In my post of 25 July on The Real Problem with Microfoundations I had my say about one aspect of economic heterodoxy’s critique of neoclassicism, addressing the presumed deconstruction of orthodox macroeconomics based on marginalism’s empirical and conceptual irrelevance to familiar microeconomic behavior.
While the thinking and data behind this conclusion are by
now unassailable, I noted that linking these (negative) truths with
macroeconomic causality would be counter-indicated in any science other than
economics. Explanations of the whole are always different from explanations of
its constituent parts in all science that is characteristically Western.
Insisting that macro systems must ‘sum-up’ micro behaviors is, however, a
recognizable trait of medieval scholastic thinking.
Heterodoxy’s foundationalism is of course only one of the
three legs on which their neoclassical strawman stands. The second leg is neoclassicism’s
necessarily equilibrium point of reference; and the third asserts that money is
obviated as a necessary element of economic causation when viewed at stasis.
This post seeks to establish that 1) equilibrium is no more necessary to
neoclassical thinking than the aforementioned microeconomic foundationalism; hence
2) banking and money are vital to an illumination of orthodoxy’s premise that
economic order owes to the general affinity between marginal revenues and
marginal costs.
I realize that this endeavor cannot succeed while
scholasticism governs the debate. The Ptolemaic system was not overthrown by Copernicus’
arguments or by his data. It was overthrown a generation later by Galileo’s
telescope. “Demonstration” said Galileo “is the essence of science”; and his
successful carrying of the argument by making Jupiter’s moons visible is the
beginning of that very scientific tradition that heterodoxy breathlessly presumes
to impose upon economics as a matter of simple decency.
The two heterodox critiques addressed here will be
recognized as ‘general negatives’ in the formal, logical sense. These are
statements of what cannot be done, which certainly have their place in science,
e.g.: Euclid’s
assertion that one and only one line can be drawn parallel to a given line
through a given point defines plane geometry. General negatives usefully define
a science by saying, ‘until you provide a counter-example to my assertion, you
should be persuaded by the deductions to be made from it’.
Medieval Catholicism’s assertion that the universe contains
nothing that does not orbit the earth is also a general negative. Heterodoxy’s
assertion that a tendency toward general optimality cannot be shown to control
an economic system’s disequilibrium states is another. Both should be open to
refutation by counter-example. Readers of my introductory post will have noted
my offer of the demonstration running continuously at …
… as a counter-example worthy of refuting the heterodox
assertion. If we are to address one another as ladies and gentlemen of science,
then I suggest our discussion must place heterodoxy either with Euclid or with Medieval
Christianity. I offer the SFEcon demonstration as depositing heterodoxy with
the later confession. The program generating this demonstration is freely
available in the form of an ordinary Excel workbook at:
The workbook contains open-sourced VBasic programs (that
will set-off anti-virus software; but not to worry: nobody involved has
anything to gain by sabotaging your computer.) The directions for using this
apparatus and the plans for its construction are in a .pdf available at:
I am told that such materials have been bouncing around the
academic world for decades, and no one has yet been able to point to a specific
instance of fraud or misrepresentation.
Experimenting with this desktop prototype should reveal
neoclassical premises coordinating the variables of interest rates, currency
values, prices, physical inputs and outputs, and the ensuing financial flows in
a general, goal-seeking system. I note specifically that this model’s financial
flows include interest payments and resolve to stable imbalances between
savings and investment at equilibrium; and that this elementary expression of
leverage determines the investment term – which in turn presents me with a
satisfying, quantified expression of the world’s current economic crisis.
I do not know how anything less can be expected of a science
calling itself economics. And I do not know where economic science has accepted
such demonstrations as even being possible. If you know of one, please advise.
In any case, if heterodoxy can set SFEcon aside in favor of their
mere textural logic-chopping, then I see economics assisting our civilization
past the height of its arc toward its return to the feudal norm. On the economist’s
famous other hand, heterodoxy might redeem itself by presenting ITS dynamic
model of stable economic adjustment controlling something like SFEcon’s suite
of variables on the basis of some premise other than a tendency toward general
optimality. You guys got one of those that you’re proud of yet?
