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On The Uselessness Of Economists

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[embedded content]If you believed something different, you wouldn't be sitting where you are sitting Suppose one wants to discuss capitalism versus socialism or some smaller matter. One might think the discipline of political economy, now known as economics would be helpful. But it is not. What is taught in most universities in the United States was shown to be nonsense more than half a century ago. I find it hard to account for this except on the grounds of political ideology. I realize that most academic economists and their students that persist do not experience themselves as propagandists. And it does take some study to master the mathematical models, even if they are incoherent. Obviously, exceptions exist. I am most aware of the economics departments at the University of

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If you believed something different, you wouldn't be sitting where you are sitting

Suppose one wants to discuss capitalism versus socialism or some smaller matter. One might think the discipline of political economy, now known as economics would be helpful. But it is not.

What is taught in most universities in the United States was shown to be nonsense more than half a century ago. I find it hard to account for this except on the grounds of political ideology. I realize that most academic economists and their students that persist do not experience themselves as propagandists. And it does take some study to master the mathematical models, even if they are incoherent.

Obviously, exceptions exist. I am most aware of the economics departments at the University of Massachusetts at Amherst, the New School, the University of Missouri at Kansas City, and the University of Utah. And I think the situation might be different in some other countries. At least, they can list some prominent universities like the above. Furthermore, in taking courses in academic economics, one should learn something useful about how national products and income accounts are kept. Many economists might think they are doing measurement without theory, that these theoretical incoherences that I go on about do not matter to them. And there are many partial models that might be useful in a narrow context.

These sort of questions should have clear answers: For some model, what are the parameters and and what are the variables found in the solution? For each parameter or variable, what are the units of measure? Lately, I have been recommending a John Eatwell lecture on the bomb that Piero Sraffa placed at the foundations of economic theory. Working through Kurz and Salvadori's 1995 textbook is also a good way to understand my favorite devasting criticism of marginalist economics.

Smith's natural prices, Ricardo's prices of production, and Marshall's normal prices all characterize a long-period position or equilibrium, depending on the theory. Marginalist economics is about the allocation of given resources. The quantity and initial distribution of capital goods are among the givens, at least in Walras' formulation. Supply and demand are supposed to clear in all markets in equilibrium, and the capitalists obtain the same rate of profits in all markets. This model is ovedetermined and inconsistent. Walras was mistaken.

Taking the numeraire quantity of capital and its initial distribution as given was another incorrect marginalist approach. The physical composition of capital is supposed to be endogeneous. But prices of capital goods are found as solutions of the model. The quantity of capital is simultaneously inside and outside the model. Knut Wicksell realized this approach does not work. And waiting or abstinence cannot explain profits either.

So from about 1930 to the 1970s, marginalists abandoned long period theory in their most general models. The Arrow-Debreu-McKenzie model of intertemporal equilibrium is the cumulation of this trend. In the model, commodities are distinguished by physical properties, when they are available, and the state of the world. Prices are established in forward markets, found at the start of time.

This is a model of supply and demand in some sense. Households maximize utility subject to constraints. Plans are precoordinated, and all markets clear for all time. On the other hand, one can not draw well-behaved supply and demand schedules at the level of the market, as is shown by the Sonnenschein-Debreu-Mantel theorem.

Economists cannot explain how any economy would get in or approach such an equlibrium. Franklin Fisher investigated this question. Fabio Petri notes that the givens of initial quantities of capital equipment would change if production goes on while the economy is in disequilibrium. The equilibria consistent with the givens are not the equilibria that would be approached. The model does not depict tendencies in any possible capitalist economy.

Given an equilibrium, however, the forward prices embody predictions of what spot prices would be. Mainstream economics, when talking about dynamics, often mean the time paths of these spot prices. A conceptual problem arises here. If markets can open and close later, the model is not the Arrow-Debreu-McKenzie model. Anyways, the rate of profits is not the same among industries at any time period, since prices are typically not stationary.

Mainstream economists have basically given up, as I understand it, on trying to develop any general approach to explaining prices and distribution in a capitalist economy. I think the textbooks are not clear on this point. I like some of the bits of mathematics, such as game theory, in some of these textbooks.

Why study this stuff? Even though academic economists are mostly trapped in an intellectual ghetto, they still have a connection to what ideas are hegemonic. And the disciple of economics provides a puzzle for the sociology of 'knowledge' and the philosophy of science. If academic economists were merely useless, the world would be improved.

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