Economics textbooks – anomalies and transmogrification of truth

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Please cite the paper as:
Syll, Lars Pålsson, (2013), Economics textbooks - anomalies and transmogrification of truth, World Economics Association (WEA) Conferences, No. 2 2013, The economics curriculum: towards a radical reformation, 3rd May – 14th June 2013

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Abstract

Theories are difficult to directly confront with reality. Economists therefore build models of their theories. Those models are representations that are directly examined and manipulated to indirectly say something about the target systems. Even though all theories and models are false, they may still possibly serve our pursuit of truth. But then they cannot be unrealistic or false in any way. The falsehood has to be qualified. Many of the standard assumptions made in neoclassical economic theory are not possible to make more realistic by de-idealization or successive approximations without altering the theory and its models fundamentally. Three examples from neoclassical economics textbooks – on wage rigidities, the law of demand and revealed preferences – are given to warrant the assertion that some of the model assumptions made by neoclassical economics are restrictive – rather than harmless – and a fortiori cannot in any sensible meaning be considered approximations at all.

4 responses

  • paul davidson says:

    How can you say all theories and models are false?

    Keynes’s General theory presumed that money contracts are the essence of an entrepreneurial system where all market transactions for production and exchange are organized on the basis of money contracts. What is false about this?

    If you accept this essence of money contracts idea, then liquidity becomes important for money is that thing that discharges all contractual obligations. If one has liquidity one possesses money and/or liquid assets that can be readily sold for money in an organized and orderly market. Therefore one can always discharge one’s contractual obligations. What is false about this?

    Based on these simple, but true statements, Keynes built his General Theory — which I have translated into a textbook entitled POST KEYNESIAN MACROECONOMIC THEORY:, 2nd edition.
    Before you attack all textbooks why not try reading this one? and see if the model is false or true.

  • Lars P Syll says:

    Paul, two things:
    (1) When writing that all models and theories are false, I do it in a science theoretic context, referring to an indisputable formal logical statement. All theories and models ARE false in this (admittedly perhaps rather uninteresting) way. The point I wanted to make is that this in noway make different theories and models equivalent, since they can be false in the wrong way and for the wrong purposes.
    (2) It ought to be pretty clear from the outset of the article that my aspirations are to criticize “received opinion”, mainstream neoclassical textbooks. Your book is – happy to say – not of that ilk and therefore – goes without saying – not included among the standard textbooks I refer to.

  • Roy Langston says:

    Paul Davidson writes:

    > Keynes’s General theory presumed that money contracts are the essence of an entrepreneurial system where all market transactions for production and exchange are organized on the basis of money contracts. What is false about this?

    The fact that they aren’t, unless you tautologize the claim by redefining market transactions as those that are organized on the basis of money contracts. But that just begs the question, removing the claim from the realm of empirical science.

    > If you accept this essence of money contracts idea, then liquidity becomes important for money is that thing that discharges all contractual obligations. If one has liquidity one possesses money and/or liquid assets that can be readily sold for money in an organized and orderly market. Therefore one can always discharge one’s contractual obligations. What is false about this?

    The assumption of an orderly market, for one. The fact that financial markets are not reliably orderly is a known empirical fact.

    > Based on these simple, but true statements,

    They are not true other than tautologically, which removes them from empirical science.

    > Keynes built his General Theory — which I have translated into a textbook entitled POST KEYNESIAN MACROECONOMIC THEORY:, 2nd edition.
    Before you attack all textbooks why not try reading this one? and see if the model is false or true.

    One need not read all economics textbooks in order to make a valid empirical generalization about them, any more than one must examine all crows in order to state that they are black.

  • Roy Langston says:

    Thank you for writing this paper, Lars. The routine presentation of outright false assumptions as the established orthodoxy in economics textbooks (and the associated requirement that students internalize those assumptions in order to get passing grades) is indeed a sad commentary on the state of the discipline.

    Perhaps a more troubling commentary, though, is the extent to which the false clams and fallacious reasoning commonly found in widely prescribed economics textbooks are not merely a result of innocent epistemological over-reaching, but of the discipline itself being bent to purposes far from impartial empirical science. Stiglitz bravely alluded to this issue in his Nobel acceptance speech: “But one cannot ignore the possibility that the survival of the [neoclassical] paradigm was partly because the belief in that paradigm, and the policy prescriptions, has served certain interests.”

    It was first with astonishment, then with outrage, then with a heavy sense of inevitability that I encountered a number of blatantly fallacious rationalizations for rent seeking in a recent edition of Mankiw et al’s widely used “Principles of Microeconomics.” Then I reflected that I had just paid $150 for a book that probably cost less than $20 to print. Let it never be said that neoclassical economists do not respond to incentives!

    When I pointed this problematic circumstance out to a professor — i.e., that the writing of such exercises in disinformation by “brand name” economists engaged in justifying their own rent seeking was being financed by a captive market of undergraduate students, most of whom were already assuming distressing amounts of debt in order to obtain their economics “education” — the response was, “How else would we get such a broad selection of new textbooks written?”

    My answer: “Why would we ever want ANY such textbooks written?”