Re: [OPE] Mistaking Mathematical Beauty for Economic Truth

From: Alejandro Agafonow <>
Date: Sat Sep 12 2009 - 09:51:04 EDT

If mathematics were a proper tool to model the complex institutional phenomena of real economies, wouldn’t we already have appropriate mathematical models in economics? Game theory was a hope foreseeing developments in this direction, but soon economists were trapped in the treatment of actuarial risk, which is the only one that can be addressed by mathematics. Entrepreneurial uncertainty is the one which characterizes real market economies and this can’t be mathematically modelled. If you mathematical Marxists are so confident, why haven’t you come up with an alternative?  A. Agafonow ________________________________ De: Jurriaan Bendien <> Para: Outline on Political Economy mailing list <> Enviado: sábado, 12 de septiembre, 2009 13:32:01 Asunto: [OPE] Mistaking Mathematical Beauty for Economic Truth Actually what Paul Krugman somewhat mystically wrote about this, was: "During the golden years, financial economists came to believe that markets were inherently stable (...)  Meanwhile, macroeconomists were divided in their views. But the main division was between those who insisted that free-market economies never go astray and those who believed that economies may stray now and then but that any major deviations from the path of prosperity could and would be corrected by the all-powerful Fed. Neither side was prepared to cope with an economy that went off the rails despite the Fed's best efforts. (...) As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. (...) The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives.
 But while sabbaticals at the Hoover Institution and job opportunities on Wall Street are nothing to sneeze at, the central cause of the profession's failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess." I agree with Ian Wright about the importance of mathematical analysis and the lack of adequate conceptualizations, but I think that real Marxists should go at least one step further and ask, "why of all things is mathematics suddenly being blamed?". In the first instance, because mathematical models proved unable to provide insurance for the value of capital. Obviously if the mathematical approach to economics is the problem, then the implication is that we don't actually have to take mathematical arguments seriously anymore or understand them - which is a regression to irrationalism if not an elitist contempt for the public. One implication seems to be, that ordinary people do not understand the mathematical arguments, but they don't have to understand or trust them anyway, because they led to terrible results. It deflects any inquiry into what exactly went wrong with the math, but more importantly it deflects any inquiry into the underlying assumptions for which the math was supposed to specify the quantitative implications, and provide a rigorous logical justification. So by focusing on "wrong math", the underlying ideology is saved. John Kay commented in the Financial Times ("In magic or in markets, it is never rational to be wrong", FT  September 1 2009) as follows: "Modern economics - and the rational choice theory that has now spread throughout the social sciences - defines rationality not as wealth maximisation but as consistency. If the tribesmen plant half their fields where there is bad juju, and all their fields when there is good juju, their behaviour is rational - so long as they adhere strictly to that principle. Perhaps the greatest achievement of modern theoretical economics has been to show the power of that consistency assumption. If agents act on a consistent set of preferences and beliefs, a market economy will establish prices based on them. Under certain further assumptions, resource allocation in line with these prices is the best means of fulfilling these preferences and beliefs. That has been espoused by business people and rightwing politicians who would not know a fixed point theorem from a quadratic equation." What this quote suggests, is that the theoretical issue doesn't in fact concern mathematics, but the meaning of (economic) rationality. Wedded to methodological individualism, economic thought is unable to understand how the individual market actors are socially related, and how they social existence influences their rationality. Wedded to empiricist reductionism, it is unable to understand the relationship between the micro world and the macro world. In contrast to this, Marxists such as Elmar Altvater (Gesellschaftliche Produktion und ökonomische Rationalität, 1969), Ernest Mandel (Late Capitalism, 1972) and Frank Furedi (Mythical Past, Elusive Future, 1992) referred to the fact that the social logic of capital combines rationality of (competing) parts with overall irrationality, and thus, to the dialectical concept that rationality and irrationality are combined as determinations in the development of society. This insight seems to be forgotten by the later crop of Marxists. But there is yet another point overlooked in this discussion: the fact, that economic theory actually pays very little attention to the empiria of economic history, except that time series of prices are pumped into mathematical models. There is nothing in the track record of economic history that can sustain the core assumptions of economics, e.g. general equilibrium theory - we can only sustain the models, by denying what actually happened in history. Jurriaan There's beauty in the silver singing river There's beauty in the sunrise in the sky But none of these and nothing else could match the beauty That I remember in my true love's eyes If today was not an endless highway If tonight was not an endless trail If tomorrow wasn't such a long time Then lonesome would mean nothing to me at all _______________________________________________ ope mailing list

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