Mainstream Economics is a Cult

Neoclassical Economics Is Based on Myth

http://i.imgur.com/0Ivta.jpg

Neoclassical economics is a cult which ignores reality in favor of shared myths.

Economics professor Michael Hudson writes:

[One Nobel prize winning economist stated,]  “In pointing out the consequences of a set of abstract assumptions, one need not be committed unduly as to the relation between reality and these assumptions.”

This attitude did not deter him from drawing policy conclusions affecting the material world in which real people live….

Typical of this now widespread attitude is the textbook Microeconomics by William Vickery, winner of the 1997 Nobel Economics Prize:

“Economic theory proper, indeed, is nothing more than a system of logical relations between certain sets of assumptions and the conclusions derived from them… The validity of a theory proper does not depend on the correspondence or lack of it between the assumptions of the theory or its conclusions and observations in the real world.  A theory as an internally consistent system is valid if the conclusions follow logically from its premises, and the fact that neither the premises nor the conclusions correspond to reality may show that the theory is not very useful, but does not invalidate it. In any pure theory, all propositions are essentially tautological, in the sense that the results are implicit in the assumptions made.”

Such disdain for empirical verification is not found in the physical sciences.

http://i.imgur.com/aoSKU.jpg“Our models show there is no chance of water”

Neoclassical economists created the mega-banks, thinking that bigger was better.  They pretend that it’s better to help the big banks than the people, debt doesn’t existhigh levels of leverage are good, artificially low interest rates are fine, bubbles are great, fraud should be covered up, and insolvent institutions propped up.

Indeed, even after a brief period of questioning their myths – after the 2008 economic crisis proved their core assumptions wrong – they have quickly regressed into their old ways.

 Government Economic Leaders Surprised that Real World Isnt Responding to their Magic Pixie Dust

Economics professor Steve Keen notes:

Neoclassical economics has become a religion.  Because it has a mathematical veneer, and I emphasize the word veneer, they actually believe it’s true. Once you believe something is true, you’re locked into its way of thinking unless there’s something that can break in from the outside and destroy that confidence.

Paul Heyne said:

The arguments of economists legitimate social and economic arrangements by providing these arrangements with quasi-religious justification. Economists are thus doing theology while for the most part unaware of that fact.

Economics professor Bill Black told me:

The amount of fraud that drove the Wall Street bubble and its collapse and caused the Great Depression is contested [keep reading to see what Black means]. The Pecora investigation found widespread manipulation of earnings, conflicts of interest, and insider abuse by the nation’s most elite financial leaders. John Kenneth Galbraith’s work documented these abuses. Theoclassical economic accounts, however, ignore or excuse these abuses.

Black explains:

[Neoclassical economists believed that] fraud is impossible because securities markets are “efficient” and act as if they were guided by an “invisible hand.” Markets cannot be efficient if there is accounting control fraud, so we know (on the basis of circular reasoning) that securities fraud cannot exist. Indeed, when [mainstream economists] try to explain why the securities markets automatically exclude frauds their faith-based logic becomes even more humorous.

Alex Andrews notes in the Guardian:

Greenspan’s confession [that his assumption that fraud is not a big problem for the economy was totally wrong] was seen by many for precisely what it was: a crisis of faith, the faith that unrestricted free markets would always act benevolently. [Note: As we show below, neoclassical economists do not really believe in free markets.  As such, they are blind cultists, rather than thinking people of faith.] It revealed what a few had been arguing for some time, that the character of neoliberal economics is essentially religious. This is counter-intuitive. Surely the policy of Greenspan and others is based on an understanding of the science of economics, particularly in the mainstream neoclassical form that is most often taught in universities around the world? It is certainly the case that neoclassical economics appears scientific. This is because it deploys huge quantities of complex mathematics, giving it the veneer of being what it has long hoped to be, a kind of social physics.

***

Equations prove free markets work, but only in a sterile world of mathematical abstraction that relies on ridiculous assumptions such as perfectly competitive markets. It is little surprise then that Jean-Philippe Bouchaud, writing in the journal Nature, calls for a “scientific revolution” in economics.

Once economics loses its status as science, its religious aspects become more obvious. Robert H Nelson has spent his career trying to show that economics is religious in character. Through “the gospel of efficiency” after the second world war, Nelson argues that economists promised progress, a removal of sin, heaven on earth. Economists play the role of priests, defining good and bad behaviours that make this salvation possible.

***

It is clear that this is a market theodicy, justifying the ways of the market to men. When neoliberal politicians warn against governments interfering in the market, lest the irrational and temporary will of the electorate interfere with the “spontaneous order” of markets, this now seems like a dire warning that we must not “play God” and attempt to control the mysteries of the market that in our finitude, our “bounded rationality”, we cannot properly fathom.

Harpers noted in 2005 that neoclassical economics – underneath it’s veneer of math and science – is actually a twisted form of Protestant religion in disguise:

Economics, as channeled by its popular avatars in media and politics, is the cosmology and the theodicy of our contemporary culture. More than religion itself, more than literature, more than cable television, it is economics that offers the dominant creation narrative of our society, depicting the relation of each of us to the universe we inhabit, the relation of human beings to God. And the story it tells is a marvelous one. In it an enormous multitude of strangers, all individuals, all striving alone, are nevertheless all bound together in a beautiful and natural pattern of existence: the market. This understanding of markets—not as artifacts of human civilization but as phenomena of nature—now serves as the unquestioned foundation of nearly all political and social debate.

***

Economics departments around the world are overwhelmingly populated by economists of one particular stripe. Within the field they are called “neoclassical” economists, and their approach to the discipline was developed over the course of the nineteenth century.

***

Neoclassical economics tends to downplay the importance of human institutions, seeing instead a system of flows and exchanges that are governed by an inherent equilibrium. Predicated on the belief that markets operate in a scientifically knowable fashion, it sees them as self-regulating mathematical miracles, as delicate ecosystems best left alone.

If there is a whiff of creationism around this idea, it is no accident. By the time the term “economics” first emerged, in the 1870s, it was evangelical Christianity that had done the most to spur the field on toward its present scientific self-certainty.

When evangelical Christianity first grew into a powerful movement, between 1800 and 1850, studies of wealth and trade were called “political economy.” The two books at the center of this new learning were Adam Smith’s Wealth of Nations (1776) and David Ricardo’s Principles of Political Economy and Taxation (1817).

***

Ricardo concluded that the interests of different groups within an economy—owners, investors, renters, laborers—would always be in conflict with one another. Ricardo’s credibility with the capitalists was unquestionable: he was not a philosopher like Adam Smith but a successful stockbroker who had retired young on his earnings. But his view of capitalism made it seem that a harmonious society was a thing of the past: class conflict was part of the modern world, and the gentle old England of squire and farmer was over.

The group that bridled most against these pessimistic elements of Smith and Ricardo was the evangelicals. These were middle-class reformers who wanted to reshape Protestant doctrine. For them it was unthinkable that capitalism led to class conflict, for that would mean that God had created a world at war with itself. The evangelicals believed in a providential God, one who built a logical and orderly universe, and they saw the new industrial economy as a fulfillment of God’s plan. The free market, they believed, was a perfectly designed instrument to reward good Christian behavior and to punish and humiliate the unrepentant.

At the center of this early evangelical doctrine was the idea of original sin: we were all born stained by corruption and fleshly desire, and the true purpose of earthly life was to redeem this. The trials of economic life—the sweat of hard labor, the fear of poverty, the self-denial involved in saving—were earthly tests of sinfulness and virtue. While evangelicals believed salvation was ultimately possible only through conversion and faith, they saw the pain of earthly life as means of atonement for original sin.  

***

The extreme among them urged mortification of the flesh and would scold anyone who took pleasure in food, drink, or good company. Moreover, they regarded poverty as part of a divine program. Evangelicals interpreted the mental anguish of poverty and debt, and the physical agony of hunger or cold, as natural spurs to prick the conscience of sinners. They believed that the suffering of the poor would provoke remorse, reflection, and ultimately the conversion that would change their fate. In other words, poor people were poor for a reason, and helping them out of poverty would endanger their mortal souls. It was the evangelicals who began to see the business mogul as an heroic figure, his wealth a triumph of righteous will. The stockbroker, who to Adam Smith had been a suspicious and somewhat twisted character, was for nineteenth-century evangelicals a spiritual victor.

By the 1820s evangelicals were a dominant force in British economic policy.

***

Victorian evangelicals took a similar approach to the crisis in Ireland between 1845 and 1850 …the potato famine.

***

The phrase “political economy” itself began to connote a cruel disregard for human suffering. And so a generation later, when the next phase of capitalist boosterism emerged, the term “political economy” was simply junked. The new field was called “economics.” What had got the political economists into trouble a generation before was the perception, from a public dominated by Dickens readers, that “political economy” was mostly about politics—about imposing a zealous ideology of the market. Economics was devised, instead, as a science, a field of objective knowledge with iron mathematical laws. Remodeling economics along the lines of physics insulated the new discipline from any charges filed on moral or sentimental grounds. William Stanley Jevons made this case in 1871, comparing the “Theory of Economy” to “the science of Statical Mechanics” (i.e., physics) and arguing that “the Laws of Exchange” in the marketplace “resemble the Laws of Equilibrium.”

***

Today we often think of science and religion as standing in opposition, but the “scientific” turn made by Jevons and his fellows only served to enshrine the faith of their evangelical predecessors. The evangelicals believed that the market was a divine system, guided by spiritual laws. The “scientific” economists saw the market as a natural system, a principle of equilibrium produced in the balance of individual souls.

***

U.S. policy debate, both in Congress and in the press, proceeds today as if the neoclassical theory of the free market were incontrovertible, endorsed by science and ordained by God. But markets are not spontaneous features of nature; they are creations of human civilization, like, for example, skating rinks.

***

The claim that markets are products of higher-order law, products of nature or of divine will, simply lends legitimacy to one particularly extreme view of politics and society.

Similarly, Philip Pilkington writes:

Taken at a very base level, the notion that there is an ‘invisible hand’ that irons out inconsistencies and increases the efficiency of the production and circulation of goods is basically the same claim that Hegel made about history being moved by a force called Reason. (Indeed, Adam Smith was one of Hegel’s references, perhaps even one of his key references). This claim, when made by either Smith or Hegel, can be traced back in turn to the Protestant tradition of predestination. The reasoning here is absolutely metaphysical and like the metaphysicians of yore it carries with it a moral lesson to be passed on to disciples.

***

Economists make huge generalisations about the people they study. They assume, for example, a single consumer that consumes the same goods and then projects this onto all consumers.

This is pure metaphysical reasoning. The economists concoct an idea in their heads which they then use to construct a theoretical edifice which falls apart when the original idea is shown to be false. They then derive a sort of ‘moral code’ from this construct which tells people how they should behave. In this case, students are told that this is how people should behave if they are to produce efficiently and effectively.

How is this different from the shaman who makes up a myth about the origins of the tribe and then derives moral lessons from this myth that he then teaches to the tribes-people? It’s not.

***

Economic ideas – such as the myth of the ‘single consumer’ – serve the function of ‘limiting principles’ for the way people in our contemporary society are allowed to think about the world. To think outside these ‘symbolic boundaries’ is not to be taken seriously. And yet, these boundaries are simply metaphysical constructs built up by economists and then disseminated to the population at large as a type of moral system.

Economics, then, is the totem – its simple moral lessons, the taboos. And this is how we in the modern world organise our thoughts and actions.

***

Adam Smith’s ‘hidden hand’ – is the direct descendent of Protestant predestination.

***

Economics has become, once again, a metaphysical doctrine boiled down to a few crass moralisms that are spoon-fed to the educated public.

***

It is really a subtle way of telling people what to do and assuring them that such authority is founded on some sort of Natural or Divine Law.

***

In policy circles today economists play the role of the court-priest. They deploy their esoteric and impenetrable ‘knowledge’ to tell policymakers what they should and should not do. To constrain economists to simply explain how the system works is to give them a role closer to that of the lawyer. The policymaker consults a lawyer to figure out what he or she can or cannot do and then makes a decision from there. Similarly, he or she might consult the economist, if the latter was seen as an operational role rather than as that of a seer.

This would, of course, threaten the role of the economist in society today. One can imagine that it is rather nice to be thought of as a divine, laying down metaphysical principles about the ‘inner’ workings of the world and deriving from these timeless truths and moral certainties that we mere mortals can then submit to. So, one can also imagine that these preachers and their flocks will respond to such a challenge with moral outrage. It is the outrage of a priest who has been told that his God is an invention, concocted in his mind to be used as leverage over his fellow men.

Neoclassical Economists Do NOT Believe in a Free Market

While many of the above quotes claim that neoclassical economists worship the free market, this is not actually true.

As I’ve previously noted:

When Mahatma Gandhi was asked what he thought about Western civilization, he answered:

I think it would be a good idea.

I feel the same way about free market capitalism.

It would be a good idea, but it is not what we have now. Instead, we have either socialism, fascism or a type of looting.

If people want to criticize capitalism and propose an alternative, that is fine . . . but only if they understand what free market capitalism is and acknowledge that America has not practiced free market capitalism for some time.

***

People pointing to the Western economies and saying that capitalism doesn’t work is as incorrect as pointing to Stalin’s murder of millions of innocent people and blaming it on socialism. Without the government’s creation of the too big to fail banks, Fed’s intervention in interest rates and the markets, government-created moral hazard emboldening casino-style speculation, corruption of government officials, creation of a system of government-sponsored rating agencies which had at its core a model of bribery, and other government-induced distortions of the free market, things wouldn’t have gotten nearly as bad.

***

Being against capitalism because of the mess we’ve gotten in would be like Gandhi saying that he is against Western civilization because of the way the British behaved towards India.

And – in the same way that the village shaman was often enlisted to promote and justify the chief’s power as being divinely-ordained and unquestionable, many of today’s neoclassical economists justify the acts of the ruling political class as being “economically sound”, even when such acts are antithetical to free market economics.

Postscript 1:  Of course, for free market economics to become a real science, it will have to take into account realities such as imperfect information, externalities, the ability of powerful criminals to warp markets, people’s behavioral idiosyncrasies  and other real world factors.

Postscript 2:  Just as it is unfair to blame the behavior of a crazy cult leader on religion as a whole, it is improper to blame our broken economic system on free market capitalism. It is the neoclassical economists who have broken our system.

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  • mmckinl

    Agreed: Economics has become a religion … False Concept: Free Market Capitalism ~Free market capitalism is also a religion. It assumes perfect knowledge, perfect access and symmetry of capability … ~ In order to prevent monopoly and preserve social order rules must be engaged to prevent a “race to the bottom” …

    • Rune K. Svendsen

      > It assumes perfect knowledge, perfect access and symmetry of capability

      No it doesn’t. Free market capitalism does have rules though. Or, rather, one rule: respecting private property rights. Everything else follows from that.

  • Joseph

    This essay is a gem!

    It doesn’t matter how enlightened we may think we are or what pride we may take in our capacity to reason, beneath this superficial veneer is a creature of nature that lives by means of irrational faith in the midst of a mysterious world. There is no way to outgrow our fundamental irrationality. Denying it only makes it worse. Religion is an attempt to rationalize an essentially mysterious world. Religion inhibits and often destroys our capacity for creative encounter with our reality and that is its purpose. Religion is the enemy of freedom, creativity, and the mystery of our lives.

    Science is taking us deeper into the mysterious dimensions of our existence at the same time it offers new ways and means to creatively adapt to life. Economics has to divorce itself from religious faith. It has no tolerance for uncertainty. Like science, economics should focus on the mysteries, the anomalies, the black swans, and dispense with all preconceived assumptions, the metaphysical rigidities that constitute religion.

  • Wooten Berston

    Sorry, Carl, but you destroy a perceptive article by ending on a quaint notion ie the “free market” which is the epitome of religious nonsense. Never was such a thing, never will be such a thing, and waiting for it is no different from expecting Jesus to return.. or Maitreya.. or the Madhi.. or the Nibiru space aliens for that matter. In your desperation to see your ideas reified you cling to metaphysical hooey. Why? How many free market capitalists can dance on the head of a pin? Maybe Jesus knows.

  • igor

    In USSR there was a science called “scientific communism”. Its purpose was to “scientifically” prove that Communist Party have the right to rule over people. Economics is the same thing: its purpose is to “scientifically” prove the divine right of the richest 1% to rule over people.

  • gozounlimited

    Explained by the beat of the latter-day prophets.
    Ginsberg- “Holy”
    see video: http://www.youtube.com/watch?v=ktoIs0JDWBE&feature=related
    ***********
    Jack Kerouac on William Buckely’s show
    see video: http://www.youtube.com/watch?v=R0KluIXx6fI&feature=related
    ***********
    Allen Ginsberg reads America
    see video: http://www.youtube.com/watch?v=Orar-V3y5Sk&feature=related

  • Judy

    “Such disdain for empirical verification is not found in the physical sciences.”
    Actually it is now. Something called “Post Normal Science” was launched in order to support the Bankster sponsored climate scam.
    “Our models show there is no chance of water”
    The picture is illustrative of exactly what has been going on in “Climate Science”. http://blogs.telegraph.co.uk/news/jamesdelingpole/100027748/the-real-reason-for-agw-post-normal-science/

  • Jimbo11

    Scientific certitude in the so-called social sciences, economics being one of them, is a kind of dogma and is the enemy of reason, which requires an open-mind and the humility to know Man’s knowledge is incomplete. The successful application of reason requires acknowledging contradicting facts & evidence to pre-existing ideas.

    The ideology of so-called “free trade” is an example of economics ignoring contradicting facts & evidence. Both neoliberal and Libertarianism economics ignores the facts & evidence contracting the supposed success of “free trade”. Free traders are as religious about their beliefs as the most cloistered monk on a hill top.

    Human behavior can’t be reduced to mathematical formula, as human behavior is too variable within the bounds of human nature.

    A priori assumptions about human behavior expresses a conceit and arrogance which is an impediment to actual increases in human knowledge and the application of that knowledge.

    Political economy is the correct label, as man is a political & social being and the exchange of goods & services and the creation of weath is a product of our poltical as well as social interactions.

  • http://alllie.com alllie

    Great article. I posted in on reddit in /r/Economics and they deleted it. It’s a reality they will not consider.

    Oh, well.

  • Carolyn

    I notice that you make no mention of Marx and his studies of political economy. I shouldn’t be surprised, since you end your argument by saying that it is improper to blame free market capitalism. This is just wrong. Marx’s Capital destroys all your arguments. The capitalist system, with its private ownership of the means of production mandates that production should be for profit. When profit declines, capitalism uses drastic measures to prop it up and has no hesitation in using illegal methods as long as the money keeps coming in. It is right to blame the contradictions of capitalism because profit is the raison d’etre of the whole enterprise. The comparison of socialism’s betrayal by Stalinism is incorrect. Stalinism wasn’t built into socialism. It was corrupted by the Stalinist bureacracy. Capitalism wasn’t corrupted by any individual person or clique. It’s contradictions were built into the system from the beginning. Those who view Stalinism as the inevitable outcome of the October Revolution are turning history on its head.

    • Rune K. Svendsen

      Capitalism wasn’t corrupted by any individual person or clique. It’s contradictions were built into the system from the beginning.
      As far as I know, capitalism can be described as “a system that respects private property rights”. How is contradiction inherent to this type of system?

  • http://WithGLEE.com Todd Marshall

    Is it really free trade capitalism when one must find someone with capital to “back” the trade? I think not. For example, if you promise to trade a portion of 10 years future labor for a house now, you can’t do that deal without finding someone with capital to “back” that trade. But the capitalist system is rigged. You must find a “backer” but that backer may only be backing 1/10th of the trade (e.g. fractional reserve banking). They are given specific license to do this.

    With communism you really don’t have trade. With capitalism you don’t either. Neither system allows true free trade. Under both systems, barter is the only free trade.

    There is an alternative. A system with a properly managed medium of exchange (MOE) would allow free trade backed by the marketplace itself.

    The relation governing any MOE is: INFLATION = DEFAULT – INTEREST. Further, it is only properly managed if INFLATION is zero over all time and space. To accomplish this, DEFAULTs are monitored and balanced by like amount of INTEREST collections … thus maintaining INFLATION at zero.

    The system and techniques of management are not unlike that of a properly managed mutual insurance company. Such a company uses the relation: LOSSES = CLAIMS – PREMIUMS. CLAIMS are monitored and a like amount PREMIUMS are collected … thus maintaining LOSSES at zero.

    The actuarial science is well developed in the insurance industry and could be applied directly to a properly managed MOE. DEFAULTs would be monitored and traders would be classified according to the risk of default and would pay INTEREST accordingly.

    Is this science or just plain common sense?

  • Jim P

    Pity the poor money-loving Christian. As noted by someone named Jesus Christ, a man cannot serve two masters. The context for “two masters” were “God” and “Mammon.” Somehow the evangelicals decided “mammon” was a being, a demon, when it is simply the aramaic word for “Wealth” or “Worldly possessions.”

    Thus we find innovations in the Bible: where before giving to the poor meant giving to the poor, they decided what was literally meant was “deserving poor.” Of course, almost all the poor were “undeserving.” Whew! With just that simple correction to “the literal word of God” one’s Wealth can be saved for oneself. Lucky that, eh?

    Both materialist doctrines, Capitalism and Communism, are about the dispensability of other humans at the root. Since it’s all about the wealth. The invention of the concept of “Capitalism” came as a service to the wealthy, as, based on the real way European economy of the 15th-C on worked (look at any history book) would be properly named “Plunderism.” And noble, god-fearing “Christians,” would of course never plunder, steal.

    Having divvied most of the non-western world’s resources and effort, at least as far as is practicable, it was inevitable that coming back to slave-labor/serfdom (check european history from the medieval period through the industrialization and the aristocracy stealing the commons for greater “productivity” ), would again take center stage.

    The current method involves debt more than guns. But the guns are there, though more quickly employed in Central Asia and the Middle East these days.

    There’s a great read, The Last Days of the Incas by Kim MacQuarrie

    In a sense, New World conquest was about men seeking a way around one of life’s basic rules–that human beings have to work for a living, just like the rest of the animal world. In Peru, as elsewhere in the Americas, Spaniards were not looking for fertile land that they could farm, they were looking for the cessation of their own need to perform manual labor.

    To do so, they needed to find large enough groups of people they could force to carry out all the laborious tasks necessary to provide them with the essentials of life: food, shelter, clothing, and ideally, liquid wealth.

    Conquest, then, had little to do with adventure, but rather had everything to do with groups of men willing to do just about anything in order to avoid working for a living. Stripped down to its barest bones, the conquest of Peru was all about finding a comfortable retirement.

    That’s pretty much the deal with our Economic elites today. And it always will be.

  • http://usurykills.blogspot.com usurykills

    The system we’re suffering is usury-ism. Everybody wants to use everybody else.
    As long as the money is a Ponzi scheme, we are doomed to economic failure.

  • hucklejohn

    Maybe the Evangelicals should have considered II Cor 4:4, that Satan is the god of this world system. If they had considered this scripture maybe they would have stayed on track. The Father God is God of His Kingdom, the Kingdom of Heaven.

  • bob olsen

    Current theory is based on two scientifically incorrect assumptions. First that the 16th century psychological model of man is correct. Two: that the world is fully deterministic. Both of these are wrong and if one wishes a model with real world value, then they need to be corrceted. Some Efficient market folks are just strange. For example when one very well known theorist was asked what he thought about the current economic situation he said. ” I don’t know what all the fuss is about. We just had a market correction, that is all”. It is hard to understand the mental frame of such a person. I guess his wealth has not been impacted and he may well be a true sociopath. Sociopaths are not hindered by cultural issues. Misfortune is just a fact( data), not a negative emotional outcome for a sentient creature.

  • H. Bell

    Here’s a theory you might find somewhat more appealing on value-inclusive economic decision-making that takes into account the role of individuals in the market, relationships, cooperation, and learning. You’ll notice the “invisible hand” is on the periphery, its there, but its role is minimized: http://www.eurojournals.com/EJSS_21_4_13.pdf

  • John Steinsvold

    An Alternative to Capitalism (if the people knew about it, they would demand it)

    Several decades ago, Margaret Thatcher claimed: “There is no alternative”.
    She was referring to capitalism. Today, this negative attitude still persists.

    I would like to offer an alternative to capitalism for the American people to consider.
    Please click on the following link. It will take you to an essay titled: “Home of the Brave?”
    which was published by the Athenaeum Library of Philosophy:

    http://evans-experientialism.freewebspace.com/steinsvold.htm

    John Steinsvold

    “Insanity is doing the same thing over and over and expecting a different result.”
    ~ Albert Einstein

  • David Chester

    Macroeconomics Theory
    I am always finding that the people who write on this subject make an unstated assumption, which is that the system of our society can be represented by a small number of agents or entities without having to cover the “big picture” of the complete system.

    How is it possible that the Endogenous Growth Theory (for example) can achieve this correct representation, when it fails to include all of the factors involved with production and distribution of wealth? There are actually 6 idealized aggregated entities involved, for which please see my diagram in Google Images: DiagFuncMacroSyst.pdf

    The thinking behind this diagram was extensive. The definition of all the 38 flows of money plus goods etc., in addition to the 6 entities role-playing activities, are all part of how our system actually works. Any simpler representation is unlikely to be correct and such simplified models as used by Hicks (based on Kenysian ideals) are inevitably bound to be inadequate and to fail.

  • http://www.huffingtonpost.com/scott-baker/ Scott Baker

    Your essay is fine as far as it goes, but you should realize there is a critical difference between neo-classical economics, which is unscientific, and classical economics, which very nearly was scientific. In fact, J.B. Clark and others, as documented in Mason Gaffney’s book: The Corruption of Economics, had to MAKE economics unscientific to please the land-grant universities. To do this, several academicians had to convince the world that Land (in classical economics, ALL of nature’s resources = Land) and Capital equaled each other. In fact, they are nearly the opposite.
    Land is finite – they aren’t making more of it!
    Capital is whatever Man can produce, given the restrictions of labor and Land (resources)
    Land typically appreciates when population increases, while Capital depreciates over time and wears out, becomes obsolete, etc.
    Land is created by nature and fixed in place.
    Capital is movable and made by Man (as noted).
    Now, when banks – which make 80% of their loans as mortgages, half of which are on Land (location) – treat Land as Capital (like houses), they are speculating on a finite commodity as if it was a producible Capital good, like houses. The conflation between the two leads to bubbles and busts (roughly every 18 years, according to many Georgist economists, going back hundreds of years in Western Capitalist civilization).
    Solution: Tax the Land, not productive things (like houses). This will make home loans like car loans; you never heard of a car loan bubble, did you? No, because Man can always make more cars, or cut back on making them, when necessary. Not so with Land.
    Derivatives only magnify the problem multiple times, but the root is speculation in Land.
    Another thing: Civilizations going back thousands of years knew you couldn’t make loans indefinitely, because eventually the interest – which is made up when the loan is issued out of thin air – would overwhelm the collateral, which has to be produced. That’s why we had Jubilees where the loans were completely torn up, corporations that died when their owners did, and debts which were absolved with the death of the king. Today, we have none of that and debt continues forever, as do corporations.
    Besides having Jubilees, we need to distribute the money power back to sovereign governments (we have not had monetary sovereignty since 1913’s Federal Reserve Act). The governemnt is constitutionally empowered to create debt-free money anytime, in any amount, for any reason, and DID under Lincoln, then again 14 times through 1972 – U.S. Notes. Coins, of course, continue to be debt-free money. The seigniorage advantage of this money-creation power would put government back on its feet, allow for public works when the private sector can’t/won’t supply credit, stimulate the economy with things we need anyway, and shrink the banks (along with Land Value Taxation) down to manageable size. It would be a Public Option for money.
    These are just two things neo-classical economics never questions – private money-creation and the role of Land in production. Get these wrong and you might as well have physics without gravity and heat. Economics cannot be a science without them.

  • no-neo

    The approach of neoclassical economics is similar to “wind blows because trees are weaving”. It is limited to only what is included in model, what can be observed and for what there is a data.
    Sooner or later we will be laughing on their current “intellectual exercise”.

  • JM

    I remember when I talked to one of neoclassical professors. I tried to argue that neoclassical economics has obvious logical fallacies that contradict reality. Instead of counterarguments, he started blaming me that I dont know economics well and I should better read textbooks. He referred me some standard textbooks. Well, what can I say after that? Yes, neoclassical economics is a cult. It is not a science. Because the goal of science is to explain reality, but neoclassical economics is just study neoclassical textbooks. It does not go further their own textbooks. It is a stupid cult.

  • http://www.youtube.com/watch?v=2gqm5CGnmS4&feature=plcp Superman

    We’re a gaggle of volunteers and opening a brand new scheme in our community. Your website provided us with helpful info to work on. You’ve performed an impressive process and our entire neighborhood can be grateful to you.

  • Grimeandreason

    Thanks for this. I’ve also been banging this drum. I will be talking about this tomorrow from 7 on skeptic canary Internet radio show. It has listener call in if you are interested..

 

 

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