he can see C S Peirce’s intent (“trial and error” being his method when searching for a hypothesis about how best to represent and so be able to distinguish different phases in scientific logic). Egmont seems too think that science is all about “research” into “material/formal consistency”, ignoring Bacon’s point that we “search” for new knowledge in order to be able to share it, and Kuhn’s distinction between “normal” and “revolutionary” science: the “Copernican revolution” not being about discovering the sun rising but about a different and indeed simpler way of interpreting what we see.

    My suggestion – seeing the economy as more like the internet than an electrical power supply system – is in any case of the Copernican type rather than the reactionary Marxist type of revolution: based on Shannon’s up-to-date information science rather than Newton’s gravitational forces.

    Lurking in the background is G K Chesterton’s revolutionary hypothesis about different ways of seeing being built into the brain’s architecture: this experimentally demonstrable by the effects of strokes and brain surgery, deductively translatable into Jungian “normal” personality differences and inductively confirmed by the on-going statistics built up for the Myers-Briggs Personality [type] Indicator. This is where one needs to look for a systematic explanation of the difference between Left and Right politics: the observable dominance of right-handedness; the order in which children learn to feel, act, talk and deliberately observe; and the tendency to stick at the level which one finds adequate for one’s everyday needs. This last is the problem with education which is all talk, using diagrams only to simplify the talk, not to represent different ways of looking.

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