Comments on rwer issue no 93

  1. Guido Schmidt
    October 4, 2020 at 7:58 pm

    Refering to “Towards abolishing the institution of renting persons: A different path for the Left” the quotation of Marx 1977 is extreamly misleading. It’s taken from the footnote: “This is not to be taken in the same sense as our surplus-labour time. These gentlemen consider 10½ hours of labour as the normal working-day, which includes of course the normal surplus-labour. After this begins “overtime” which is paid a little better. It will be seen later that the labour expended during the so-called normal day is paid below its value, so that the overtime is simply a capitalist trick in order to extort more surplus-labour, which it would still be, even if the labour-power expended during the normal working-day were properly paid.” added to a quote of a certain J. Leach explaining the difference in the meaning of the used wording. In the rest of the 2000 pages or so of ‘Capital (Volume I-III)’ the claim is on the contrarary that capitalism works perfectly fine paying the labour-power ‘properly’.

  2. pfeffertag
    October 10, 2020 at 12:58 am

    Regarding Vergés-Jaime: “Empirical rejection of mainstream economics’ core postulates – on prices, firms’ profits and markets structure.”
    Page 62: “…the problem is not … assumptions (theories, hypotheses) which are based on simplifications of a given reality. The actual problem is that the standard model assumptions … are based on simplifications but of an imagined economic world.”
    I want to suggest that the standard model assumptions are not based on simplifications. A model does simplify but the crucial thing is that it idealises. The imagined economic world is an idealisation which is a sort of extremism. It is not so much a matter of simplifications of an imagined world but rather of idealisations which constitute the imagined, or idealised, world. The essence of idealising is taking concepts and relationships to extremes.
    But this is not a problem (at least not the problem). On the contrary, it is appropriate. For four hundred years, idealisation has been vital to science theory. Galileo theorised gravity with a perfect sphere touching a perfect plane at a single point and rolling frictionlessly. The real world gives us landslides. But Galileo’s extreme theory is needed to understand landslides. Theory doesn’t come from the real world. Rather than simplifying, or approximating, idealisation is a purifying, the interrelating of essences, of extreme “ideal-types.”
    The opening words of the abstract (page 61) are: “Mainstream economic theory relies largely on deductions from assumptions, rather than from assertions based on a previous systematic gathering of observations…”
    Just as it should. Deduction from a hypothesis is standard science. No gathered observations of landslides could ever form the basis for a hypothesis of gravity. The (idealised) hypothesis must first exist in order to make deductions and then make observations. Theory is not practice. Theory differs from the real world because it deals with unreal, idealised concepts.
    Newton’s gravity theory interrelates two bodies which are isolated, perfectly spherical, and of uniform density—conditions which nowhere exist. Aerodynamic theory hypothesises imaginary layers of incompressible, friction-free air flowing over smooth surfaces, not fluttering leaves. Gas theory refers to an “ideal gas” in an enclosed tank, not in volcanoes. A theoretical pendulum has a string of no weight and a weight of no size. These unrealistic theories nevertheless apply to planets, leaves, volcanoes and real pendulums.
    Idealised science theory has made the modern world and idealisation has allowed economics to progress over the centuries. Of the social sciences, only economics idealises, and only economics has generated a body of theory. Economics owes its place at the centre of government power partly to idealisation.
    That the real world is different from the imaginary theoretical world is normal, probably universal, and not grounds for criticism. To get a theory to match the real world—necessary if the theory is to be applied or tested—additional theories are required. For the landslide, do not abandon the theory of gravity but add theories of friction and soil morphology.
    The problem with economics is not that theory deals with imaginary economic conditions. This is merely right and proper. The problem is that for two generations now we have seen no additional theories.

  3. Joaqum Vergés
    October 11, 2020 at 3:25 pm

    I share most of your suggesting reflections on idealising. Though I’m not sure it be perhaps but a different way of talking about the pair: simplifying the real world, in order to make the analysis of its core aspects reasonably manageable, and then to start by formulating assumptions (hypothesis) within the resulting conceptual framework.
    Anyway, the point in my paper, in this sense, is that problems arise when the abstractions/simplification stage lets aside, not of-detail, casuistic, aspects, but determinants ones. And when, moreover, assumptions are unnecessarily unrealistic. In short, simply to stress the old rule ‘if a theory does not describe its part of reality reasonable well, because is contradicted in core assumptions by reiterate empirical observations, then such theory must be modified or substituted by another one’.
    In other words, and broader terms, the paper’ intention is just to stress the convenience for contrasting standard model’s cornerstone assumptions/ theories-and-predictions with the corresponding empirical evidence. Because, in my opinion, the small fraction of the published research papers in Economics that is of ‘empirical contrast’ type (even though this fraction reaching to the thousands per year) tend to be mostly on piecemeal aspects within (keeping) the overall reference-framework of orthodox, unrealistic, core assumptions.

  4. Andri W. Stahel
    October 12, 2020 at 11:22 am

    Regarding Vergés-Jaime: “Empirical rejection of mainstream economics’ core postulates – on prices, firms’ profits and markets structure” and Pfeffertag’s comment about idealisation as “been vital to science theory” we have to be clear that he is referring to a particular way of understanding science borrowed from natural sciences and particularly Newtonian physics and which has become mainstream in modern economics. It completely ignores other ways of approaching the subject and, particularly, a historical, complex, multi-layered reality as the one we are dealing with when talking about economics. It is one thing to idealise a model whereby a landslide may be studied or, as Newton did, to imagine a frictionless world of objects following inertial trajectories to understand the movement of cosmic bodies in space; but it is something completely different to apply the same method trying to make a theoretical model of real-world economic events.
    It ignores not just the methodological point made by Wilhelm Dilthey in the late XIX Century arguing that the standard method used in natural sciences in which events repeat and follow fixed causality laws cannot be applied to look at historical, complex and never fully repeating events like in economics. To what in the German tradition is called the Geisteswissenschaften, a set of human sciences in which culture, human’s self-reflectivity, subjectivity and changing contexts are a fundamental aspect of the observed phenomenon. The former aims to explain a phenomenon using an abstract, idealized model. The later to understand it by observing it in its unique, constantly changing contexts. An argument already made by the historical and institutional approach to economics which was still prevalent in the late XIX Century academy before being side-lined by Neoclassic economics.
    I discuss these matter in length in the first part of my recently published book, which may be obtained for free in its pdf format at
    It is time for us economists to acknowledge that the economic process is a social, historical as well as physical/ecological process (as Georgescu-Roegen showed in his ‘The Entropy Law and the Economic Process’) and that applying the same method used to broadly explain relatively simple phenomena like the movement of bodies in empty space or the falling of apples without hindrances is simply misplaced when used to not just explain, but to understand the real-world economic processes happening in the real world.

    • Yoshinori Shiozawa
      November 13, 2020 at 6:55 am

      Yes, economy is a historical, complex, multilayered reality. But does it necessitate that economy is to be studied only from holistic viewpoint such as Dilthey demanded? Did that attitude (or the research program) lead to understanding of the economy better than neoclassical economics? I am not defending neoclassical economics. I oppose vehemently to neoclassical economics, because it is wrong from the very basis as the discipline. But, those opponents who preaches holist approach such as Geisteswissenschaften and Wallerstein’s idea of unified social science has not produced concrete knowledge on how modern economy works. Their works can be a point of reference to remind ourselves that our science (economics and others) are still at a lower stage of development, but the way (or ways) we should take is to clarify each concrete phenomenon at each aspect of the economy or the society. Only rejecting analytical and piece-meal theory making is a kind of romanticism that appeared as a reaction to modern analytical thinking. Please read Yoshio Inoue’s book review on our book. He gives a good account of the origin of romaticism in social sciences.

  5. pfeffertag
    October 14, 2020 at 8:39 am

    In response to Andri W. Stahel.
    I did ignore other ways of understanding for my topic was idealisation. I will try to rectify the omission.
    “…it is something completely different to apply the same method trying to make a theoretical model of real-world economic events.”
    Evidently not “completely different” for natural science and economics have idealisation in common. Different? Every science is different. If Dilthey said the methods of Naturwissenschaft cannot be applied to economics, he has plenty of company. That is why I wrote that post. The evidence is he is wrong. Economics does idealise and it has a body of theory which is universally applied. Does economics succeed because of idealisation or despite it? All the other Geisteswissenschaften don’t idealise and don’t succeed. And all the natural sciences do idealise and do succeed.
    What is the difference between natural and social science? Social science is “…historical, complex and never fully repeating…”? Well, so is meteorology. We may think the natural sciences simple but ten thousand years of civilisation passed before Galileo came along. Certainly, culture and subjectivity are peculiar to social science but is this grounds to claim the tried and tested scientific method is inapplicable? No logic says so and the claim reeks of special pleading. Yes, the objects of study are social which means that, unlike the objects of natural science, they do not exist outside of human perception. So what? Brute fact: economics idealises and it works (to some extent).
    Why does it work? Because the theoretical interrelating of idealised concepts allows science to be independent of words and hence of emotion—and thus allows a body of intersubjective theory to be built.
    The proposal to “understand [economics] by observing it in its unique, constantly changing contexts” is pretty much the approach of all the social sciences. Where has it got them? If asked, most people could name something that meteorology or geology or pathology knows. Who can name a relational theory from the social sciences? The very best I’m aware of is the political science claim that democracies never war against each other. That’s the best there is. Psychology has learning theory but it hasn’t progressed in 50 years (and anyway only works on children and animals). This is not that they don’t know anything—think of “confirmation bias” and “nudging”—but the knowledge consists of scattered factoids; there is no body of theory. Over a century of intense academic effort has brought next to nothing. The social sciences have failed (except economics).
    Smith, Ricardo, Pareto, Keynes, Friedman, theorising in terms of idealised models, generated a body of theory. But economic theory ran out of puff, perhaps before Friedman (who may actually be a symptom of the stagnation). There is no reason to think renewed progress will be made using the approaches of the other social sciences.
    “…applying the same method used to broadly explain relatively simple phenomena like the movement of bodies in empty space or the falling of apples without hindrances is simply misplaced when used to not just explain, but to understand the real-world economic processes happening in the real world.”
    Misplaced? Many claim this. Its repeated assertion does not make it correct. I think it is a misdiagnosis of the problem of theoretical economics. The problem is not that idealised modelling is inappropriate; the problem is rather that there is not enough of it. The real world is always a poor fit to a scientific model. Nancy Cartwright is famous for her monograph “How the laws of physics lie.” It does not mean idealised modelling is inappropriate.
    The simple sphere on a plane is needed to explain landslides—along with the addition of other idealised theories. To explain the weather takes many idealised relationships of physics and chemistry. To explain economics takes many idealised relationships of social interaction. I suggest that the current relational models are too narrow, too confined to narrow economic interaction, that they need the addition of models of other kinds of social interaction.
    Take, for example, the old complaint that though economic choice depends on taste, there exists no theory of taste. It seems to me that AO Hirschman’s “exit, voice and loyalty” is (was) such a theory. It was not built upon. Why? I think because it was too broad for mainstream economics; it included social relations which can’t be handled with the standard economic toolkit. Hirschman’s theory became widely known in political science.
    The stagnation of economic theory is two generations old. It is evidently a hard problem. As such it is unlikely to be alleviated by more of the same. It requires thinking out of the box, thinking how to theorise imperatives other than narrow economic ones.
    For example, economics theorises perfect competition but not perfect cooperation or perfect coercion. These affect economic relationships in practice yet do not affect the equations. Coercion is accepted pragmatically to settle disputes and regulate competition. Cooperation is theoretical anathema. It seems the only place cooperation is recognised in practice is where coercion is applied to quash it, such as by breaking up monopolies, fining firms for price fixing, and arraigning personnel for nepotism and bribery. Cooperation and coercion need to be theorised in idealised relationships. (Hirschman’s “voice” is a theoretical instance of cooperation that is not economic anathema.)
    There will be no help from the other social sciences. After all, if I am right, psychology and sociology should long since have been theorising relationships involving perfect cooperation and perfect coercion. They haven’t, of course. Idealisation, the technique which has for four hundred years been so effective in the natural sciences, is not on the radar of the social sciences (except economics). As long as that continues they will continue to fail—unlike economics.

  6. Yoshinori Shiozawa
    November 15, 2020 at 7:08 am

    The first thing I would like to say with regards Vergés-Jaime’s paper: “Empirical rejection of mainstream economics’ core postulates – on prices, firms’ profits and markets structure” is that is is a good example to refute neoclassical standard economics. At least, this paper can be used as contents when heterodox economists teach first year or third year students of undergraduate course. For example, if you are charged to teach Econ 101 or Introduction to Microeconomics, you re obliged to teach the standard contents, but you can also ask students whether the contents just taught is a good one. Many students (if not the majority) would reply some vague doubts. If you have enough time, you can teach some topics from this paper. To be prepared to this kinds of contents is very important.

    In the Real-World Economics Review and Blog, there are many criticisms against unrealistic assumptions like ergodicity, rationality, and formalism. But, they are in a sense transcendental critique. Vergés-Jaime’s paper gives refutation based on more internal or intrinsic logic of standard neoclassical economics. For example, many textbooks explains that actual state may not be in equilibrium but the economy has a tendency to converge in an equilibrium state. Vergés-Jaime has showed concretely that market structure does not tend to more competitive state at least in 20 years of lapse of time (Section 6).

    Another point we must take care of is an alternative theory. Of course, this is not the aim of Vergés-Jaime’s paper, but it is advisable to have always in mind this or that theory than can replace the neoclassical theory. As for price theory, please see our book Microfoundations of Evolutionary Economics. You can freely read Marc Lavoie’s book review.

    This said, let me now intervene in the debate on simplification versus idealization raised by Pfeffertag. It seems there is no deep contradiction between Vergés-Jaime and Pfeffertag. Idealization may be better than simplification to express the status of fundamental assumptions, but Vergés-Jaime had only wanted to indicate there is no direct correspondence between propositions in the assumption and the reality. What I want to raise here is that whether idealization is the final word to express assumption in a model or a theory and the reality. Let me suggest a word abstraction in addition to idealization.

    In the back of idealization, there is some operation to divide the complex reality into what we want to observe and what we neglect for the moment. Take an example of Galileo’s experiment of falling bodies. Idealized situation must be perfectly straight slope in vacuum which has perfectly no friction. It is impossible to realize such a situation on earth. So, we idealize by taking straight slope as far as possible and we take an spheric iron ball as perfect as possible. But, this choice of experiment is the act of abstracting air friction, sliding friction, rotating inertia and neglecting the variance of gravitation while the ball falls down.

    We also need a notion such as range of validity. This is rather a common word in physics, but I hardly hear this is told in economics. In Chapter 2 A large economic system with minimally rational agents, I have taken an axiomatic method. In other words, I have listed in total 18 postulates. I have shown what kind of properties are obtained if the products satisfy these postulates. I did not claim that each of these postulates are true in all cases or situations. This is to show how our theory is logically constructed. Take Postulate 3 (price setting) for example. As I mentioned there, there are large number of goods of which the prices are not determined by the producer (or supplier). But, despite of these products, majority of goods and services prices are given by producers and suppliers. I have shown that modern industrial economy has this and that properties as far as we concentrate in the part of economy that satisfies my postulates. Therefore, in my case, postulates delimit the range of validity of my theory.

    How are these postulates chosen? It was an act of simplification and idealization. I have to choose a system of postulates that can give the essential feature of modern industrial economy. Of course, it is not perfect nor complete. I was explicit on what my theory excluded: labor market and finance economy are two of such excluded areas. Based on this abstraction, I could get a price theory that is far more realistic than neoclassical price theory, as I have indicated above.

    In Real-World Economics Review and RWER blog, there are many arguments based on critical realism. But, it is my impression that there are few arguments or proposals to alternative theory building. Please see my post as a comment to Davio Rucio’s Limits of mainstream economics today on October 12, 2020.

  7. Yoshinori Shiozawa
    November 16, 2020 at 4:38 am

    It would be better to reproduce here my post that I have referred to in the above comment.

    In this blog, critical realism of Tony Lawson and his followers is so strong that those who aim to build a new alternative theories are relatively less represented. Pfeffertag is one of such few. It is important to listen what he contends.
    Let me cite a part of Frederic Sterling Lee‘s “summery of the critical realist-grounded theory approach”:

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

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

    As I have hinted in the above post, Real-World Economics Review and its Blog are too much inclined to ontology. There are a few economists (Pfeffertag, Gerald Holtham, and Evidence-based Economist are some of the few) who want to “improve economic theory and how to make social science into a science” (Pfeffertag at the end of his post). However, this is the most important thing we must pursuit.

    As Lee wrote, Critical Realism “has little to say about about theory”. But, main contenders in the RWER bolg, for example, Lars Syll, cannot distinguish models and theories. In spite of my repeated warning, Syll posted an article like this: Does it really take a model to beat a model (September 13, 2020). Please see also comments by evidencebas, Gerald Holtham (ghholtham) and mine.

    Lars Syll is always busy in criticizing mainstream economics. In some aspects, he is attracting people who have doubts in mainstream economics. But, in other aspects, he has gathered so many people who misunderstand that criticizing or ridiculing mainstream economics is itself economics. In such an intellectual atmosphere, few proposals appear for the reconstruction or radical improvement of economics. Even when a few of them appear, they are drowned out by sounding noises of anti-theoretic orientations. It is important to secure some spaces that concentrate in theory making.

    Lee’s proposal to combine (or synthesize) CR (critical realism) and GTM (grounded-theory approach) is interesting, because GTM is more oriented in theory making. At least, it wants to check theories that have been produced. GTM is not so hostile to theory making. For the moment, there is a big difference between CR and GTM, because CR is too much inclined to anti-theory sentiments, while GTM admits the priority of theory making.

    It is absolutely necessary to discuss the strategy (or strategies) how to reconstruct economics. It is clearly distinct efforts from simply criticizing mainstream economics.

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