by From Lars Syll Modern economics is sick. Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing … If there is such a thing as “original sin” in economic methodology, it is the worship of the idol of the mathematical rigour invented by Arrow and Debreu in 1954 … The result of all this is that we now understand almost less of how actual markets work than did Adam Smith or even Léon Walras … We have even forgotten that markets adjust as often in terms of quantities rather than prices, as in labour markets and customer commodity markets, as
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from Lars Syll
Modern economics is sick. Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing …
If there is such a thing as “original sin” in economic methodology, it is the worship of the idol of the mathematical rigour invented by Arrow and Debreu in 1954 …
The result of all this is that we now understand almost less of how actual markets work than did Adam Smith or even Léon Walras … We have even forgotten that markets adjust as often in terms of quantities rather than prices, as in labour markets and customer commodity markets, as Alfred Marshall knew very well but Walras overlooked; so well have we forgotten that fact that a whole branch of economics sprang up in the 1960s and 70s to provide ‘microfoundations’ for Keynesian macroeconomics …
Indeed, much of modern microeconomics might be fairly described as a kind of geography that consists entirely of images of cities but providing no maps of how to reach a city either from any other city or from the countryside.
Mark Blaug (1927-2011) did more than any other economist to establish the philosophy and methodology of economics a respected subfield within economics. Blaug’s The methodology of economics (1980) is still a landmark — and the first textbook on economic methodology yours truly had to read as a student.
Mainstream economics has indeed, as noted by Blaug, become increasingly irrelevant to the understanding of the real world, and the main reason for this irrelevance is the failure of economists to match their deductive-axiomatic methods with their subject of study. The fixation on constructing models showing the certainty of logical entailment has been detrimental to the development of a relevant and realist economics. Insisting on formalistic-mathematical modelling forces the economist to give up on realism and substitute axiomatics for real-world relevance.
It is — sad to say — a fact that within mainstream economics internal validity is everything and external validity next to nothing. Why anyone should be interested in that kind of theories and models — as long as one does not come up with export licenses for the theories and models to the real world in which we live — is beyond comprehension. Stupid models are of little or no help at all in understanding the real world.