'Debunking Economics' - Ch. 10

["Gunnar Tomasson" <tomasson@xxxxxxxx>]

Steve:

Against the background of a quarter-century's interest and research in the epistemology of science in general and economics in particular, I am persuaded that the real issue with respect to the subject matter of Ch. 10 on 'There is Madness in their Method' reduces to the question whether or not there is merit to the viewpoint which Keynes expressed in the 'Cambridge Economic Handbook' in 1922 as follows:

"The Theory of Economics does not furnish a body of settled conclusions immediately applicable to a policy," Keynes wrote. "It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions."

This restates John Stuart Mill's views as outlined in an 1840s essay on "Some Outstanding Methodological Issues In Political Economy" (or some such title), which Mill ascribed to all classical writers of first rank. 

Soon thereafter, this classical concept of "The Theory of Economics" was discarded by those who brought us the neo-classical-mainstream version of theoretical economics and have struggled unsuccessfully ever since to construct coherent 'Foundations of Economic Analysis' neo-classical-mainstream style. 

In this respect, I have long been persuaded that the make-believe 'foundations' of mainstream economics must be blown to smithereens through reasoned argument before the superstructure of "theory" that has been built thereon can be successfully "debunked". 

I have marshalled some of the requisite intellectual ammunition in my note 'On The Concept Of Theory'.

Gunnar

 

On The Concept Of Theory

1.  Clarity with respect to the concept of Theory in Economics requires, inter alia, clarity with respect to certain methodological issues which relate to Theory in Science in general.  In a 1964 Foreword to Foundations of Economic Analysis, Paul A. Samuelson addressed some of these as follows:

"Those concerned with general problems of philosophy of science and its methodology may find modern economics of considerable interest. By this I do not mean that the methodological views of the venerable economist Ludwig von Mises are more interesting than the positivistic views of his deceased brother, Richard von Mises, the distinguished physicist and mathematician. In my view they definitely are not. But economics is by its nature a softer and less exact science than, say, conventional physics. Now in a hard, exact science a practitioner does not really have to know much about methodology. Indeed, even if he is definitely a misguided methodologist, the subject itself has a self-cleansing property which renders harmless his aberrations. By contrast, a scholar in economics who is fundamentally confused concerning the relationship of definition, tautology, logical implication, empirical hypothesis, and factual refutation may spend a lifetime shadow-boxing with reality. In a sense, therefore, in order to earn his daily bread as a fruitful contributor to knowledge, the practitioner of an intermediately hard science like economics must come to terms with methodological problems. I stress the importance of intermediate hardness because when one descends lower still, say to certain areas of sociology that are almost completely without substantive content, it may not matter much one way or the other what truths or errors about scientific method are involved - for the reason that nothing matters." (Atheneum, New York, 1979, p. ix)

2.  Most, if not all, modern philosophers and practitioners of "conventional physics" would agree with the thrust of Samuelson's remarks on the "self-cleansing property" of "a hard, exact science".  Yet, no such "property" can be found in the history of solar system mechanics from Ptolemy to Copernicus, Brahe, Kepler, Newton, and Einstein.

3.  This disparity between historical fact and modern fiction derives from a change in the prevailing view of the relationship between what Einstein termed "the physically real" and the "self-cleansing" language of mathematics used by theorists to describe what they have represented as "the physically real" in the realm of solar system mechanics.

4. In a 1690 Preface to his Opticks, Christiaan Huygens summarized the classical (Newtonian) view of the relationship between "the physically real" and the manner of its representation as follows:

"There will be seen in [his work] demonstrations of those kinds which do not produce as great a certitude as those of geometry, and which even differ much therefrom, since, whereas the geometers prove their propositions by fixed and incontestable principles, here the principles are verified by the conclusions to be drawn from them; the nature of these things not allowing of this being done otherwise. It is always possible to attain thereby to a degree of probability which very often is scarcely less than complete proof. To wit, when things which have been demonstrated by the principles that have been assumed correspond perfectly to the phenomena which experiment has brought under observation; especially when there are a great number of them, and further, principally, when one can imagine and foresee new phenomena which ought to follow from the hypotheses which one employs, and when one finds that therein the fact corresponds to our prevision."

5. In the 19^th century, the Marquis de Laplace suggested that the unfolding of the material universe in time could in principle be projected on the basis of the principles assumed by Newton. Later, Einstein showed that a different set of assumed principles "corresponded perfectly to [certain] phenomena", and the Laplacian vision faded away.

6. In the late 20^th century, the ghost of the Laplacian vision has re-appeared to take center stage in the quest by Stephen Hawking et al. for a Unified Theory Of Everything. In A Brief History of Time, Hawking commented thereon as follows:

"As was explained in the first chapter, it would be very difficult to construct a complete unified theory of everything in the universe all at one go. So instead we have made progress by finding partial theories that describe a limited range of happenings and by neglecting other effects or approximating them by certain numbers. […] Ultimately however, one would hope to find a complete, consistent, unified theory that would include all these partial theories as approximations, and that did not need to be adjusted to fit the facts by picking the values of certain arbitrary numbers in the theory. The quest for such a theory is known as "the unification of physics." Einstein spent most of his later years unsuccessfully searching for a unified theory, but the time was not ripe: there were partial theories for gravity and the electromagnetic force, but very little was known about the nuclear forces. Moreover, Einstein refused to believe in the reality of quantum mechanics, despite the important role he had played in its development. Yet it seems that the uncertainty principle is a fundamental feature of the universe we live in. A successful unified theory must therefore necessarily incorporate this principle." (pp. 155-156)

7. The last three sentences convey Hawking's considered view that the "uncertainty principle" is "a fundamental feature of ['the physically real']" in the sense that Huygens, Newton, and Einstein understood the concept of "the universe we live in". Yet, Hawking seems to abjure the very concept thereof in the first chapter of A Brief History of Time:

"In order to talk about the nature of the universe and to discuss questions such as whether it has a beginning or an end, you have to be clear about what a scientific theory is. I shall take the simple-minded view that a theory is just a model of the universe, or a restricted part of it, and a set of rules that relate quantities in the model to observations that we make. It exists only in our minds and does not have any other reality (whatever that might mean)." (p. 9)

8. Needless to say, something that "exists only in our minds" cannot possibly "have any other reality". Why, then, might Hawking have deemed it noteworthy that "Einstein refused to believe in the reality of quantum mechanics," considering that the "uncertainty principle [seems to be] a fundamental principle of the universe we live in"?

9.  It is fair surmise that the real object of Hawking's verbal obfuscation is Einstein's 'heretical' views on the epistemological standing of quantum physics, which he expressed late in life in an essay entitled 'Reply to Criticism' as follows:

"Roughly stated [Einstein's] conclusion is this: Within the framework of statistical quantum theory there is no such thing as a complete description of the individual system. More cautiously it might be put as follows: The attempt to conceive the quantum-theoretical description as the complete description of the individual systems leads to unnatural theoretical interpretations, which become immediately unnecessary if one accepts the interpretation that the description refers to ensembles of systems and not to individual systems. In that case the whole "egg-walking" performed in order to avoid the "physically real" becomes superfluous. There exists, however, a simple psychological reason for the fact that this most nearly obvious interpretation is being shunned. For if the statistical quantum theory does not pretend to describe the individual system (and its development in time) completely, it appears unavoidable to look elsewhere for a complete description of the individual system; in doing so it would be clear from the very beginning that the elements of such a description are not contained within the conceptual scheme of the statistical quantum theory. With this one would admit that, in principle, this scheme could not serve as a basis of theoretical physics. Assuming the success of efforts to accomplish a complete physical description, the statistical quantum theory would, within the framework of future physics, take an approximately analogous position to the statistical mechanics within the framework of classical mechanics. I am rather firmly convinced that the development of theoretical physics will be of this type; but the path will be lengthy and difficult." (Albert Einstein, Philosopher-Scientist, pp. 671-672)

10. Einstein wrote this in 1949. By the mid-1970s, certain work by Stephen Hawking had brought to light aspects of quantum mechanics which, fifteen years later, caused the physicist John Preskill to conclude, without stating so explicitly, that Einstein might very well have been right and all leading quantum theorists wrong on the point at issue:

"Over 15 years ago, Stephen Hawking proposed that the usual rules of quantum mechanics do not apply to a process in which a black hole forms and then completely evaporates. If this proposal is correct, then we face the daunting task of finding a new conceptual basis for all of physics. Since Hawking's original work, this issue has been much debated, but it has not been definitively resolved. When I began thinking seriously about black holes a few years ago, I was inclined to dismiss Hawking's proposal as an unwarranted extrapolation from an untrustworthy approximation. It seemed to be based on the premise that no (or hardly any) information about the body that collapsed to form the black hole can be extracted from the thermal radiation that the black hole emits." (1992)

11. In this context, Hawking's suggestion that "the uncertainty principle seems to be a fundamental feature of the universe we live in" is tantamount to a statement of his belief that the quest for "a complete unified theory of everything in the universe" is on the right track, the reservations of Einstein and, more recently, Preskill et al. notwithstanding.

12. In A Brief History of Time, Hawking gives a bird's-eye view of the difficulties that must be overcome if the quest is to be crowned with ultimate success:

"In previous chapters I have described general relativity, the partial theory of gravity, and the partial theories that govern the weak, the strong, and the electromagnetic forces. The last three may be combined in so-called grand unified theories, or GUTs, which are not very satisfactory because they do not include gravity and because they contain a number of quantities, like the relative masses of different particles, that cannot be predicted from the theory but have to be chosen to fit observations. The main difficulty in finding a theory that unifies gravity with the other forces is that general relativity is a "classical" theory; that is, it does not incorporate the uncertainty principle of quantum mechanics. On the other hand, the other theories depend on quantum mechanics in an essential way. A necessary first step, therefore, is to combine general relativity with the uncertainty principle." (p. 156)

13. In other words, the "main difficulty" is to integrate non-Euclidean Space-Time of General Relativity with the Euclidean Space and Time premises of the Uncertainty Principle - a task that is seemingly on par with that of squaring the circle. In a paper on related issues, Niels Bohr wrote inter alia as follows:

"…it is decisive to recognize that, however far the [quantum mechanical] phenomena transcend the scope of classical physical explanation, the account of all evidence must be expressed in classical terms." ('Discussion With Einstein on Epistemological Problems in Atomic Physics', in Albert Einstein, Philosopher-Scientist, p. 209; italics in the original.)

15. From an epistemological point of view, the relationship between "the physically real", on the one hand, and "models" thereof that "exist only in our minds," on the other hand, was stated by David Hume roughly as follows: All our mathematical models of the physically real are and must ever be uncertain.

Hence, Hawking's suggestion that "it seems that the uncertainty principle is a fundamental feature of the universe we live in" is epistemological nonsense.

16. In economics, by the same token, both the "general equilibrium" models of Paul A. Samuelson's Foundations of Economic Analysis and the "predictive" models of Milton Friedman's essay on 'The Methodology of Positive Economics' "must be regarded with suspicion as suffering from haziness," as Samuelson wrote of muddled 'science'. (p. 9)

17. This raises the question of just how economists might go about constructing and relating Theory to Empirical Facts. In the Second Edition (1717) of his Opticks, Sir Isaac Newton elaborated on the classical Concept of Theory, underscoring key aspects thereof which Keynes would later incorporate in his definition of The Theory of Economics:

"As in mathematics, so in natural philosophy, the investigation of difficult things by the method of analysis, ought ever to precede the method of composition. This analysis consists in making experiments and observations, and in drawing general conclusions from them by induction, and admitting of no objections against the conclusions but such as are taken from experiments, or other certain truths. For hypotheses are not to be regarded in experimental philosophy. And although the arguing from experiments and observations by induction be no demonstration of general conclusions, yet it is the best way of arguing which the nature of things admits of, and may be looked upon as so much the stronger, by how much the induction is more general. And if no exception occur from phenomena, the conclusion may be pronounced generally. But if at any time afterwards any exception shall occur from experiments, it may then begin to be pronounced with such exceptions as occur. By this way of analysis we may proceed from compounds to ingredients, and from motions to the forces producing them; and, in general, from effects to their causes, and from particular causes to more general ones, till the argument end in the most general. This is the method of analysis; and the synthesis consists in assuming the causes discovered, and established as principles, and by them explaining the phenomena proceeding from them, and proving the explanations."

18. Writing in mid-19^th century, John Stuart Mill underscored that "the method a priori" was the methodology used by classical economists of first rank - or, as Newton had put it, "the method of analysis ought ever to precede the method of composition."

19. In the present context, it suffices to note that "the method a priori" was used by Schumpeter in The Theory of Economic Development and by Keynes in both Treatise on Money and The General Theory. Writing in 1922, Keynes reaffirmed Mill's contention that such had been the modus operandi of classical economists of first rank:

"The Theory of Economics does not furnish a body of settled conclusions immediately applicable to a policy," Keynes wrote. "It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions.