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Critique of Tony Lawson on Neoclassical Economics

Victor Aguilar

posted on 14 August 2015

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I review Tony Lawson’s paper, "What is this ‘school’ called neoclassical economics?" Varoufakis and Arnsperger also wrote a paper asking, “What is Neoclassical Economics?” I review it here:

 

http://www3.unifr.ch/econophysics/sites/default/files/Review_Varoufakis_Arnsperger.pdf

 

They define neoclassical as methodological individualism, instrumentalism and equilibriation, which Lawson explicitly rejects, writing, “the core feature of neoclassical economics is adherence not to any particular substantive features but to deductivism itself in a situation where the general open-processual nature of social reality is widely recognised at some level.” 

Discussion

Why doesn’t pluralism include deductivism?

 

An editor of the Real World Economics Review writes:

 

“There is no science which uses axioms and logical deductions to derive scientific theory.” 

 

Here I counter that ballistics is a science and that it is deductive, based on three axioms proposed by Leonhard Euler.  There are many other examples of sciences deduced from axioms.

 

The editors of the RWER and the organization that publishes it, the Post-Autistic Economics Network (now calling itself the World Economics Association), tout themselves as promoting pluralism. 

 

The dictionary defines pluralism as “a theory that there is more than one basic substance or principle.”

 

Yet in actual practice, pluralism means banning all mathematicians except statisticians.  Pluralists today are fully defined as those people who believe that statistics is the ONLY principle.  The belief in a single principle is correctly called monism, not pluralism.

 

So my question is:  Why doesn’t pluralism include deductivism?  

Schumpeter's two axioms of discourse

I enjoyed Victor Aguilar's article, albeit -- in rear view -- sometimes for the wrong reasons. Aguilar's methodological critique of Tony Lawson is spot on but he unnecessarily dilutes his argument by becoming personally.

“Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.” (Schumpeter, 1994, p. 11)

It is sufficient to demonstrate how Tony Lawson conflates taxonomy and deductive logic, but counterproductive to add in a footnote a derogatory remark about Marxism/Feminism.

It is also counterproductive to equate empiricism one-to-one with idiotism. While it is true that the empiricism of the confederate artillerymen was indeed utterly dilettantish this does not hold for the immensely valuable work of Tycho Brahe.

Finally, it is counterproductive not to mention that there has also been some dilettantism in the application of the axiomatic-deductive method. For example, the philosopher Spinoza applied the method to prove the existence of God. More important for economists is, of course, that Debreu messed things up by choosing the wrong set of axioms.

So it is a bit misleading to play idiotic empiricism against the overwhelmingly successful axiomatization of Euler or Newton. It cannot be stressed enough that the success of the axiomatic-deductive method depends on the selection of axioms, as already J. S. Mill knew.

“What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.” (Mill, 2006, p. 746)

Orthodoxy is based on the following proposition: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to  equilibrium states. (Weintraub, 1985, p. 147)

What can be said with certainty is that this set of axioms has proven its worthlessness. Orthodoxy is a total failure according to formal and empirical criteria. This is the decisive point where Lawson, Aguilar, Zaman, and in addition all economists and scientists who really understand the axiomatic-deductive method agree.

Heterodoxy's most important task is to fully replace HC1 to HC5. As Schumpeter's 2nd axiom says: “If we feel misgivings ..., all we have to do is to start appropriate research. Anything else is pure filibustering.” (1994, p. 577)

Egmont Kakarot-Handtke

References
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications
to Social Philosophy, volume 3, Books III-V of Collected Works of John Stuart
Mill. Indianapolis, IN: Liberty Fund. URL http://www.econlib.org/library/Mill/
mlP.html. (1866).
Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford
University Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal.
American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
http://www.jstor.org/stable/1805586.

Brahe is to Kepler as Gopikrishnan is to me. 

 

Kepler’s laws did not come to him after lying on the grass gazing up at the night sky.  If it were not for Brahe’s detailed observations, Kepler would not have known of the phenomenon under consideration, which is the first step towards explaining it.  Similarly, if it were not for the detailed observations of Gopikrishnan, et. al., it would not have occurred to me to wonder at why large fluctuations in prices have an inverse power law distribution.  When I published my book in 1999, I did not know they did.  But once I learned of this phenomenon (belatedly, in 2013), the solution was obvious and needed only a one-page addendum to my 1999 Simplified Exposition of Axiomatic Economics:

 

http://www3.unifr.ch/econophysics/sites/default/files/Axiomatic_Economics_Article_by_Aguilar_0.pdf

 

Also, once the potential usefulness of a deductive theory is agreed upon, it does not actually become useful for practical applications until the parameters are determined, which requires careful empirical work.  Newton introduced the gravitational constant in 1687 but did not know what it was; in 1798 Cavendish measured it to about two significant digits.  When my college physics textbook was published (1985) it was known to three digits and today four, 6.674E-11.  Similarly, my own theory will not become useful until empirical work is done to determine the parameters that define the demand distribution for various phenomena.

 

Nowhere in my paper do I equate empiricism one-to-one with idiotism.  Empiricism is only idiotic in the hands of the pluralists who – exactly the opposite of what their name would imply – believe that statistics is the one and only true principle, to the complete exclusion of deductivism.  It is only such narrow-minded thinking that results in idiotic statements like the one by Zaman that I quote in my previous comment.

 

Also, nowhere did I ever say that Kakarot-Handtke’s axioms are categorically wrong.  I said that they are not about economics as I define the term.  It is actually Kakarot-Handtke that prefaces every one of his many paper with a categorical dismissal of axioms about individual’s subjective values, which he calls “behavioral axioms.”  In this he is hand-in-hand with Lawson, who also peppers his work with categorical dismissals of individual’s subjective values, which he calls “isolated atoms” to contrast them with the big processes that he sees sweeping us all along like tree branches in a flood-swollen river.  I discuss Kakarot-Handtke and myself as seen from the perspective of the pluralists here:

 

http://www3.unifr.ch/econophysics/sites/default/files/Review_Varoufakis_Arnsperger.pdf

 

I and every economist reading this agree that the axioms listed by Weintraub (above) are utterly worthless, but that does not mean that there can only be one replacement.  I can study the macroeconomy from the bottom up as the Central Limit Theorem brings together the subjective values of many individuals and Kakarot-Handtke can study it from the top down as defined by his accounting principles and we may yet find some area of agreement.  If Kakarot-Handtke could just get off his high horse and say, “Aguilar is studying something different than I am but should not be categorically dismissed,” then there is no reason that we could not coexist.  We are, after all, the only two deductivists that economists have known since 1974.  Like the last two male snow leopards in existence, it would be a shame if we scratched each other to death fighting over a month-old deer carcass.

 

References

 

Gopikrishnan, Meyer, Amaral and Stanley. 1998. “Inverse cubic law for the distribution of stock price variations” European Physical Journal B. 3 (1998) 139

What comes after the methodological Pyrrhic Wars?

Comment on Aguilar on ‘Critique of Tony Lawson on Neoclassical Economics’*

 

One of the best examples of idiotic empiricism has been given by Bacon: “Bacon, the philosopher of science, was, quite consistently, an enemy of the Copernican hypothesis. Don’t theorize, he said, but open your eyes and observe without prejudice, and you cannot doubt that the Sun moves and that the Earth is at rest.” (Popper, 1994, p. 84)

 

On the other hand, one of the best examples of idiotic deductivism is to be found in economics and has been delivered by Debreu’s General Equilibrium Theory.

 

The horror of methodological warfare in economics is twofold:

(i) Sound empiricism, e.g. Brahe, has been played against idiotic deductivism.

(ii) Genial deductivism, e.g. Euler, Newton, Einstein, has been played against idiotic empiricism.

 

Unfortunately -- as you have argued since 1999 -- Heterodoxy has not manged to get out of this quagmire of false alternatives. To the contrary, the whole jabberwocky reincarnated as mathiness debate.**

 

What should be evident by now to every economist is that science is not defined by either/or but by the synthesis of sound empiricism and genial deductivism.

 

After the failure of Orthodoxy a paradigm shift is indispensable which consists in the replacement of the old neoclassical axioms by a new set of axioms. Heterodoxy has to secure its own foundations.

 

“For it can fairly be insisted that no advance in the elegance and comprehensiveness of the theoretical superstructure can make up for the vague and uncritical formulation of the basic concepts and postulates, and sooner or later ... attention will have to return to the foundations.” (Hutchison, 1960, p. 5)

 

Both orthodox and heterodox economics is stuck at exactly this point: no new axioms -- no future. ***

 

Egmont Kakarot-Handtke

 

References
Hutchison, T.W. (1960). The Significance and Basic Postulates of Economic Theory. New York, NY: Kelley.
Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality., chapter Science: Problems, Aims, Responsibilities, pages 82–111. London, New York, NY: Routledge.

 

* EconoPhysics blog
http://www3.unifr.ch/econophysics/?q=comment/1052#comment-1052
** See ‘At last, mathiness problem settled’
http://axecorg.blogspot.de/2015/09/at-last-mathiness-problem-settled.html
*** For details see cross-references Paradigm shift
http://axecorg.blogspot.de/2015/02/essentials-cross-references.html
Preceding post ‘Schumpeter’s two axioms of discourse’
http://axecorg.blogspot.de/2015/08/schumpeters-two-axioms-of-discourse.html

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