one | two | three | Cuatro
1. classical economy
2. neoclassical economy3. Karl Marx
4. Joseph Schumpeter
5. ordoliberalism
6. keynesianism
7. critical rationalism
8. philosophical criticism
9. monetarism
2. neoclassical economy 2.1.1 Bases
metodológicas Alfred Marshall 2.1.1. Bases metodológicas In the work of Alfred Marshall we can observe economics in statu nascendi. The nowadays economics, at least the academic curricula, are the same all over the word. There is a fix canon of concepts and all problems are discussed inside this fix canon and with this concepts.
In any textbook we find for instance a large discussion about the producer surplus and this producer surplus is allways analised with the same methods. The much more interesting question is how long this producer surplus will exist, but this question is never discussed. It is obvious that the more efficient producer earns more than the others, that is his producer surplus, but the relevant question is how much time will it take until all producers use the same technology and reach the same efficiency. (To give an example.)
Alfred Marshall is the founder of microeconomics. What we find in todays textbooks, if we put a side the abracadabra of Vilfredo Pareto, is a simplification of marshallian concepts, although we can't say really that Alfred Marshall is the founder of microeconomics, because in that era economics was simply microeconomics.
In that time there was no need to distinguish between microeconomics and macroeconomics. If we assume that a rational behaviour at an individual level is rational as well considered from the perspective of the economy as a whole, there is no need to make a distinction.
If high prices for a commodity indicates for instance that this commodity is scarce, entrepreuners will try to produce that commodity. Their interest, earning money, is compatible with the interest of the society, to get more of this commodity. Personal interest and common interest are compatible. Rational behaviour on an individual level is ratioanl as well from a perspctive of the society. No need to distinguish between microeconomics and macroeconomics.
In the case of savings it is different. From the perspective of a single market player it makes always sense to save more. If he saves no, he can consume more in the future. If everybody saves, the demand decreases and it becomes more and difficult to invest the savings. Personal interest is not compatible with common interes. A microeconomic analises leads to completely different results than a macroeconomic analyisis.
Before 1936, the year the General Theory of Employment, Interest and Money by Keynes was first published, macroeconomics didn't exist and therefore microeconomics either. It was just economics. Keynes was the first to show that a rational behaviour at a microeconomic level, from the perspective of an individual market player, can be very rational from an individual perspective and very irrational under the perspective of the whole society.
Some of the concepts of Alfred Marshall actually allows a deeper analysis of some economic issues. Later on we will analyse a market, the taxi market, by using some of his concepts, see cardinal measurement of utility.
The classical authors didn't reflect about the methodological approach. That is actually something that distinguish them the neoclassical authors like Vilfredo Pareto, Carl Menger, Léon Walras and Joseph Schumpeter. That doesn't mean that they all argue in favor of mathematical modeling, there is even a difference concerning this issue. Vilfredo Pareto argues that any method is well, if it leads to results. Carl Menger is explicetely against mathematical modeling and Léon Walras explicetely in favour of mathematical modeling. But all of them are looking for laws, as stable and universally valid as natural laws.
If we put aside Léon Walras, who really followed his methodological paradigm and reduced economics to some mathematical equations, we can't say really that they followed strictly what they considered the optimal methodological approach. Vilfredo Pareto for instance wrote more about sociology, using a more historical approach, than on economics, but they can be considered as the precursors of what we find nowadays in modern textbooks.
It is only after world war II that we got this kind of distillation. Only concepts that could be mathematically or graphically modelled were canonized and form nowadays worldwide the academic curriculum of economics.
Some others like Joseph Schumpeter, Friedrich Hayek, Walter Eucken whose concepts were not appropriate for mathematical or graphical modeling were forgotten and from others, like Vilfredo Pareto, only the concepts that could be modelled we find nowadays in mordern textbooks.
Alfred Marshall himself describes the aim of economics as follows. Economics should have the same methodological approach as physics.
| Those physical sciences, which have progressed most beyond the points to which
they were brought by the brilliant genius of the Greeks, are not all of them strictly
speaking "exact sciences." But they all aim at exactness. That is they all aim at
precipitating the result of a multitude of observations into provisional statements,
which are sufficiently definite to be brought under test by other observations of
nature. These statements, when first put forth, seldom claim a high authority. But after
they have been tested by many independent observations, and especially after they
have been applied successfully in the prediction of coming events, or of the results of
new experiments, they graduate as laws. A science progresses by increasing the
number and exactness of its laws; by submitting them to tests of ever increasing
severity; and by enlarging their scope till a single broad law contains and supersedes a
number of narrower laws, which have been shown to be special instances of it. Alfred Marshall, Principles of Economics, ECONOMIC GENERALIZATIONS OR LAWS |
There is no doubt that we expect that from natural laws. The gravitational force is the result of a lot of observations. At the beginning people observed that a stone that is thrown to the air comes back to earth and by other observations of this kind they finally concluded that the same force attract the moon by the earth. (And the other way round.)
The question is whether this is valid as well for economics. First of all what we observe is never the cause, but the effect. We don't know what the gravitational force actually is, but we can measure the effects and this effect is stable and everywhere on earth the same.This allows apply this laws "successfully in the prediction of coming events".
It is not a big problem if these effects are produced by different causes. A feather for instance falls more slowly than a ball of iron because it is braked by the air, otherwise, in vacuum, both will fall with the same velocity. But the impact of the other conditions on the effect must be stable as well.
We never have this situation in economics and presumed "economic laws" can become suddenly completely wrong. For a very long time for instance people took it for granted that an increase of money will lead to an increase of prices. This incidentally was true for a long period of time, because the underlying economic structure was stable. But in order to have a relationship between the amount of money and prices a lot of things have to be stable. People have to actually take the money, without a demand for money there is no way to get it circulating. Then they have to spent the money. If they put it under their pillows nothing is going to happen. It is necessary that the increase of demand can't be satisfied by the supply, otherwise competition will keep the prices at the level they are. The worker union have to try to get a recompensation for the increase of prices and so on. Nowadays the European Central Bank injects EVERY MONTH 60 BILLION EUROS into the market, but the risk is DEFLATION not INFLATION.
Most of the "economic laws" have turned out to be very unstable. The most illustrative example for that is David Ricardo, whose theory is based on 4 laws he assumed to be eternally valid, but history showed that all of them are wrong.
Still more problematic is the sentence "But they all aim at exactness". That make sense if it refers to prognostics related to the real world. A prognostic of the type if we do this and that the economy will grow by 8 percents in the next two years in Bolivia would be really nice. The problem is, that something like that doesn't exist in economics.
The concepts of Alfred Marshall are based on hypothetical examples. The producer and consumer surplus can only be "exactly" calculated based on hypothetical examples. (And even then it is not very exact. The producer surplus is the difference between the market price and the actual costs of the producers. Their producer surplus depends therefore on the most inefficient producer who can still produce at cost covering prices given a certain demand. If we don't know how much time it will take to this marginal producer to increase his efficiency, we can't calculate the producer surplus.) In reality the aggregate curve of marginal costs as well as the aggregate demand curve is not known.
The problem cannot be resolved. Economic development depends on know how and on the result of research and development. The problem is, that we don't know what we will know in the future and therefore any prognostics about the future is imposible.
Perhaps is is possible in 20 years to produce airships that turns alone around the earth, driven by solar energie. (They are big enough to install a lot of solar pannels.) This would reduce transportation costs to almost cero and that would have obviously a heavy impact on the economy.
But to prognostic when that will happen and the impact that will have on the economy is completely impossible.
[Remark: This example is not as absurd as it may appear. 20 years ago they started to build airships of this kind and near Berlin they constructed a very, very huge construction hall, nowadays used as an adventure park. The project finally failed, but it is not impossible.]
Economic laws are either trivial or abstract from reality. The more stunning one is the first one. The famous law of the decreasing marginal utility for instance is trivial. If we are thirsty, water has a big utility, but the more we drink, the less utility we get. That's trivial. If we have to products, it is still trivial. Someone who come near to die of thirst will pay any amount of gold for 10 liters of water. After having drunken these two liters, he will pay less. The substitution rate will change. That looks quite intelligent if we formulate it with a mathematical function, but even then it is trivial and obtained by pure intuition. It is obvious that "laws" which are based on such simple relationships between cause and effect are universally valid. The are universally valid because they are trivial. The "law" that we can spent more money the more we have is valid as well. Everywhere at any time and it looks more intelligent, if formulated with a mathematical function.
The other type of laws abstracts from any kind of individual circumstances. It is true for instance that the wage never can exceed the marginal revenue. The problem is, that the marginal revenue depends on qualification, the demand for qualified labour and therefore for the products. The demand for the products depend on the size of the market and the size of the market from the transportation costs and so on, and so on.
"Exactness" alone is not a value. Only if we get exact result about relevant issues it becomes a value.
Most people believe that the use of mathematical modeling guarantees "exactness". This is not true. Neoclassical theory and marxism use both a lot of equations and functions, but they get to completely different results. The General Theory of Employement, Interest and Money by Keynes doesn't use almost any equation or graphic modeling and is correct. The method used is no guarantee for correctness.
The sentence "science progresses by increasing the number and exactness of its laws" is only useful when "laws" are tested against reality. That never happens in economics. "Laws" illustrated through ficticious examples. In the case of the neoclassical theory immunisation against reality is even part of the program. The basic assumptions of neoclassical theory are homogeneous products, no personal / temporal or geographical preferences, no transportation costs, full information, complete transparency. That means that the basic problem a market economy resolves best, information gathering, is excluded from the modell. Under these circumstances it is not possible to text a theory against reality, because reality is excluded from the modell.
Doubtful is as well this sentence:
Science progresses by increasing the number and exactness of its laws. Science can as well progress by a better understanding of individual circunstances. Beside that we are not really interested in a progress of science. We are more interested in solutions for concrete problems. It is a common procedure in the academic world to argue in favour of the pure science if they are simply unable to contribute something to the solution of concrete problems.
The term law suggests a stable, universally valid relationship between cause and effect. There are economic "laws" of this type in economics, even a lot of them, but they are trivial and not helpful. The pareto optimum we find in any textbook, two people only exchange one commody for another if at least one of them can improve his situation by this exchange and no one is worse off after the change is obvious and trivial. This is valid in Germany, in Peru, in Spain and in Uganda and if someone lives on Mars, it is true for the marsmen as well, it is not even necessary to know a marsman to know that. The problem is, that this economic "law" is useles.
At the beginning, he will change his opinion later on, see below, Alfred Marshall puts the question in the wrong way. He affirms that physics is the most succesful science and economics has therefore to follow this methodological paradigm. The right question is another one. The question is whether the object of economics, the human being in the economic sphere, is similar to the subject of physics.
We can observe that the methodological approach used in physics applied in economics induces to abstract completely from human beings. Actually something like market forces, to give an example, imagined as something like kinetic energy, doesn't exist. What we actually have are incentives that induce human beeings to do something or to stop doing it. We have the strange kind of phenomenon that the object is adapted to the methodological approach. It should be the other way round. The methodological approach should be adapted to the object.
"Economic laws" as Alfred Marshall defines them, don't exist. Not even the most basic law, that what even non economists call a law, the law of demand and supply, is really a law. It is unclear what is the cause and what is the effect. The demand curve for instance is normally explained like that. The cheaper the price, the greater the demand, because a cheap price requires only a low marginal utility. In other words, the price is the cause, the demand the effect. It can be regarded the other way round. An increase of demand, will lead to a degression of the fix costs, suppliers can produce the commodity at lower cost and due to competition have to sell them for a lower price. The increase of demand is the cause, the decrease of prices the effect. Something Alfred Marshall was well aware of as we will see later on, see equilibrium in the short run and equilibrium in the long run.
In the next paragraph Alfred Marshall relativizes his concepts of "laws". He doesn't do what he should do, questioning if the object of economics, the man as an economic actor, can be analysed with the same methods as the object of physics, but he admits that in economics we have only tendencies, not laws. A tendency describes an inestable causal relationship, something very different than a law in physics. Two masses don't have a mere tendency to attract each other, they attract each other following very strict rules. If the masses of two body is none and the distance between on body and the other, it is possible to calculate the gravity force between them. This kind of causal relationship doesn't exist in economics.
Beside that we don't need laws. What we need are causal relationships, in whatever method they are described. A methodological paradigm for economics could be biology, see below, especially molecular biology.
What we actually have in economics are statistical relations and statistical relations suggest a relationship between a cause and an effect, but don't prove it and most of all don't explain this relationship. Statistically measured relationships can be very useful, in some molecular biology they steer for instance in great part the research. If there is a statistically measured relationship it can be assumed that there is a causal relationship as well and that gives a hint for further studies.
That's the reason why statistical data and statistics plays a big role even in public debate about relevant issues and algebra is irrelevant. If it comes to concrete problems, people chose automatically the right methodological approach.
In the next paragraph Alfred Marshall relativises all what he said before. He replaces the term "law" by tendency. Tendency means that there is a relationship between two phenomenon, but it is unclear what is cause and what is effect and the relationship between the two phenomenon is unstable.
The paragraph contains another interesting statement, similar to what is stated by Joseph Schumpeter: "Economic laws, or statements of economic tendencies, are those social laws which relate to branches of conduct in which the strength of the motives chiefly concerned can be measured by a money price."
| The term "law" means then nothing more than a general proposition or statement
of tendencies, more or less certain, more or less definite. Many such statements are
made in every science: but we do not, indeed we can not, give to all of them a formal
character and name them as laws. We must select; and the selection is directed less by
purely scientific considerations than by practical convenience. If there is any general
statement which we want to bring to bear so often, that the trouble of quoting it at
length, when needed, is greater than that of burdening the discussion with an
additional formal statement and an additional technical name, then it receives a
special name, otherwise not .
Thus a law of social science, or a Social Law, is a statement of social tendencies; that
is, a statement that a certain course of action may be expected under certain
conditions from the members of a social group.
Economic laws, or statements of economic tendencies, are those social laws which
relate to branches of conduct in which the strength of the motives chiefly concerned
can be measured by a money price. Alfred Marshall, Principles of Economics, ECONOMIC GENERALIZATIONS OR LAWS |
The statement that economics studies the conduct of men where the motives of this conduct can be measured with money is a possible definition of economics, although it remains unclear what that means in practise. Behind any aquisition of a commodity for instance are some motives and preferences and any motive and preference can be explained by other motives and preferences. When should a further analysis of the motives should be stopped?
One should distinguish between laws, tendencies and causal relationships. If it is possible to describe a causal relationship with a law or a tendency depends on the object. Laws can be described with algebra, tendencies with statistics if there one assumes that there are only few parameters involved and a certain stability is assumed. The more individual is a phenomenon, the more we will describe it verbally. That's what people automatically due outside ficticious, hypothetical examples as the ones we find very often in textbooks.
We can therefore distinguish several situations.
|
The most typical version in economics is (5). (5) suggests through mathematical modeling, which always looks very scientific, that there exists a causal relationship, although this is not the case.
If we put aside version (5) all methods are useful if the conditions for their use are given. Version (1) to (4) are used if they lead to concrete results and that happens even intuitively, without any further discussion. Economics is the only "science" where this topic is actually discussed and that is due to the fact, that the use of modeling, especially mathematical modeling, is nothing "logic" or "natural", but something artificial.
In the next paragraph Alfred Marshall corrects all the errors he made before. If academic economists only read the following paragraph instead of copying again and again the marshallian demand / supply cross and analysing again and again the equilibriums under the always same circumstances it would be of great help.
What he said in 1890, the year Principles of Economics was first published, is still true today. Economists stick to methodological paradigm that only fits if "subject-matter is constant and unchanged in all countries and in all ages". This paradigm is actually outdated. Biology for instance has a completely different methodological approach than physics. Academis economists stick to an outdated methodological approach.
Alfred Marshall and John Maynard Keynes are the the intellectuals between the economists. We can't put Alfred Marshall in the same cupboard as Vilfredo Pareto or Léon Walras. The term neoclassical theory means nothing. It would be a good idea to simply eliminate Vilfreto Pareto and Léon Walras from all the textbooks about microeconomics and to teach microeconomics based on the original work, Principles of Economics, instead of using the bad copies of this book.
It is to assume that Alfred Marshall reacted on an ongoing debate about the methodological methods to be used. It is to assumed that he reacted to the french Lausanne School of economics, to Léon Walras and Vilfredo Pareto. (Two authors which he silently ignored.) He describes an historical process. People slowly became aware, that a methodological approach which fits for one subject-matter, doesn't fit necessarily for another one. A historical process can only be described, if it actually happened, that's obvious.
However his analysis concerning the historical process is not completely right. It may be possible that some people realised that eternally valid, stabil laws in some areas doesn't exist, but until today there are a lot of people who believe that.
| At the beginning of last century the mathematico-physical group of sciences were in the ascendant; and these sciences, widely as they differ from one another, have this point in common, that their subject-matter is constant and unchanged in all countries and in all ages. The progress of science was familiar to men's minds but the development of the subject-matter of science was strange to them. As the century wore on, the biological group of sciences were slowly making way, and people were getting clearer ideas as to the nature of organic growth. They were learning that if the subject-matter of a science passes through different stages of development, the laws which apply to one stage will seldom apply without modification to others; the laws of the science must have a development corresponding to that of the things of which they treat. The influence of this new notion gradually spread to the sciences which relate to man; and showed itself in the works of Goethe, Hegel, Comte and others. At last the speculations of biology made a great stride forwards: its discoveries fascinated the attention of the world as those of physics had done in earlier years; and there was a marked change in the tone of the moral and historical sciences. Economics has shared in the general movement; and is getting to pay every year a greater attention to the pliability of human nature, and to the way in which the character of man affects and is affected by the prevalent methods of the production, distribution and consumption of wealth. The first important indication of the new movement was seen in John Stuart Mill's admirable Principles of Political Economy . Mill's followers have continued his movement away from the position taken up by the immediate followers of Ricardo; and the human as distinguished from the mechanical element is taking a more and more prominent place in economics. Not to mention writers yet living, the new temper is shown in Cliffe Leslie's historical inquiries, and in the many-sided work of Bagehot, Cairnes, Toynbee and others; but above all in that of Jevons, which has secured a permanent and notable place in economic history by its rare combination of many various qualities of the highest order. |
There are science which depends more on individual circumstance: " ...have this point in common, that their subject-matter is constant and unchanged in all countries and in all ages... ". That means, especially if the individual circumstance have a strong impact on the economy, that "economic laws" can only exist, if we abstract from these individiual circumstances. In other words: If the statement of the "economic law" is completely trivial. There is, for instance, a market equilibrium, the law of supply and demand is valid. This market equilibrium is even given, if half of the population starve from hunger because the equilibrium price for basic needs is so high, that they can't afford them. The equilibrium price is compatible with just any situation. What we actually want to know is not the equilibrium price, but the factors this equilibrium price depends on.
[We will use the equilibrium price later on, see cardinal measurement of utility. The concept can be useful, but we have to be aware of what we are doing.]
The famous cross of demand and supply establishes a relation between two EFFECTS, but we are more interested in the causes of this effects.
Alfred Marshall was well aware that the methods to be used depends on the subject-matter: "...the laws of the science must have a development corresponding to that of the things of which they treat..." That means that sometimes we can use algebra to analyse an issue and we can even get to very exact results, for instance in financial mathematics, but sometimes statistical methods were better suited and sometimes a verbal description is the best method. Sometimes we can abstract from individual circumstances, sometimes the individual circumstances have a strong impact and abstracting from them leads to irrelevant results.
Finally he was well aware that in social science we have a dialectic betwenn the subject and the object. If the subject as well as the object changes in the course of history and if they influence each other there will be no stable laws and a lot of the assumed universal and stable laws will be valid only for a short time.
An increase in know how will lead to a more efficient production structure and this more efficient production structure will
have an impact on the people. Today it is true, that people are more willing to work if they earn more, in part because the social status depends on what someone earns. Some people don't earn money to consume more, as the classical / neoclassical theory assumes, but to improve their social status. It is possible that in fifty years social status depends on completely different things.
The believe that some things never changed we have seen very often in the course of history, a very illustrative example for that is David Ricardo. This is not a phenomenon restricted to economics. Ethnic groups were attributed certain characteristics, certain human behaviour was assumed to be stable, technical limitations were taken for granted etc.. It seems that the only thing stable in the course of history is the believe that some things are stable and never change. We will return on the topic when talking about Ernst Bloch.
The meaning of the reference to Hegel, Goethe and Comte "...
...The influence of this new notion gradually spread to the sciences which relate to man; and showed itself in the works of Goethe, Hegel, Comte and others..." is not very clear. Concerning Hegel is obvious that subject <=> object dialectic is the basic message of his philosophical system. Concerning Goethe it is more difficult, because a "central" message doesn't exist. (Although it is not difficult to find poems that goes in this sense, for instance Primordial Words. Orphic.) Concerning Auguste Comte he refers perhaps to the conception of sociology as a transversal science.
The determination of man by the social circumstances plays a role in the famous positivism dispute between Adorno and Popper. It the thing measured is only the effect of a historical process the data don't prove anything and still less they can serve to justify something. This is relevant for instance in the discussion about the culture industry. From a positivist point of view it can be said that garbage shown in television satisfy the objective preferences of the people. and the television, like other mass media, only supplies what people want. It can equally said that first the television formed the preferences in order to satisfy them afterwords.
A more concrete example: Right now people are interested in the different marriages of the different princes and princess, although that is completely irrelevant and has no impact on their lives, because the mass media bomb them with information of this kind. If the mass media informed them about the customer duties on coffee and choclate, something that actually concerns them, because they pay it, and about the catastrophic consequences of these customer duties on the exporting countries, perhaps that would interest them more. See also preliminaries.
That the human nature is very pliable, ...the pliability of human nature..., is obvious. Concerning religion, nation, acceptance of sexual orientations etc. there are few attitudes, behaviour patterns, beliefs, preferences that has remained the same in the last fifty years. Until 1969 homosexual relationships were punished with five years in prison in Germany. Nowadays, only 46 year later, they can even marry. To give an example, although it is not really difficult to find thousands of examples that illustrates this fact.
It is as well easy to understand that the economic results of a society where the social status depend on birth is very different from a society where the social status depends on personal success. All the economic laws we find in modern textbooks are valid in both societies, but the results are very different.
All the economic laws, if we want to return 150 years in history, are as well valid in a society where the access to schooling is only possible for a minority and in a society where the government is able and willing to offer schooling to everybody. However the results are very different.
We can therefore say that economics studies some arbitrarily chosen issues independently from the question whether these issues are relevant or not.
Those who affirm that advance in economics depends on the universally valid and stable economic laws has to prove first that economic development and stability don't depend on individucal circumstances and that the decisive factors for economic development are stable in time. At least he hast to prove that these individual circunstances are irrelevant and that their impact on economic development is negligible.
Those who understand by economic analysis moving some curves from the left to the right and from the right to the left using the concepts of Alfred Marshall actually abuse the concepts of Alfred Marshall, because Alfred Marshall saw very clearly the limits of mathematical or graphical modeling.
We can deduce from the last paragraph as well that for Alfred Marshall
the methodological paradigm is biology with it's great variations of methods, mostly (1), (2), (3) and only seldom the prefered method of physics, (4).
The next question that preoccupies both the classical, at least Adam Smith, and the neoclassical authors is the aim of economics.
Adam Smith focus on practical benefit of the study of economics, see an economic perspective, whereas Vilfredo Pareto and Léon Walras affirm that the goal is pure science, science for the sake of science.
This goal, science for the sake of science is very often put forward by people, for instance academic economists, who want to follow their hobbies without being bothered by reality and paid by the taxpayer. There is no doubt that anybody can have any hobby he wants, but only under the condition he finances his hobby himself.
Science for the sake of science is the best method to evade any kind of controll. All parameters that can be used to controll the efficiency off public investment in research and development fails, if the impact on reality is refuted.
One can have pure science as a hobby, provided that he finances it himself. If the tax payer is involved there in no pure science. What actually exists is basic research, in other word a research that doesn't lead directly to marketable products, but allows a deeper understanding of fundamental mechanism that allows applied research, see investments in research and development.
Investments in basic research can only be financed by the government, because the risks of failure are very high and only the government benefits from all secundary effects, for instance if the research lead to innovations. The results of basic research doesn't lead to marketable products and therefore no private company will invest money in it. For the government it doesn't matter if the company X or the company Y transforms the results of basic research into a marketable product. It benefits in both cases: from higher tax revenue, less social transfer if jobs were created, spill over effect etc.. But the company X won't finance the basic research, the cualification of his employees, and tolerate that they go to the company y to convert the results of their research in a concrete product.
But all countries that have programs for promoting and subsidise research and development requires a practical impact. Very often governmental subsidise depend on investments of third parties. The government hopes that the practical benefit will improve if private third parties participates in the investment.
Science pure from an economical perspective is a vaste of resources. Academic economists insist, following their gurus Vilfredo Pareto and Léon Walras that the aim of economics is pure science and they sell that as the very scientific. The truth is, that without any working experience, something they normally don't have, the only thing they can do is pure science and modeling, because if we abstract from reality, there is no need to know reality.
The harder it is for an academic branch to prove its relevance, the more they are induced to put forward the argument of the pure science. The most fervent supporter of pure science we find in humaties (philosophy, philology, art, litterature and so on). Every time a faculty of humanities is closed they complain about the disregard for their subjects. Concerning humanities the question whether they are scientific or not is completely irrelevant. The question is whether they give impetus to public discussion about existencial questions, if they succed in interesting people for their subjects, if the open the mind of the people and enrich their lives. Humanities are useful as a counterweight for the cultural industry. But if academic humanities are as boring, repetitive, schematic as the cultural industry itself we don't need them.
We will discuss below the positions of Alfred Marshall, Vilfredo Pareto and Léon Walras concerning the aim of economics. For Alfred Marshall the aim of economics is at first place pure science. [A position he will relativate immediately afterwards, see below.]
| Economics has then as its purpose firstly to acquire knowledge for its own sake,
and secondly to throw light on practical issues. But though we are bound, before
entering on any study, to consider carefully what are its uses, we should not plan out
our work with direct reference to them. For by so doing we are tempted to break off
each line of thought as soon as it ceases to have an immediate bearing on that
particular aim which we have in view at the time: the direct pursuit of practical aims
leads us to group together bits of all sorts of knowledge, which have no connection
with one another except for the immediate purposes of the moment; and which throw
but little light on one another. Our mental energy is spent in going from one to
another; nothing is thoroughly thought out; no real progress is made.
The best grouping, therefore, for the purposes of science is that which collects
together all those facts and reasonings which are similar to one another in nature: so
that the study of each may throw light on its neighbour. By working thus for a long
time at one set of considerations, we get gradually nearer to those fundamental unities
which are called nature's laws: we trace their action first singly, and then in
combination; and thus make progress slowly but surely. The practical uses of
economic studies should never be out of the mind of the economist, but his special
business is to study and interpret facts and to find out what are the effects of different
causes acting singly and in combination. Alfred Marshall, Principles of Economics, THE ORDER AND AIMS OF ECONOMIC STUDIES |
It seems that it could have put in a more simple way. It is obvious, that any practical measure can only be successful if the assumed causal chaine is correct. The problem is not that the "direct pursuit of practical aims leads us to group together bits of all sorts of knowledge, which have no connection with one another except for the immediate purposes of the moment", but the fact that a only partial knowledge about reality leads to inappropriate measures.
However in reality things are a little bit more complicated. The idea that sitting on a table we can figure out how the economy works is completely misleading. Sitting on a table actually "nothing is thoroughly thought out", because that is not possible. To "trace their action first singly, and then in combination; and thus make progress slowly but surely" is not possible. That is way of thinking that leads to modeling. In order to know which factors have an impact, we have to take concrete and practical actions.
It would be really nice if an entrepreneur could sit on a table and thoroughly think out, what is going to happen and unless he didn't have thought out everything he does actually nothing. That would be really very nice, but unfortunately it can't work like this in the real world. In the real world companies as well as governments have an imperfect vision of reality and they take action based on imperfect information. The point is not that some action will lead to unexpected results, that's normal. The crucial question is whether they are able or not to learn from their errors and how efficiently they do that.
The market is more efficient in correcting errors than governments, because the market eliminates companies who are not able to learn, while a government can make the same mistake again and again. Concerning governmental intervention the error is not even realised, because in general there is no transparent control on governmental activities.
And even if all the relevant information objectively needed are known at the moment a decision is taken, there is no guarantee that the circumstances won't change in the future.
The concept about advances in economics is incompatible with market economies. Market economies are needed, because information are never perfect and complet. The question is not whether we can know everything about the future. The question is what is the best method to correct errors. The reader of these sentences would be rich in ten years, if he only knew what will happen in ten years. The biggest problem of the reader of these lines, is the fact that he doesn't know that.
Even that is not certain: "...we trace their action first singly, and then in combination; and thus make progress slowly but surely...". It is not even sure that we make any progress. All we can know, if not trivial like the statements of Vilfredo Pareto or an abstraction from reality like the theory of Léon Walras, is based on the circumstances of the past. "Economic laws" are distilled from based on these circumstances, but there is no guarantee that these circumstances will be the same in the future.
The little advance of economics is due to that. All theories are based on the circumstance of a certain time and space, but if the circumstances change, a theory becomes obsolete.
To give an example: German industry is heavily based on the automobile sector. There is not a lot of phantasy required to imagine what would happen, if the preferences change, if people spent for instance more money in personal services, education, sport etc.. and cars cease to be status symbol. This is not a theoretical option, that is very concrete. If countries like China wouldn't absorbe the supply, Germany would have serious problems. For a lot of reasons, organisational changes, car sharing, powerfull competitors, it is cheaper to voyage by airplane than in ones own car, environment problems, congestion of railroads etc.. private mobility lost its attraction and cars are less and less a status symbol.
There is no doubt than in ten years economists will analyse the lack of demand for cars with their traditional methods, moving around curves, but the cause of the problem will be something different. "Economic laws" can impede the advance of economics if new problems were analysed with old concepts taken for a stable basis for the analysing of economic problems.
In the next paragraph he relativates once again what he had said in the preceding paragraph. Although it was Alfred Marshal who wanted to distinguish clearly between the study of politics and the study of the economy by naming the last one economics and not political economy (David Ricardo / Adam Smith), économie politique (Léon Walras), econonomia politica (Vilfredo Pareto) he defines in the next paragraph economics as a transversal science and pleads for opening economics to other sciences in order to "to obtain guidance in the practical conduct of life, and especially of social life."
| Economics is thus taken to mean a study of the economic aspects and conditions of
man's political, social and private life; but more especially of his social life. The aims
of the study are to gain knowledge for its own sake, and to obtain guidance in the
practical conduct of life, and especially of social life. The need for such guidance was
never so urgent as now; a later generation may have more abundant leisure than we
for researches that throw light on obscure points in abstract speculation, or in the
history of past times, but do not afford immediate aid in present difficulties.
Alfred Marshall, Principles of Economics, THE ORDER AND AIMS OF ECONOMIC STUDIES |
If we summarise that: Alfred Marshal started by describing the ideal methodological approach and this approach is the one used in physics. Physical laws, or natural laws in general, allows to make exact prediction of the future. If this were possible in economics as well, there is no doubt that it would be perfect and the world would be much better.
Than he discusses the difference between physics and economics. The object of physics is characterised by the fact that the relationship between cause and effect is stable, while relationships of this kind doesn't exist in economics. If relationships of this kind don't exist, we need another methodological approach.
The following statement, that pure science can lead to an advance in economics is more critical, because this implicates that there can be an advance in economics without practise. It is generally assumed, that the main problem in economics is the fact that experiments are not possible, in other way it is not possible to abstract from some factors in order to better study the remaining ones. Actually this is not the main problem. The main problem is, that we don't know which factors will have an impact on economy in the future.
Then he relativates this statement again by saying the "need for such guidance was never so urgent as now; a later generation may have more abundant leisure than we for researches that throw light on obscure points in abstract speculation, or in the history of past times, but do not afford immediate aid in present difficulties". He pleads in favour of a practical utility.
To summarise all that: Alfred Marshall got the more or less all the relevant aspects of the topic, but the text is somehow contradictory.
However a contradictory texts that contains the basic problems of a problem is much better than a text, that is not contradictory but completely wrong. This is the case of Vilfredo Pareto.
[Although we can learn from the text of Vilfredo Pareto that there was a debate about the right methods in the 19th century. Something inexistent today. Tody we have a certain canon of concepts and methods which were no longer questioned. That is even worse.]
| Discussioni sul "metodo" dell' economia politica riescono ad un mero perditempo. Scopo della scienza è di conoscere le uniformità dei fenommeni, e quindi giova seguire ogni qualsiasi via, ogni qualsiasi metodo, che conduca allo scopo. Alla prova solo si riconoscono i metodi buoni e i cattivi. Quello che ci conduce allo scopo è buono, sin tanto almeno che se ne trovi uno migliore. La storia ci è utile in quanto che estende nel passato l' esperienza del presente, e supplisce agli esperimenti che non si possono fare; onde è buono il metodo storico; ma è pure buono il metodo deduttivo, o induttivo, che si volge ai fatti del presente. Dove basta, nelle deduzioni, la logica usuale, si accetta senz' altro; e dove non basta, si sostituisce, senza alcun scrupolo colla matematica. Inoltre se un autore preferisce un metodo ad un altro, non lo crucieremos su ciò; ad esso unicamente chiediamo di farci conoscere leggi scientifiche; giunga poi come vuole alla meta. | Discussions about the methods are a vaste of time. The goal of science it to describe the regularity of the phenomenons and therefore any mean and any method that serves this aim is useful. By testing later on it can be distinguished between well and bad methods. The method that serves this aim is good at least until no better one has been found. History is good because it allows to extent the experiences of the present to the past and allows therefore to subsitute the experiments that cannot be realised. That's why the historical method is good. But the deductive method serves as well, or the inductive method, which addresses the fact of the present. When usual logic is enough, in case the deductive method is used, it will be accepted without further discussion. Where it is not enough, mathematics can be used without scruples. If an author prefers one method to another, we will not complain about that. We only require that he gets us acquainted with new scientific laws and it doesn't matter how he obtains them. Vilfredo Pareto, Manuale di Economia Politica, Principii Generali, § 35 |
It is difficult to put more foolish nonsense in one paragraph. The first problem is the use of the word science. In the academic sphere this term is used in an inflationary way. Almost any text produced in the academic sphere is scientific, although this means nothing.
If asked, most people who use this term would answer, that a scientific thesis should be formulated in a way that can be tested against reality, "...Alla prova solo si riconoscono i metodi buoni e i cattivi...". The problem is that this very often is not true. Statement obtained by pure logical deduction for instance cannot be tested against reality. But that is not really the problem.
The problem is, that an "economic law" is only valid under the circunstances under which it has been distilled. If these circunstance changes, the "law" is no longer valid.
In other words: Vilfredo Pareto assumes that the underlying structure of economic "laws" is as stable as the laws in physics. This is something he should had been proved before instead of implicetely assuming it.
The other problem is more subtle, but more relevant. In every, but really in every textbook about economics we find several times these two very famous equations.
Y = C + I
Y = C + S
The equation is obviously right. The national product is either consumed or saved and in a state of equilibrium what is saved is as well invested. Therefore we get the very famous equation I = S. This is a "law", eternally and everywhere valid and the most misleading concepts of economics, which makes it almost imposible to understand keynesian theory, because most people deduce from that equation that prior savings are the condition for investments. (What would correspond to the classical theory, see interest rates or the booklet downloadable from the startsite of this website.)
Actually investments are not financed by prior savings, but with money, that can be printed in any amount and the corresponding savings will happen in the future, when the credit is paid back.
We have therefore a lot of problems. An "economic law" can be true, but only if the underlying economic structure doesn't change. In this case it is of no help, that a law can be tested against a historical situation (...La storia ci è utile in quanto che estende nel passato l' esperienza del presente...). There might had existed a law that described that the production of food grows only following a aritmetic progression, while population increases following a geometric progression, see Malthus, and therefore there is a limit to the growth of the population, because the quantity of food will limit further growing of the population. In industrialised countries the situation is a little bit differend. The production of food has exploded and we suffer from overweight and the population decreases.
It is even possible that there is a law, for instance some of the kind I=S, that is correct, stable and always everywhere true, but doesn't explain anything. It describes an equilibrium and there is no doubt that it describes it correctly, but is completely misleading anyway.
Vilfredo Pareto have found a lot of laws that belongs to a third category. A law can be so trivial, that it is always true. In this case there is no need to test is against reality. The law of the decreasing marginal utility, a pompous name that sounds very scientific, is so trivial, that it is always true. If we are hungry, we like to eat but the more we eat, the less pleasure we have to continue eating. We don't need to know who is living on mars and if there is someone living there. But if is a living being, he needs energy and from somewhere he has to obtain it. We can therefore assume that if he is hungry he likes eating.
With this sentence "... Discussioni sul 'metodo' dell' economia politica riescono ad un mero perditempo.." Vilfredo Pareto reveals that he has no clue what he is talking about. The methods used or for any reason preferred has an impact on what is studied. Classical theory plays almost no role in academic teaching, because their concepts, as well as the concepts of Friedrich Hayek, Walter Eucken, cannot be mathematically modelled. If someone assumes that the underlying structures of economics are stable, he will assume that economics can be studied with the same methods as physics. The methods chosen reveal assumptions about the object and what aspects of the object will be analysed and which concepts will be canonised, see classical theory.
It may be true that in other science the methods are chosen "intuitively", without reflection. For a certain method the method which is best suited for analysing a problem is chosen. There is not even a debate about the methods to be chosen. However in economics that's not the case. The discussion about the methods has for different reasons ideological aspects. First of all mathematicall modeling looks quiete scientific. Academic economics wants to suggests that their science is as exact and scientific as physics. Second, this is valid more for marxism than for the oppositors of marxism, mathematical modeling suggests that the ideology is objectively true. Marxism still more than its opponents has a very narrow perspective on economics.
The statement "... . Scopo della scienza è di conoscere le uniformità dei fenommeni..." assumes something that actually shoud be proved. He assumes that the phenomenon can be explained by rules. This is true if there are stable relationships or stable causal chains. If this is not the case, he won't find any regularity in the phenomenon.
We will address this topic again when talking about Karl Popper. The theory that Popper applies to democracy can be applied as well to a market economy. It is not possible to construct an ideal world on a drawing board. We can only approach this ideal state by resolving step by step concrete problems through the proposals advanced in a democratic decision making process. Proposals that worked are kept, the others are abandoned. Market economies are somehow similar. A company makes a proposition and people can express their agreement or disagreement by buying or not the product or service.
With the same reason that economists look for "economic laws" political science could look for "political laws", but nobody had ever the idea to do that, because everybody knows "intuitively" that the parameters who have an impact on the object of study of political science are instable.
Beside that Vilfredo Pareto has found very few "economic laws" and those he found and which belong nowadays to the canon of textbooks about microeconomics are stable because they are trivial.
The rest of the "theory" of Vilfredo Pareto are just strange opinions from a frustrated human being, see sociology. There is no way to test his complaints against reality. The problem is not that his complaints doesn't fit with reality, the problem is, that they cannot even be tested against reality.
| Il femminismo è malattia che può solo appicarsi ad un popolo ricco o alla parte ricca di un popolo povero. Col crescere della ricchezza, nella Roma antica, crebbe il mal costume delle donne; se certe ragazze moderne non avessereo i quattrii necessari per portare in giro l'ozio e la concuspiscenza loro, i ginecologhi avrebbero meno lavoro. | Femminism is a sickness which only can affect a rich nation or the rich part of a nation. In antique Rom bad customs of women divulgate the more it became rich. If some modern girls wouldn't have the money allowing them to live their muse and sensuality, the gynaecologists would have less work. Vilfredo Pareto, Manuale di Economia Politica, La Popolazione , § 54 |
The author would say that it would be much more useful if instead of copying some quotes of Vilfredo Pareto of a book that quoted another book about Vilfredo Pareto, who copied the quote from another book it would be much more useful to read the original book. Doing that one would understand the intention of Vilfredo Pareto and his pareto optimum. What he actually wanted to demonstrate is that moral or ethical norms don't exist. We will return on the topic later on, see sociology.
Analysing more in detail the other authors called nowadays neoclassical, Vilfredo Pareto, Carl Menger, Léon Walras the difference between them and Alfred Marshall becomes obvious. Alfred Marshall is the intellectual between this bunch of idiots. Perhaps Alfred Marshall is somehow contradictory, he didn't succed completely to give a coherent presentation of the problems, but this is due to the fact, that he was well aware of the complexity of the problem.
Carl Menger, another neoclassical author and one of the founders of the austrian school, has been fallen completely in oblivion. This is not due to the fact, that he was more stupid than Vilfredo Pareto, there is no big difference, but to the fact that his concepts can't be mathematically modelled. (This is actually a "law". What can't be modelled mathematically will not be canonised.) However even without mathematical modeling it is possible to tell a lot of nonsense.
[The language is a little bit weird, but this is the case as well in the original german version.]
| Zu welchen Resultaten uns die obige Methode der Forschung geführt hat und ob es uns gelungen ist, durch den Erfolg darzuthun, dass die Erscheinungen des wirthschaftlichen Lebens sich strenge nach Gesetzen regeln, gleich jenen der Natur, dies zu beurtheilen ist nun Sache unserer Leser. Verwahren möchten wir uns nur gegen die Meinung Jener, welche die Gesetzmässigkeit der volkswirthschaftlichen Erscheinungen mit dem Hinweise auf die Willensfreiheit des Menschen läugnen, weil hiedurch die Volkswirthschaftslehre als exacte Wissenschaft überhaupt negirt wird. Carl Menger, Grundsätze der Volkswirtschaftslehre, Vorrede |
To which results the method described previously have led us and if we have been able to prove by the success that the appearences of the economy are steered by laws the same way as nature is steered by law can be judged by the reader himself. The only thing we have to refute completely is the opinion that denies that there can be a regularity in the economy due to the free will of human beings, because this would mean that economics can't be an exact science. |
Carl Menger was for some time the teacher of the prince of Austria, Rudolf, who committed suicide in 1889. It is to assume that most people would commit suicide if they were obliged to hear such a nonsense several hours a day.
The basic idea that economic is steered by laws is actually refuted by another austrian, Hayek. What we can actually say is that a certain order, this idea is crucial in the ordoliberalism, give certain incentives and the market players, as consumers or suppliers, will act in acccordance to the incentives given. In other words: In a market economy people have an incentive to reduce scarcity, because it is profitable. This incentive is missing in a planned economy and have to be substituted by something else, for instance by the appeal to the class consciousness or something of that style. [Something that never works, by the way.] But in this case "economic laws", the behaviour of human beings in an economic context is steered by the order imposed by political decisions. "Economic laws" are the result of decisions and not the other way round. We will return on the topic when discussing about Hayek.
In other words: There is a causal relationship, "laws". Human decisisons about the economic order, are the cause and the behaviour the effect. This sentence "...that the appearences of the economy are steered by laws the same way as nature is steered by law can..." is therefore completely wrong. Natural laws doesn't depend on human decisions.
It is to assume that Carl Menger took it for granted that a market economy is the only economic order possibel and that this order is somehow "natural". This is not the case, not at all. Market economies appeared only in the 18th century and still tody they are an ideal, but exists in its pure form nowhere.
If he believes that the people who affirms "that economics can't be an exact science" are wrong, he didn't understand the mechanisms of free market economies. Human behaviour is indeed predictible in a free market economy, but not the result of this behaviour. If it were possible to predict the result of a market economies, there would be no need for market economies. If an exact prediction were possible, it would be better plan the economy.
Carl Menger has a naive perception of science and as a lot of people he is impressed by science like physics, that indeed can predict very exactly the relationship between cause and effect. However more important than exactness is relevance. Mere tendencies between different phenomenon about relevant issues are more important than exact prognostics about irrelevant issues. We don't know the exact results of a market economy, but we do know that in the long run the results are better than in any other kind of economic order.
Beside that the impossibility to predict "exactly" the result of an economic order is not only due to the free will of human beings, although this is true as well, but to the fact that the underlying economic structure changes. For a while it may be true that the amount of money circulating is controlled by the central banks, but in the future it is possible that people pay with bit coins or with "plastic" money.
The most stunnig author is Léon Walras. Here the confusion is really complete. Léon Walras realised that the object of physics is steered by very stable laws, while the object of economics depends on human decisions. Therefore he assumes that if we only know the rules that controll human behaviour we can dominate it.
The problem is, that Léon Walras brought mathematical modeling to it utmost consequences, see . In his theory there are no human beings and decisions. Capital and labour moves alone. There are no capitalists and no workmen and of course there are no decision making entrepreneurs. Economics is steered by economic forces the same way that the universe is steered by the law of astrophysics. Capital and labour allocates themselve alone. In lightning speed and without any efford they flood to the most profitable use and once there, we have no technological progress, no change of new markets, no change in preferences, no need for new qualifications, they remain at this optimal allocation until the Last Judgement, but even that is not sure, because eveen for God there is nothing that can be improved.
The only positive thing in the next paragraph is that Léon Walras at least was aware that the object of the natural science is different from the object of social science, although he assumed anyway that both can be studied with the same methodological approach. However the distinction he made between natural forces, that cannot be controlled and human facts, that can be controlled, is hard to understand. Technology only works if natural forces are controlled. There are even controlled in a much more exact and precise manner than the human will.
| Or, tout d'abord, les faits qui se produisent dans le monde peuvent être considérés comme de deux sortes : les uns ont leur origine dans le jeu des forces de la nature qui sont des forces aveugles et fatales ; les autres prennent leur source dans l'exercice de la volonté de l'homme qui est une force clairvoyante et libre. Les faits de la première espèce ont pour théâtre la nature, et c'est pourquoi nous les appellerons faits naturels ; les faits de la seconde espèce ont pour théâtre l'humanité, et c'est pourquoi nous les appellerons faits humanitaires. A côté de tant de forces aveugles et fatales, il y a dans l'univers une force qui se connaît et qui se possède : c'est la volonté de l'homme. Peut-être cette force ne se connaît-elle et ne se possède-t-elle pas autant qu'elle le croit. C'est ce que l'étude de cette force peut seule apprendre. Pour le moment, peu importe : l'essentiel est qu'elle se connaît et se possède au moins dans certaines limites, et cela fait une différence profonde entre les effets de cette force et les effets des autres forces. Il est clair que, quant aux effets des forces naturelles, il n'y a rien autre chose à faire qu'à les reconnaître, les constater, les expliquer, et que, quant aux effets de la volonté humaine, au contraire, il y a lieu d'abord de les reconnaître, de les constater, de les expliquer, puis ensuite de les gouverner. Cela est clair puisque les forces naturelles n'ont pas même conscience d'agir, et, bien moins encore, ne peuvent agir autrement qu'elles ne font, et puisque la volonté humaine, au contraire, a conscience d'agir et peut agir de plusieurs manières. Les effets des forces naturelles seront donc l'objet d'une étude qui s'appellera la science pure 'naturelle' ou la science proprement dite. Les effets de la volonté humaine seront l'objet 'd'abord d'une étude qui s'appellera la science pure morale ou l’histoire, puis ensuite d'une étude qui s'appellera d'un autre nom, soit l'art, soit la morale, comme nous le verrons tout à l'heure. Ainsi se justifie déjà la distinction de Ch. Coquelin entre la science et l'art (§ 10). L'art « conseille, prescrit, dirige » parce qu'il a pour objet les faits qui prennent leur source dans l'exercice de la volonté de l'homme, et que la volonté de l'homme étant, au moins jusqu'à un certain point, une force clairvoyante et libre, il y a lieu de la conseiller, de lui prescrire telle ou telle conduite, de la diriger. La science « observe, expose, explique » parce qu'elle a pour objet des faits qui ont leur origine dans le jeu des forces de la nature, et que les forces de la nature étant aveugles et fatales, il n'y a pas autre chose à faire à leur égard qu'à les observer et à en exposer et en expliquer les effets. | First we can distinguish in all things between two different types. The first ones have their origin in nature and this forces are blind and fatal. The others have their origin in the will of man which is able to reflect and free. The theater of the first forces is nature that's why we call them natural forces. The theater of the second is humanity that's why we call them huma facts. Beside all the blind forces there is one conscious force which is called: The will of man. Perhaps this force is not known at the extent we believe, but only by studying it we can know more about it. Right now it doesn't matter. The important thing is that it is known at least until a certain degree and that it can be controlled and that's the difference between the results of this force in comparison to the results of the other forces. It is obvious that little can be done concerning the law of natures but recognise them, describe them and explain them, while the human will has first to be understood, then they must be desribed and explained in order to finally controll them. This is obvious, because the force of nature not even are conscient of their acts and, while human acts are realised consciously and can therefore act in different ways. The results of the nature forces are therefore the object of the study of science or of the natural science or simply science. The results of the human will are the object of a study that we call science of moral or history or after having studied them art or moral as we will see later on. That way the distinction of Ch.Coquelin between science and art (§10) can justified. Art "advises, presribes and controlls" because its object are the facts whose causes are the will of men and due to the fact that the will of man, at least to a certain degree is a conscious force, at least until a certain degree, is a conscious force it can be advised, ordered a certain behaviour and be controlled. Science "observe, describes and explains" because its objects are the facts which derives from the forces of natures and as the forces of natur are blind and fatal nothing can be done but observing and explaining its results. Léon Walras, Eléments d’économie politique pure, Distinction entre la science, l'art et la moral |
We have to see that the title of his book is Eléments d’économie politique pure, Elements of pure economy and there is no doubt that the elements are very pure, there is no mix with any kind of reality. The whole book consists almost only of equation and was therefore silently ignored by Alfred Marshall. We will see later on, see exchange market and market where products are actually produced, that this abstraction is only possible because he analysis very special type of markets which don't exist in reality or a irrelevant.
The whole paragraph is strange. At one side he assumes that there are laws that explains human behaviour and at the other side he assumes that the economy depends on human decisions and that human beings have a free will. This is contradictory. If something can be changed arbitrarily by human decisions, it is not a "law" in the sense of a natural law.
What he actually describes in his book are "economic laws", but human decisions plays no role.
The next paragraph is really very, very strange, because it is very lucid. In part mathematical modeling, used at both side of the ideological front, by marxism as well as by neoclassical theory, is neede to represent a poor ideology as something objectively true. The problem is, that no other author, at least at that time, made such a heavy use of mathematical modeling.
| Ce qui a séduit les économistes dans cette définition, c'est précisément cette couleur exclusive de science naturelle qu' elle donne à toute l'économie politique. Ce point de vue, en effet, les aidait singulièrement dans leur lutte contre les socialistes. Tout plan d'organisation de la propriété était repoussé par eux a priori et, pour ainsi dire, sans discussion, non pas comme contraire à l' intérêt économique, ni comme contraire à la justice social, mais simplement comme combinaison artificielle se substituant aux combinaisons naturelles. | What seduced the economists in this definition [he refers to a assumed definition of Jean Baptiste Say where he, Jean Baptiste Say, compared economic laws to natural laws] is the exclusive character that the natural laws give to economic laws. This point of view helpd a lot in the their fight against socialisme. Any proposition refering to the distribution of fortune was refuted from the beginning. Not because it was opposed to economic interests or because it was not compatible with social justice, but because otherwise one would have refuted by mere artificial combinations the laws of nature. Léon Walras, Eléments d’économie politique pure, Définition de J.B. Say |
This paragraph is really strange. He is well aware that mathematical modeling is used to present a pure ideology as somenthing objectively true, however he is the one who used excessively this method.
[The author is not sure that the ideological confrontation explains completely the use of mathematical modeling. He is more inclined to believe that the explanation of the phenomenon give by Keynes is more relevant, see mathematical modeling. A lot of people have a problems with having in mind at the same time different constellations and to get a full picture of the complexity of a problem. This people prefere to start with some basic assumption and abstract from reality and the less experience they have with reality, actually academic economists have normally no working experience at all, they prefer modeling. modeling is also a shield against critics from the world outside of academic economy. Any critique can be refuted by saying that the modell is an abstraction and inside the parallel world of the modell the modell is correct.]
In public debate we find very often the idea that mathematical modeling is a typical characteristic of the neoclassical thinking. This is actually not true, Alfred Marshall, the founder of mathematical modeling, makes little use of this kind of methodological approach, and second we find the same approach in marxisme, although it is never critisized there. In countries influenced by marxism the universally valid "economic laws" were even named explicitely in the constitution, see Karl Marx. Actually the ideological use of modeling can be seen more clearly in marxism.
However, if we want to be precise, the content of an ideology is actually irrelevant for the constitution of an ideology. This is the big mistake of Karl Popper.
Popper analysed ideologies focusing on the content. Beside the fact that his example, Platon, Hegel and Marx, are arbirtraly chosen, for instance he could had add any kind of religious fundamentalism, the content is irrelevant. People like Hitler or Stalin didn't had a vision of the ideal state to be imposed by force. It was just a struggle for power, but not even that is the interesting question. The interesting question are the mechanisms that helps to create and stabilise totalitarian states and these mechanisms are the same everywhere. The right approach is the one taken by Hanna Arendt, Origin of Totalitarism.
It is to assume that other factors leads to modeling, especially mathematical modeling. Most people associate with science a certain kind of progress. That means in practice that science has to produce "laws", in other words a stable basis of know how universally accepted and it seems that a bunch of trivialities called "economic laws" is better than no "laws" at all.
If the ideological confrontation only were the reason for modeling, it should have disappeared in part after the end of the cold war. That was not the case.
What we find in modern textbooks about microeconomics are a lot of "economic laws", but none of them plays any role when it come to discuss about real problems. The problem with all this law is that they abstract from any individual circumstances and that is what we are generally interested in. We are not interested in marginal utility, marginal revenue, point of cournot,
consumer and producer surplus, the marginal rate of substitution, the budget restriction and things like that. We want to know for instance how the education system in Africa can be improved and what kind of techniques can be used for that goal. We are interested in new plants, able to stop the expansion of the desert. We don't want to know the loss of consumer surplus due to the custom duties on coffee and cacao, we just want to abolish them and then study the concrete possibilies of the producers of coffee and cacao beans to produce marketable products.
Almost 80 percent of what is studied in economics is irrelevant.
There is no doubt that a contract curve exists in Nigeria, in France, in Uruguay and in England, but this is highly irrelevant. No doubt that there is an optimal exchange rate, but first, and this is the point we are really interested in, people have to have something that can be changed.
If resources are scarce, and time is always a very scarce resource, it is better to throw all this stuff in the garbage and develop new courses which consider economics more that a transversal science and that allows a specialisation afterwards, see preliminaries
return to the top of the page ...
The methodological paradigm of the neoclassical theory is physics
However already Alfred Marshall mentioned biology as the methodological paradigm, which a much broader methodological approach
The notion "law" doesn't mean nothing really concrete. Law can mean a mere statistical relationship or a stable relationship between cause and effect.
In social science the term "law" is disputed, because what is actually measured is the effect and not the cause.
