Mainstream economics — a harmful fantasy
from Lars Syll
Anyone who accepts the Neoclassical definition of ‘rational’ has, to some significant degree, lost touch with reality. So, I was expecting an ‘irrational’ reaction from this young zealot to my talk …
He tried to engage me in further debate after the session, and shouted ‘But we have to make some simplifying assumptions!’ at me as I left the seminar room. My riposte, cast over my receding shoulder, was ‘Mate, you have to learn the difference between a simplifying assumption and a fantasy’.
Many mainstream economists working in the field of economic theory think that their task is to give us analytical truths. That is great — from a mathematical and formal logical point of view. In science, however, it is rather uninteresting and totally uninformative! The framework of the analysis is too narrow. Even if economic theory gives us ‘logical’ truths, that is not what we are looking for as scientists. We are interested in finding truths that give us new information and knowledge of the world in which we live.
Scientific theories are theories that ‘refer’ to the real-world, where axioms and definitions do not take us very far. To be of interest for an economist or social scientist that wants to understand, explain, or predict real-world phenomena, the pure theory has to be ‘interpreted’ — it has to be ‘applied’ theory. An economic theory that does not go beyond proving theorems and conditional ‘if-then’ statements — and do not make assertions and put forward hypotheses about real-world individuals and institutions — is of little consequence for anyone wanting to use theories to better understand, explain or predict real-world phenomena.
Building theories and models on unjustified patently ridiculous assumptions we know people never conform to, does not deliver real science. Real and reasonable people have no reason to believe in ‘as-if’ models of ‘rational’ robot-imitations acting and deciding in a Walt Disney-world characterised by ‘common knowledge,’ ‘full information,’ ‘rational expectations,’ zero transaction costs, given stochastic probability distributions, risk-reduced genuine uncertainty, and other laughable nonsense assumptions of the same ilk. Science fiction is not science.
Much work done in mainstream theoretical economics is devoid of any explanatory interest. And not only that. Seen from a strictly scientific point of view, it has no value at all. It is a waste of time. And as so many have been experiencing in modern times of austerity policies and market fundamentalism — a very harmful waste of time.
Leave a Reply
—– look inside —– $5.94 / $20.00
—– look inside —– $4.90 / $8.00
—– look inside —– $15.99
—– look inside —– $5.99 / 12.99
—– look inside —– $5.93 / $12.99
—– look inside —– $4.97 / $9.90
—— Ugarteche, Puyana and Madi ——
Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
Love Keen’s riposte.
The whole subject has long felt like a religion: the market is god, Adam Smith is Jesus or Muhammad (and, like the prophets, widely and incorrectly exploited), and the Samuelsons, Friedmans, Lucases and such are the high priests.
I agree with you, Lars. Much of mainstream theoretical economics has no value at all (perhaps excepting ideological effects). It is a waste of time. Simply criticizing mainstream economics seems also a waste of time, because most of mainstream economists are immune to those criticisms.
What I hope you is a bit of consideration toward more positive or constructive discussions from which we can build a better economics that is fundamentally different from the actual mainstream neoclassical economics. You have already talked much about the irrelevance of mainstream economics. Isn’t it time to think a little about research programs for an alternative economics? There are many strands of heterodox economics, but it does not mean all strands are sound and sane. Some of them are wondering about toward a wrong direction. There must be some roles as a philosopher and a historian of economic science by which you can contribute to orienting the groping of heterodox economics in a good direction, or at least preventing it to fall in a wrong pit.
Attempts have been made since 2008 to redirect economics teaching but the vested interests in the status quo are too powerful.
If you’re employed at university or school to teach a prescribed course then that’s what you have to do or else.
The economics establishment is deeply entrenched in institutions of learning, research and government and it will take at least a generation for its grip to be weakened, let alone broken.
It might be more effective to promote the argument that economics is both intellectually and ethically defective and that people should avoid doing it at all.
Those who have actually undergone the torment of studying the discipline are the best people to make that case. But there is no satisfactory alternative (the heterodox in their attempts to define it are mocked and marginalised) to saying “Just Say No To Economics”.
A decline in the numbers applying to study economics will hit the system where it matters: in its pocket (I know that’s an argument based on economics but it’s both intuitively and practically appealing).
Perhaps Steve or someone else could pen a manuscript with the title: “100 reasons not to study economics at school or university”.
EG OSulliva,
what is Economics 2030? Is it to claim that “economics is both intellectually and ethically defective and that people should avoid doing it at all”?
Yep. Sounds contradictory.
“The reason why I can say this is because I am an economist who spent much of my working life writing about economics. And I’ve published a book about the subject (it’s uploaded on this site).
The best case for doing economics is, therefore, that it will help you understand what’s wrong with it.
If that appeals, then economics may be right for you too.”
Here are nine reasons not to study economics.
http://edmundosullivan.com/economics2030/9-reasons-not-to-study-economics-at-university-or-anywhere-else/
I like Einstein’s line: “Everything should be as simple as possible, but not simpler.”
Keen is my pick for the best economist on the planet. His work de-bunking DSGE is excellent and identifies the theory’s major problems.
His only problem? He talked about a new paradigm, but even though he pointed directly at the problems (money, private debt and banks) he didn’t recognize the current problematic paradigm, apparently doesn’t have a knowledge of the signatures of historical paradigm changes and so didn’t know how to formulate the new paradigm concept.
He even had another brush with cognition about the means of implementing that new paradigm when he correctly stated that economists could get their Phd.s in economics without so much as taking an elementary course in accounting.
So astute, so close, but close only counts in horse shoes, while new cognition is everything with paradigms.
Hi! Craig,
A new paradigm that connects the theory of money to the theory of real economy is here. I believe I constructed a new theory with a completely new paradigm. My only problem is marketing. However, I hope sooner or later it it will reach the right audience.
https://www.academia.edu/50822011/The_Theory_of_Capitalism
Excellent comment.
I studied microeconomics intensely as an LSE economics undergraduate and in postgraduate study and work as an economist.
I accepted neoclassical theory as axiomatically true and this profoundly affected my thinking and my work, including providing advice as a government economist and subsequently as a writer on economics and business and then as a manager/company director.
It wasn’t until I was in my 40s that the deficiencies of my theoretical training were exposed. Curiously, this came about as a result of my disagreement with my chief executive about how much I should be charged out for consultancy work: she insisted it should be market-related. This made sense when I was making decisions about my own team but was intuitively wrong when it came to me.
To bolster my case, I reviewed the economics principles I had imbibed and it was only then that I discovered that the theory had nothing to say about the pricing of intangibles, like consultancy. Either the texts ignored services or they treated them as being identical to tangibles, despite the fact that nothing is conceptually different to a tangible than an intangible. Given that the overwhelming majority of employment and output in advanced economies is due to services, this is obviously a huge deficiency.
I then developed an alternative approach to pricing my work as a consultant (which is applicable to all intangibles) which was both intellectually and intuitively satisfactory. This involved setting the price according to the relationship I had with the potential customer, not to market prices (if they were well-known/liked I’d charge less. If I wanted to build a relationship, I’d do the same). This worked but I was obliged to keep my approach confidential.
The truth is that neoclassical theory is not just invalid, particularly but not exclusively when applied to intangibles. It’s intellectually damaging and ethically harmful.
The idea that the self-serving individual and the free interplay of supply and demand can in principle deliver a stable equilibrium that is both technically and socially “efficient” not only lacks empirical support.
It’s an ethical catastrophe that promotes selfishness and passivity about social wrongs.
For that reason, it should NOT be taught at all and perhaps only dealt with as part of the history of western thought or as an extension of undergraduate/postgraduate mathematics.
Economics should be defunded at undergraduate level.
The only value that years of studying neoclassical economics has delivered is the confident certainty it’s wrong.
But this seems to be a big waste of time (and emotion).
After all we don’t teach people for 3+ years that the world is flat in the hope that they will in due course work out that’s nonsense.
Anyway, a fuller exposition of the argument can be found here: http://edmundosullivan.com/economics2030/about/
‘Mate, you have to learn the difference between a simplifying assumption and a fantasy’. I would be curious to know the difference. I assume we are talking economist’s methods of mathematical modelling. Here all such modelling assumptions must represent real world relationally constituted processual phenomena as if they all were isolated atoms. This entails not close approximations but near opposites. I was wondering which non-fantastical assumptions could do that. Happy to learn.
I may have misunderstood the question but my answer to Tony Lawson is: the assumptions have to isolate a set of relationships whose interactions are generally stronger than outside influences upon them. Generally is the operative word because in an open system outside influences will sometimes be dominant. The assumptions have also to isolate a set of possible relationships. People can make decisions, for example ignoring potential political upheaval, or changes in consumer taste because there are periods when such assumptions roughly hold and they may be serviceable assumption for examining questions where those factors are generally less relevant. Assuming perfect certainty about the future is not such a sensible assumption because few if any relations are conducted under those circumstances. Perhaps that is what Keen meant by fantasy.
Because everything is interconnected it does not follow that some phenomena cannot be analysed without analysing all phenomena. As HA Simon remarked bridges do not fall down because we cannot unify the fundamental physical forces. Fortunately reality can be compartmentalised without disaster.. That applies to social phenomena too.
The vice of economic theorists is not that they have recourse to mathematical analysis but that they want to build simple models with unique analytic solutions so they can announce theorems. Social reality is not so accommodating but it can be explored computationally.
It is great that Tony Lawson participates in our discussion. I thought he is aloof from the situation that Lars Syll’s criticism is cornered by revealing that it always works negatively but never works positively in constructing an alternative economics.
I am not a defender of Steve Keen although I highly respect him. The same is true for Gerald Holtham. This is my answer to a possible implication of Tony’s question. He may be claiming that all mathematical modelling is doomed to be nonsense or fantasy. I know Tony is always more cautious than Lars who often repeats categorically that all mathematical analysis in economics is nonsense. So, the following is a counter example of what Lars often claims in his posts.
The expression like “they all were isolated atoms” is always ambiguous. I do not argue it. Let us enter into a more direct question: Is it possible to make plausible economic analysis using totally or partly mathematics as means of analysis? I dare say yes.
As criteria of “plausibility”, let us take five points of Critical Realism that Tony claims:
(1) They (social phenomena) are produced in open systems.
(2) They possess emergent power or properties.
(3) They are structured.
(4) They are internally-related.
(5) They are processual.
I claim that our theory developed in our book satisfies all five properties to a certain degree. I say “to a certain degree” because we cannot categorically decide whether a theory satisfies one of above five properties.
Please read the recent Symposium on our book in Metroeconomica. There are four discussants in various strands in heterodox orientations. Not all of them are sympathetic to our approach, but no one argued that we are a variant of neoclassical economics.
For example, we have argued that it is necessary to reject all equilibrium analysis and we believe we have successfully achieved it. Tony Aspromourgos does not understand the importance of process analysis. Our fundamental method is process analysis (5) and anti-equilibrium stance comes from that. The secret of our success lies in the fact that we have only assumed that final demands fluctuate and move slowly as time passes by. It means that we have found a quasi “closed” system by this assumption (See Arrigo Oppocher’s Subsection 4.1 and our reply on it in Subsection 6.3). The system is open but the aspects we analyse are in a sense “closed”. This is a method which makes us possible to study a system that behaves normally as an open system (1).
We may point many cases of emergence. A simple one is shown in my recent paper: The principle of effective demand: a new formulation (open access), which is a simple application of our theory. Section 4 shows that the “fixed price phenomenon” is not a result of menu costs or others but an emergent property (2) which is only observed in a particular system (p.85). This implies that what we observe in our theory is structured (3) and agents and commodities are internally related (4).
Thank you, Yoshinori, for your response.
Mine was ‘just’ a question and as you note I am not much into participating on social media. Indeed, I am rarely on it. If I started down that road, given my views, I would end up doing nothing else. And as I grow even older, I get ever slower. So please forgive me if it turns out that I do not participate further after this message.
I have not been able to read the contributions you reference. But abstractly my position would be the same whatever their form. If the substantive theories and methods you use, given their ontological presuppositions, are appropriate to the nature of those aspects of social reality you are addressing, then fine. The only methodological ‘dictum’ I support is tailor methods to the nature of the phenomena you are addressing. Certainly, I would offer no ontological critique. Specifically, if the five sets of properties you list do characterise the phenomena you address, and your methods do not carry ontological presuppositions that are so different as to be contradictory (for example that require of the phenomena that you are addressing that they take the form of isolated atoms [causal factors that have the same independent, invariable effect no matter what the context or anything else that is going on]) then fine. It remains the case though that almost all methods of mathematical modelling employed in modern economics (not matter how simple of complex, linear or non-linear, stochastic or dynamic, simulative, predictionist or otherwise) do carry such presuppositions. Where/if bits of reality so conform to a system of isolated atoms then limited use of such methods might be fine. Of course, You suggest, indeed, that this is your approach. The mainstream of modern economics (and let us face it the only coherent account of the modern mainstream is a reliance, indeed dogmatic insistence on, methods of mathematical modelling) determines its methods a prior independently of the natures of the material that are to be addressed. That’s different. And its no wonder that the project results in little insight.
Whilst in touch, you imply, and I believe you have often explicitly written that “it takes a theory to beat a theory”, and you see that as a challenge to people like Lars and myself to engage in substantive economics. I do not think it is. Yes, it takes a theory to beat a theory, but the theories being contrasted must be comparable. The continuing problems of modern economics do not reduce to this particular mathematical model or that particular model but the whole modelling emphasis. The commonality of all such modelling is the widespread commitment to deductivist forms of reasoning/explanation that, to be relevant, presupposes a social reality composed largely of closed systems of isolated atoms. This is the ontological theory of the modern mainstream whether recognised or not. It is this theory to which we must apply your dictum ‘it takes a theory to beat a theory’. And that, or so I claim and argue, is precisely what critical realism (CR) does. Thereafter very many (often competing) theories of substantive phenomena can be constructed all of which draw on CR (just as many substantive economic modelling exercises abound). If CR is correct than almost all modelling exercises will be irrelevant (so CR is efficacious), whereas those underpinned by CR will be merely more of less correct or false. It is not up to Lars and myself to produce these accounts (even though I have produced some). I would claim that figures as diverse as Marx, Keynes, Veblen, and Hayek have all in their own ways both criticised deductivism (as vulgar economics, pseudo-science, neoclassical economics and scientism, respectively) and its ontology, and produced (very different) substantive accounts consistent (I argue) with CR.
This of course feeds into the reason that Lars, and also myself, are almost always negative in referring to the mainstream. From the perspective we adopt, it is simply a huge error to adopt unthinkingly – and especially to insist that we all do so — methods that carry ontological presuppositions that rarely if ever hold in the social realm. So, a largely critical orientation to the mainstream (as here understood) is surely warranted. But I myself can be and am very positive towards anything more relevant.
I am pleased that you read me as being cautious. I do try to be. But I believe it is a mistake to imply that Lars is less so. In truth, if I ever I disagree with Lars its usually because I think he is being overly cautious, or perhaps generous is a better word.
I think this applies especially to discussions of certain branches of heterodoxy. If the ontological presuppositions that accompany modelling exercises are always questionable, requiring some attempt by modellers to justify their emphasis, this applies as much to modellers who style themselves as heterodox as any other. Yet I rarely find it (you seem to be an exception if this is what you are doing). It is certainly not enough to do modelling with a radical or progressive vision. This was precisely the combination for which Veblen introduced the label ‘neoclassical’ — for Marshall. Marshall was labelled ‘classical’ by Veblen because he persisted with deductivist methods (and so implicitly committed to an atomistic ontology), a feature regarding which Veblen was critical, but was labelled ‘neoclassical’ (had the suffix ‘neo’ added) because Marshall combined these methods with an evolutionary vision of openness etc., which Veblen supported as realistic. So modern ‘heterodox modelling’ is really the ‘modern neoclassical economics’ (on all this see Lawson, 2013, ‘What is tis school callked neoclallsical economics?’, CJE). Calling specific substantive theories neoclassical is a mistake, in my view, that serves only to distract attention from the more fundamental problem of the discipline, namely the modelling emphasis with its unfortunate ontological commitments. These modelling commitments lead almost always to fantastical assumptions however heterodox may be the credentials of the individuals making them. Hence my original question.
Thanks again for your response.
Thank you, Tony, for your reply. I did not much anticipated that you would post this long reply. I understand well that you do not like to participate on social media. It takes too much time and is often unfruitful.
I am happy to know that you have been reading my arguments employing the dictum “It takes a theory to beat a theory.” I read your post two times and I reflected what it means. I came to an interpretation that your post is a kind, implicit advice to Lars that says that he should be as cautious as you are.
For other part, as you have avoided to make any judgment on what I have claimed on our book and theories, there rest no substantial points of arguments.
As for the neoclassical economics, I have read your article “What is this ‘school’ called neoclassical economics?”, not in Cambridge Journal, but in a book What is Neoclassical Economics? edited by Jamie Morgan.
I am not satisfied by all heterodox economics. Generally speaking, there are many defects to each of heterodox economics (including ours). For example, I estimate Steve Keen’s work great. But I have some points of complaints on his work. The simplest trouble is that he is always thinking in “one-good” model or one-good economy. Gerald Holtham is more oriented to aggregate or statistic phenomena in comparison to my interest on individual agents in a system. Probably, most of heterodox economists are frustrated from works of other heterodox economists. Despite of this, as we cannot know in advance what would be the right theoretical “solution” or framework, it is necessary to examine each other which may be a good way to proceed. This is the reason why we in this Real World Economics Blog believe in pluralist approach.
.
Lawson, in his answer below, does not make the claim “all mathematical modelling is doomed to be nonsense or fantasy”; and neither does Lars despite Shiozawa’s disingenuous and persistent misrepresentation which ignores explicit evidence to the contrary (here). In fact, Lawson and Lars are essentially making the same substantive arguments articulating the nature of mathematical modeling and its relationship science and critical realism as the evidence shows (here, and here). Shiozawa’s persistent misrepresentation is a case of motivated reasoning used to avoid confronting the real substance of Lawson’s and Lars’ arguments which articulate the range and domain of mathematical axiomatic deductive reasoning.
.
.
Despite Lawson’s explicit statement, “I believe it is a mistake to imply that Lars is less so. In truth, if I ever I disagree with Lars its usually because I think he is being overly cautious, or perhaps generous is a better word,” Shiozawa’ chooses to interpret its meaning in accordance with his own motivated reasoning. Shiozawa also, incorrectly, claims Lawson’s (and Lars’) arguments don’t apply to his book when the most certainly do. Shiozawa’s axiomatic deductive methodology book’s “pure theory” has no fewer than eighteen axioms (postulates) more than one of which is as Lawson notes, “fantastical assumptions,” one if which human are reducible to fitness climbing ticks, mere automatons, who make decisions using “if-then” rules like Turing machines.
Shiozawa claims his theory “has succeeded to explain how a large economy as big as world economy works” (Shiozawa et. al., 2019, Kindle Locations 1792), yet this claim is proven false by the simple fact his theory is purely an axiomatic-deductive exercise which he calls “pure theory” divorced from the real-world economy in that it “excludes important parts of the modern economy (Shiozawa et. al., 2019, Kindle Locations 1890)” — relevant reality (e.g., finance, agriculture, mining, consumption, institutions, history, etc.) for tractability (, here). True irony can be found in the self-contradictory claims made plain via juxtaposition. On the one hand his theory “has succeeded to explain how a large economy as big as world economy works” and on the other hand excludes important realities because “we have to sacrifice such completeness for the sake of tractability (Kindle Locations 1822-1829).” How one excludes important realities and claims “comprehensiveness” while also admitting the “range of validity of the new theory is narrow” is akin to illogical double-speak; he wants have his cake and eat it too. Shiozawa explicitly states his theory, comprised of a set of eighteen (plus auxiliary) “complicated postulates” had to “sacrifice such completeness for the sake of tractability” and only models “a small part of the total economic system (Shiozawa et. al., 2019, Kindle Locations 2165).” He claims it explains an economy as big as the world economy, yet, “It is not a theory that can explain all aspects of a modern economy (Shiozawa et. al., 2019, Kindle Locations 2165).” It is trivial to explain cost + markup for pricing of a Toyota vehicle. This is not new information in economics.
The question that begs answering is why Shiozawa didn’t present explicitly his set of eighteen (plus auxiliary) “complicated postulates” rather than misleading Tony Lawson that his book is based upon “five sets of properties” he listed above?
There is too much in neoclassical economics that is prescriptive for it to be considered a descriptive discipline. Private property itself is a prescriptive construct. And it is prescribed and circumscribed (or not circumscribed) differently in every polity. With economics, or political economy, what we are really talking about is the rules of the game. Humans make the rules and then the rules make the game. If something is going wrong, for example increasing inequality and billionaires making more money during a pandemic while poor people die unvaccinated, then the problem is the rules.
The neoliberals, and capitalists in general, know that the rules make the game. That is why they spend so much money on lobbying, buying politicians and writing legislation to hand to legislatures. Intellectual and logical arguments are force-less against those who use subterfuge when it suffices and naked force when it does not. Ultimately non-ludic rules, rules where people are not just playing games, are always backed by force. The system is maintained by force. You have to riposte with force; not with symmetric but with asymmetric force. The force of the masses inheres in different things to the forces of plutocrats and their captured state. Until the people are prepared to prosecute a revolution with the powers they have, we will get nowhere. No revolution, no positive change. Things will just get worse and worse. Revolution or collapse is our future.
The perspective of practitioners and academic commentators is different. The real world throws up questions that people want answered. A regional government can alter certain tax rates but that will influence the location decisions of tax-payers who can move between regions. How should it decide on the rates to levy? An African government wants to buy white settlers off farms to distribute the land to local people. If it expropriates, commercial production in the economy could collapse but it doesn’t want to overpay. How much should it pay and how fast should it proceed? These are questions where political values are decisive but answering the questions requires making positive judgements too. How do you tackle them without a model? You can’t, at least not coherently, testing different possibilities.
Academic commentators can be preoccupied with philosophical niceties. Practitioners have to do their best with the tools and information at hand. Trying to do economics in practice reveals how much economic theory is of no use but also which elements are of practical help. A lot of commentary has the dusty whiff of the library or the ivory tower.
Irrational and fantasy are human concepts. Not dropped on us from the cosmos. Humans invent and then use them for a variety of tasks, debates, searches, attacks, descriptions, etc. It would for the purposes of participants on this site be more useful to examine how they were invented, how they are used (particularly by economists and about economists’ work), and how (if at all) they help us better understand how people (small groups up to entire nations) invent an economy how they create a particular economic form. Otherwise we’re just debating adjectives.
The following is what I have written as an introduction (pp.53-54) to my Chapter 2 A Large Economic System with Minimally Rational Agents in a book Microfoundations of Evolutionary Economics (2019). It explains how and for what objective an axiomatic method is used in the chapter. There are some questions that are usefully dealt with by axiomatic and mathematical method than narrative discourses. The economy is a large system composed of billions of people and thousands of millions of products connected by the network of commodity exchanges. To analyze such a large system requires a tool of analysis that is adapted for the object and the purpose.
In this chapter, we adopt the axiomatic method. However, when assuming postulates we do not mean that they are valid for all situations and for all times. Postulates are chosen so as to show the main mechanisms by which the modern market economy works. In this regard, we may cite Ricardo’s term “strong case” (Ricardo 1952 VIII, p. 184 Letter No.363). The set of postulates is intended to show our “strong case” in order to aid our understanding of how the huge network of production and exchanges works. We know of many cases that violate some of these postulates. In Sect. 2.5 we will argue some of those cases after we have clarified the basic working of the market economy. More general cases are left for other occasions.
When we select a set of postulates in mathematics, there are three conditions to be met: consistency (no contradiction), independence (no postulate can be deduced from other postulates), and fecundity (can produce interesting structure). In Classical Greece, axioms and postulates are supposed to be either self-evident or plausible without proofs. However, modern mathematics has much looser criteria than self-evidence. It simply asks whether a set of postulates produces a mathematical structure that is interesting to study. For sciences other than mathematics, a set of postulates is preferably consistent and independent.1 Unlike mathematics, which is an abstract logical entity, economics is an empirical science and has a “real-world”object of its study, i.e., economy. To use the axiomatic method in an empirical science, it is therefore necessary that postulates are also realistic, or true, within a certain range of validity. Thus, when we choose a set of postulates in economics, we should keep in mind that it must satisfy the three conditions: consistency, independence, and reality.
The reality of postulates is the first thing we should care about.2 It may not require a long explanation. All of us know what reality is, although we may have different opinions in concrete cases. In this chapter we assume postulates are based on economic laws which are distilled from empirical observations through a long history of argumentation. We can therefore claim that they have strong links to reality. However, to ask for a postulate to be a universal truth is impractical (perhaps impossible), because an economy has such variety that a law covering all cases becomes too complicated, just like a section in some legislative law having very many clauses but which is also full of exceptions. Using a set of such complicated postulates, although very real, does not clarify the logic of how the economy works. It is that logic which is our goal, and so we have to sacrifice such completeness for the sake of tractability and comprehensiveness. Therefore, the right choices regarding the scope of a postulate’s validity are of primary importance.
We cannot dispense with arguments on each postulate. Although such arguments, directly based upon empirics, are rather rare and difficult to carry out, they are an essential part of economics. This is an aspect of the discipline which has been relatively neglected, and so it is necessary to search for suitably relevant references widely, purposively, and attentively. Even so, detailed discussion of these matters would still require a whole book. We have to reject engaging with that project here, first, due the limits of publishing space and, second, by the limits of our own capabilities.
Choosing the right scope, or range, of validity for a postulate is a difficult work because it involves choices between alternatives, each of which requires making trade-offs. For this reason a simple criterion drawn directly from reality is not always a good criterion to choose when constructing postulates. The associated complexities introduced by accepting total realism tend to obscure the fundamental effects about which we seek to postulate. As an aid to this, we adopt a new criterion by which the consequences of a postulate may be judged, other than by complete accord with reality. This criterion may be called “plausibility.” It is not a criterion completely independent from reality, but, being abstracted from it, this will often allow us to come to useful conclusions and convenient judgments as we explore and develop our body of theory.
Plausibility is closely related to discussions we made in Chap. 1.We have argued that human agents and organizations composed of human agents are under three kinds of limitation to our capabilities: limited sight, limited rationality, and the limited range over which our physical actions have direct effects. Any assumptions on human behavior should satisfy these three limitations. We call behaviors that satisfy these three limitations plausible. This is the minimum requirement for a behavioral postulate to have some claim upon reality. In view of this point, maximization assumptions are in general refused because the economic situations we face in practical life do not permit us to obtain maximal solutions. Rational behaviors assumed in neoclassical economics require competence beyond human capability and therefore cannot be adopted as valid behavioral postulates. We have argued in Chap. 1 that human behavior can be better formulated as a set of CD transformations. This is equivalent to a set of if-then rules ordinarily used in computer programs and in particular in agent-based simulation.
The following is the last two third of the Abstract of a working paper (2019):
HETERODOX ECONOMICS AS A POSITIVE PROJECT: REVISITING THE DEBATE by Ingrid Kvangraven and Carolina Alves. The main text is also interesting. We can know varied opinions about defining themselves as heterodox economists. It also illustrates how the heterodox economists are structured in different opinions and research stances.