comments on rwer issue no 74

real-world economics review issue no. 74  – 07/04/16
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  1. April 13, 2016 at 1:08 pm

    Storytelling vs Theory = Politics vs Science
    Comment on Thomas Palley on ‘Inequality, the financial crisis and stagnation: competing stories and why they matter’

    You say: “Theory shapes the way we understand the world, thereby shaping how we respond to it.” True, but you say also: “Theory is a form of storytelling, and the stories we tell shape our understanding of the economy and economic policy. That means the stories we tell are critical.” (p.1)

    To equate theory with storytelling is a gross methodological blunder because theory belongs to the realm of science while storytelling belongs to the realm of politics. This distinction is of utmost importance.* The main differences are:
    (i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works.
    (ii) In political economics anything goes; in theoretical economics scientific standards are observed.

    Theoretical economics has to be judged according to the criteria true/false and nothing else. Scientific truth is well-defined as formal and material consistency (Klant, 1994, p. 31).

    The fact of the matter is that economists have failed since more than 200 years to develop the true theory. What we have is Walrasianism, Keynesianism, Marxianism, and Austrianism. Neither of these approaches satisfies the scientific criteria of formal and material consistency. So ALL have to be abandoned: what economics urgently needs is a paradigm shift.

    The fatal mistake/error of Heterodoxy is to argue that Orthodoxy tells a biased story and then to replace it by another biased story. This is NOT a paradigm shift. A paradigm shift replaces ALL stories by the scientifically true theory. In marked contrast to politics science is neither capitalist-friendly nor worker-friendly but simply true.

    Storytelling is ultimately a means to a political end. What looks like theory lacks the essential properties of formal and material consistency. What looks like science is cargo cult science (Feynman). The outer features of science are cultivated in order to signal credibility and authority.

    Accordingly, you argue: “Given the vital significance of ‘getting the story right’, progressive action aimed at policy change must be accompanied by vigorous efforts to challenge and replace the mainstream economic story.” (p. 16) Thus, your agenda determines your story.

    What you call a ‘purely analytical exercise’ in distribution theory fails. It is indeed true that Orthodoxy in both the Chicago and the MIT variant does not satisfy scientific criteria by any stretch of the imagination, yet, the problem of Keynesianism is that it is also defective (2011). The common error/mistake is located in profit theory and because of this the whole of neoclassical and Keynesian distribution theory falls apart (2014).

    Because both orthodox and heterodox economists lack the true theory all their arguments and policy proposals are freely floating in midair. Whatever is uttered about economic policy has no sound scientific foundations and is not different from reading poultry entrails.

    The answer to the cargo cult science of Chicago and MIT is to expel both from the sciences. To combat malpractice with just another political bias is not such a good idea.

    Egmont Kakarot-Handtke

    Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
    Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741:
    1–23. URL
    Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.

    * See chart on Wikimedia

  2. April 14, 2016 at 3:07 am

    When the model becomes the message – a critique of Rodrik

    Lars Pålsson Syll highlights a real problem: the human mind seems adapted to confusing a model with reality. As they behaviour of mainstream economists proves, when reality doesn’t behave “properly” it is all too easy to blame reality.

    Syll writes well, but assumes some familiarity with economics, both orthodox and more general. My book Economics versus Reality ( tells a similar story but aimed at a more general audience. Lay people in my experience find it hard to believe that people in Distinguished Chairs with multiple degrees and fellowships can behave like teenagers playing a computer game and calling it reality. They need to have it explained to them.

    May 4, 2016 at 3:47 pm

    Reference: Escaping the Polanyi matrix, by Gary Flomenhoft

    An excellent argument and clarification regarding the significance and imperative of Polanyi’s assertion, that the factors of production: human work (labour), natural and cultural resources (land), and money should not enter into the economy as commodities. Regarding the surveyed possible solutions for money, they still seem to be within the commodity money paradigm – including the favoured 100% reserve solution. A reserve is a commodity. We need a completely decommodified monetary system, as has been proposed by the French economist, Michel Laloux[1] [2]. Personally, I would also go further than Michel Laloux regarding the establishment of a unit of account, so that the unit of account cannot be understood as a commodity, only as a universal basic human need, such as the daily food energy requirement of a human being (say 1,200 joules).

    [1] I am the translator of Michel Laloux’s book.

    [2] Laloux, M. (2014) Dépolluer l’économie, Tome 1: Révolution dans la monnaie.
    Available at:­listing/product/l3.html
    The title of the English edition is: Detoxify the economy, Volume 1,
    A revolution in thinking about money. Sample chapters available at:­1dZyGy

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