## Econometrics — rhetorics and reality

14 Jun, 2015 at 15:57 | Posted in Economics | 2 CommentsThe desire in the profession to make universalistic claims following certain standard procedures of statistical inference is simply too strong to embrace procedures which explicitly rely on the use of vernacular knowledge for model closure in a contingent manner.

More broadly, such a desire has played a vital role in the decisive victory of mathematical formalization over conventionally verbal based economic discourses as the proncipal medium of rhetoric, owing to its internal consistency, reducibility, generality, and apparent objectivity. It does not matter that [as Einstein wrote] ‘as far as the laws of mathematics refer to reality, they are not certain.’ What matters is that these laws are ‘certain’ when ‘they do not refer to reality.’ Most of what is evaluated as core research in the academic domain has little direct bearing on concrete social events in the real world anyway.

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Warning: Einstein can be hazardous to heterodox methodology

Comment on ‘Econometrics — rhetorics and reality’

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In order to rehabilitate ‘conventionally verbal based economic discourses as the principal medium of rhetoric’ Duo Qin refers to a well-known Einstein quote which reads in full length:

“In my opinion the answer to this question is, briefly, this: As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality.” (Einstein, 1921)

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From the quote’s final part Qin concludes that the laws of mathematics are ‘certain’ when ‘they do not refer to reality.’ Reality, everybody knows, is uncertain, hence mathematics, as a matter of principle, misses reality. And therefore formalization is not only useless in economics but definitively misleading.

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Thus, it seems to be just the other way round: because reality is uncertain it is vagueness that captures reality. This has been the methodological gospel of the Cambridge School of Loose Verbal Reasoning since Marshall.

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“From his discussions with Wittgenstein, Keynes was well aware of the significance of vague concepts and the possible trade-off between precision and accuracy: This led him to conclude that formalization runs the risk of leaving behind the subject matter we are interested in.” (Coates, 2007, p. 256)

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Keynes dismissed formal precision and became the prophet of vagueness.

“Theories constructed with vague concepts paradoxically can maximize precision and economy.” (Coates, 2007, p. 8)

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It seems that Einstein supports what became Post-Keynesian and heterodox methodology. But let us read the full quote again. What exactly was the question Einstein was answering?

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“At this point an enigma presents itself which in all ages has agitated inquiring minds. How can it be that mathematics, being after all a product of human thought which is independent of experience, is so admirably appropriate to the objects of reality?” (Einstein, 1921), see also (Wigner, 1979), (Velupillai, 2005)

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That is a bit surprising, now mathematics captures reality admirably. Einstein does not support Qin’s interpretation? Not at all. Here, Einstein clarifies the puzzling relationship between the axiomatic-deductive method and reality:

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“It is clear that the system of concepts of axiomatic geometry alone cannot make any assertions as to the relations of real objects of this kind, which we will call practically-rigid bodies. To be able to make such assertions, geometry must be stripped of its merely logical-formal character by the co-ordination of real objects of experience with the empty conceptual frame-work of axiomatic geometry. To accomplish this, we need only add the proposition:—Solid bodies are related, with respect to their possible dispositions, as are bodies in Euclidean geometry of three dimensions. Then the propositions of Euclid contain affirmations as to the relations of practically-rigid bodies.” (Einstein, 1921)

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In other words:

“Formal axiomatic systems must be interpreted in some domain … to become an empirical science.” (Boylan and O’Gorman, 1995, p. 198)

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What is the domain of economics? The accustomed definition is:

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“Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins, 1935, p. 16)

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The key words are human behavior. But wait, the study of human behavior is the domain of psychology/sociology/anthropology etcetera. The domain of economics is fundamentally different from the so-called social sciences. Therefore Robbins’s definition must change to: Economics is the science which studies how the actual economic system works.

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The economic system is something objective that follows its own structural laws. In the system’s behavior there is no vagueness and uncertainty. It is humans that are the randomizers (2015).

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The inexcusable methodological dilettantism of Orthodoxy does not consist in the application of the axiomatic-deductive method but in the application of behavioral axioms. Who, except generations of economists, would ever accept utility maximization as an axiom? To paraphrase Einstein: An enigma presents itself which in all ages has agitated inquiring minds.

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Egmont Kakarot-Handtke

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References

Boylan, T. A., and O’Gorman, P. F. (1995). Beyond Rhetoric and Realism in Economics. Towards a Reformulation of Economic Methodology. London: Routledge.

Coates, J. (2007). The Claims of Common Sense. Moore, Wittgenstein, Keynes and the Social Sciences. Cambridge, New York, NY, etc.: Cambridge University

Press.

Einstein, A. (1921). Geometry and Experience. Website. URL http://todayinsci.

com/E/Einstein_Albert/Einstein-GeometryAndExperience.htm.

Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Behavior.

SSRN Working Paper Series, 2600523: 1–17. URL http://papers.ssrn.com/sol3/

papers.cfm?abstract_id=2600523.

Robbins, L. (1935). An Essay on the Nature and Significance of Economic Science.

London, Bombay, etc.: Macmillan, 2nd edition.

Velupillai, K. (2005). The Unreasonable Ineffectiveness of Mathematics in Economics. Cambridge Journal of Economics, 29: 849–872.

Wigner, E. P. (1979). Symmetries and Reflections, chapter The Unreasonable Effectiveness of Mathematics in the Natural Sciences, pages 222–237. Woodbridge, CT: Ox Bow Press.

Comment by Egmont Kakarot-Handtke— 15 Jun, 2015 #

It would be interesting to take a poll of mathematicians, to see who disagreed with Einstein or who thought that economists’ use of models incorporating calculus etc were formally mathematics. Einstein draws attention to Geometry. Many non-mathematicians think that mathematicians think that this makes claims about reality. But do they?

Comment by Dave Marsay— 14 Jun, 2015 #