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The Pathetic State of Neoclassical Economics

Onion Eater

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The Post-Autistic Economics Network has recently published a paper:

What is Neoclassical Economics? (The three axioms responsible for its theoretical oeuvre, practical irrelevance and, thus, discursive power.)

There is nothing more frustrating for critics of neoclassical economics than the argument that neoclassical economics is a figment of their imagination; that, simply, there is scientific economics and there is speculative hand-waiving (by those who have never really grasped the finer points of mainstream economic theory). In this sense, neoclassicism resembles racism: while ever present and dominant, no one claims to be guided by it. Critics must find a clear definition of neoclassicism if only in order to liberate neoclassical economists from the temptation to barricade themselves behind infantile arguments viz. the non-existence of their school of thought. Then, the good debate may begin...
I find it absolutely PATHETIC that neoclassical economics is so weak that they allow their enemies to define their foundations. Never clearly stated their axioms in their own literature? Tsk! Tsk! How sad!

In sharp contrast, I state my axioms right up front before proving any theorems from them:

1) One's value scale is totally (linearly) ordered:

i) Transitive; p ≤ q and q ≤ r imply p ≤ r

ii) Reflexive; p ≤ p

iii) Anti-Symmetric; p ≤ q and q ≤ p imply p = q

iv) Total; p ≤ q or q ≤ p

2) Marginal (diminishing) utility, u(s), is such that:

i) It is independent of first-unit demand.

ii) It is negative monotonic; that is, u'(s) < 0.

iii) The integral of u(s) from zero to infinity is finite.

3) First-unit demand conforms to proportionate effect:

i) Value changes each day by a proportion (called 1+εj, with j denoting the day), of the previous day's value.

ii) In the long run, the εj's may be considered random as they are not directly related to each other nor are they uniquely a function of value.

iii) The εj's are taken from an unspecified distribution with a finite mean and a non-zero, finite variance.

Read my Simplified Exposition of Axiomatic Economics for a more detailed, but still undergraduate-level discussion of my economic theory. This paper requires knowledge of multi-variable calculus but omits the real analysis that plagues readers of my 1999 book.
 

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How does your theory take into account a change in consumer preferences. I see you use a pdf to describe for example the preferences of society at one time, but this distribution would surely shift if we say levied a tax, or the consumers income changed, or the product became a known health risk.

Also, are you familiar with the new keynsian economics, and of the assumotion of near rational behavior?
 

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"Parking on campus has a price, so mainstream economists must believe that there is a supply, that is, an influx, of parking spaces. Yet none are being produced. Clearly, it is the stock, the absolute quantity of them, that determines price. Supply never means anything in economics, though sometimes (for non-durable phenomena) it can pass for stock. There are three principle mistakes of mainstream economics, but addressing supply and demand instead of price and stock is the most egregious. The other two are assuming that all short term credit instruments function as money and believing that the average price level is a meaningful statistic and, hence, that prices are “sticky.” "
I was reading some of you site. Would you mind explaining your reasoning, as to why mainstream econ is so wrong? If the supply of parking spots is fixed, we can simply make the assumption that the supply of parking spots is completely inelastic. I think the idea of supply elasticity solves the problem you have with supply and stock. We can also consider short v. long term etc.
 
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Onion Eater, for a guy who's always bashing Austrian Economics, you sure do a poor job of it. Hayek abandoned equilibrium theory in his Pure Theory of Capital. But then again, all of your assumptions of him ignore that book, I guess because it's a very hard read.
 

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Off topic.


Onion Eater, for a guy who's always bashing Austrian Economics, you sure do a poor job of it. Hayek abandoned equilibrium theory in his Pure Theory of Capital. But then again, all of your assumptions of him ignore that book, I guess because it's a very hard read.
Gerard Debreu published The Theory of Value in 1959...

Which makes your claim that Hayek abandoned General Equilibrium Theory in 1941 a bit dubious.

Tom Palmer said:
At George Mason University I saw Hoppe present a lecture in which he claimed that Ludwig von Mises had set the intellectual foundation for not only economics, but for ethics, geometry, and optics, as well. This bizarre claim turned a serious scholar and profound thinker into a comical cult figure, a sort of Euro Kim Il Sung.
Plus, not only is Mises the founder of ethics, geometry and optics, but Hayek is widely hailed as the inventor of the time machine. Wow! Those Austrians are smart!


p.s. If you had read my Critique of Austrian Economics you would have found both of these men's books quoted extensively and listed in the references with their publication dates.
 

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How does your theory take into account a change in consumer preferences. I see you use a pdf to describe for example the preferences of society at one time, but this distribution would surely shift if we say levied a tax, or the consumers income changed, or the product became a known health risk.
I write:

ln(m) is linearly transformed by (ln(m) - mu)/sigma. The location parameter, mu (mean), quantifies the importance of a phenomenon relative to money and the scale parameter, sigma (standard deviation), quantifies the difficulty of substituting other phenomena for the one in question. Easily substituted phenomena have very little probability in the tail of their demand distribution; only the eccentric purchase a phenomenon at a high price when there are cheaper substitutes available. As substitution becomes more difficult, people must purchase the phenomenon even at high prices, and their distribution is less skewed. Both mu and sigma must be positive. With u(s), mu and sigma describe all phenomena. Thus, every phenomenon is associated with a point in u(s), mu, sigma space where u(s) is a negative monotonic probability density function on R+ [the set of positive real numbers] and mu and sigma are both from R+. For the purpose of economics, nothing else distinguishes one phenomenon from another.
The demand distribution describes a single point in time. From time to time, its parameters, u(s), mu, sigma, change, causing the distribution to shift.

Also, are you familiar with the new keynsian economics, and of the assumotion of near rational behavior?
Appendix C of my book provides an axiomatic foundation of Keynesian economics as it was taught in 1999. I have not followed recent developments in Keynesian economics, though I doubt they have renounced the axioms I established for them in 1999 - probably just tweaked some of the parameters.

I was reading some of you site. Would you mind explaining your reasoning, as to why mainstream econ is so wrong? If the supply of parking spots is fixed, we can simply make the assumption that the supply of parking spots is completely inelastic. I think the idea of supply elasticity solves the problem you have with supply and stock. We can also consider short v. long term etc.
Elasticity is highly dependent on the time unit chosen, e.g. does "supply" mean how much is produced in a week, a month, a year, or what? Thus, mainstream economics is actually attempting to solve two equations for three unknowns.

I write:

By what criterion does mainstream economics distinguish people represented on a supply curve from those represented on the associated demand curve? This is a particularly pressing question for people dealing in narcotics because the penalties are so much greater for being on one curve than the other. But, if one visits a neighborhood where such trade takes place, any of the people one encounters would sell if the price were right and would buy if offered a bargain. There is really only one relation and it is called the demand distribution. Since there are two variables, price and stock, this (single) relation can provide a mapping from one variable to the other but cannot fix them. However, later in this pamphlet, existence and uniqueness proofs are given for a point toward which price and stock tend. Thereafter, it will be assumed that they are fixed at that point, called saturation.

The method of mainstream economics really has a third variable which is never mentioned and that is the time unit for supply and demand. It is well known that elasticity is a function of this time unit and, if this is true, one calculates a different price depending on whether one speaks of weekly or monthly supply and demand. This is an inconsistency since there can only be one price and it is not dependent on the caprice of an economist when he decides how often to conduct his surveys. This is a point that is glossed over in mainstream texts. A detailed discussion of the time unit chosen for supply and demand is never given and many texts neglect to mention the need for choosing one at all. Yet in their chapter on elasticity, every textbook lists time as a factor, sometimes as the most important factor.

Mainstream economists have two variables, price and quantity per unit of (some usually unspecified) time, and two equations, supply and demand. For this to work at all, the equations must be independent, which means that each individual must be either a buyer or a seller. The economist's decision to put people on one curve or the other can-not depend on the price that they would buy or sell because both equations are defined for all prices. (Price is one of the independent variables.) So what is the economist's decision based on? Ask him repeatedly until he admits that there is really only one distribution. Also, press him to acknowledge that the demand distribution independently exists at each instant of time. Supply and demand curves are different depending on the time unit chosen. Mainstream economists provide no proof that their predicted prices are independent of their choice of time unit. For example, will thirteen predicted weekly quantities be the same as three predicted monthly quantities?

A large part of the problem with supply and demand is that it is used descriptively, but called predictive. It is easy to predict the past. Economists just observe the quantity produced one month and what it sold for and they put a little × over that spot. Then, by pure conjecture, they draw four tails on their × to fill their graph paper. Supply and demand has never been used predictively, not even to make bad predictions. × marks the spot is a purely descriptive technique. Since they are using the 20-20 vision of hindsight, they can do this for three months in a row and, to nobody’s surprise, the sum of the quantities is the quarterly quantity. In the real world, price is constant for years at a time but, for most companies, their weekly and monthly sales figures swing wildly and unpredictably, sometimes by several fold from one month to the next. Mainstream economists have no explanation for this, which they should since their theory is called supply and demand and the horizontal axis of their graph is labeled weekly (or monthly) quantity. When I have been asked to help predict sales, I have told them that price is related to stock, not supply, and that they should stop watching their sales chart so ardently. At most companies, there is someone in accounting who feeds sales figures to the employees so that they can predict layoffs. They know that every dip in sales will send hundreds of them to the unemployment office, and that every rise will have their bosses clapping each other on the back and extolling their brilliant and farsighted management. They also know that nobody can predict sales. Supply never means anything in economics, though sometimes (for non-durable phenomena) it can pass for stock.
 

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Elasticity is highly dependent on the time unit chosen, e.g. does "supply" mean how much is produced in a week, a month, a year, or what? Thus, mainstream economics is actually attempting to solve two equations for three unknowns.

I write:
But elasticity is unitless. There are a heck of a lot more variables than time. You could have so many different variables to how much is made that it would literally be impossible to take them all into account. Microeconomics focuses on only price and the willingness of a producer to sell at a given price. Anything outside this is a ceterus parabis factor, and causes a shift in the supply curve. Elasticity is only the percent change in qunatity divided by the percent change in price, so it only analyzes the relationship between supply and price. Obviously though, this relationship does change over time.

Also, I do not doubt that a distribution works good to model the market at a point in time. But I fail to see your beef with mainstream econ. Econometrics uses a large amount of statistics to study economic theory, such as deriving a demand distribution. Then they use models to see what happens when certain ceterus parabis factors change
 
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Elasticity is only the percent change in qunatity divided by the percent change in price, so it only analyzes the relationship between supply and price. Obviously though, this relationship does change over time.
Everything changes over time. That's not the issue.

The method of mainstream economics really has a third variable which is never mentioned and that is the time unit for supply and demand. It is well known that elasticity is a function of this time unit and, if this is true, one calculates a different price depending on whether one speaks of weekly or monthly supply and demand. This is an inconsistency since there can only be one price and it is not dependent on the caprice of an economist when he decides how often to conduct his surveys.
One calculates a different price depending on whether one speaks of weekly or monthly supply and demand. But there is only one price. That's the issue.

Supply and demand curves are different depending on the time unit chosen. Mainstream economists provide no proof that their predicted prices are independent of their choice of time unit. For example, will thirteen predicted weekly quantities be the same as three predicted monthly quantities?
If one economist defines supply to be the amount produced in a week and another defines it to be the amount produced in a month, how can you be sure that the thirteen successive weeks of supply, calculated with the first method, will equal three successive months of supply calculated with the second method?

If it does, that is only because you rigged your example by using past data. But what good is a theory that only works on problems that you already know the answer to?

A large part of the problem with supply and demand is that it is used descriptively, but called predictive. It is easy to predict the past. Economists just observe the quantity produced one month and what it sold for and they put a little × over that spot. Then, by pure conjecture, they draw four tails on their × to fill their graph paper. Supply and demand has never been used predictively, not even to make bad predictions. × marks the spot is a purely descriptive technique. Since they are using the 20-20 vision of hindsight, they can do this for three months in a row and, to nobody’s surprise, the sum of the quantities is the quarterly quantity.
I avoid these inconsistencies by using stock instead of supply.

I assert that the stock of phenomena is more important than the supply because all of the decisions made regarding a phenomenon are based on its stock (how much of it is in existence), and not on how much of it happened to be produced in some arbitrary time period. Phenomena are the same whether they are produced in one time period or another. Most people do not know and none care what the supply of phenomena is, they are concerned with the stock; this week's or month's supply is only a small part of the available stock. Even if a factory is temporarily closed for a week or a month, the price of its product is hardly affected because the total amount of phenomena in existence is hardly affected. Yet during that week or month the supply is zero. Mainstream economics, which relates price to supply, is unable to explain why the price does not increase dramatically as inspection of the supply and demand curves predicts that it should.
By eliminating the arbitrary time period, I am solving two equations for two unknowns. You are trying to solve two equations for three unknowns.
 

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Everything changes over time. That's not the issue.



One calculates a different price depending on whether one speaks of weekly or monthly supply and demand. But there is only one price. That's the issue.



If one economist defines supply to be the amount produced in a week and another defines it to be the amount produced in a month, how can you be sure that the thirteen successive weeks of supply, calculated with the first method, will equal three successive months of supply calculated with the second method?

If it does, that is only because you rigged your example by using past data. But what good is a theory that only works on problems that you already know the answer to?



I avoid these inconsistencies by using stock instead of supply.



By eliminating the arbitrary time period, I am solving two equations for two unknowns. You are trying to solve two equations for three unknowns.
People don't decide how much to buy or produce based on time, they do based on price.

I don't see the complication... To determine quantitiy and price you set marginal cost = marginal revenue. I don't see how you can determine how much a firm will produce, or whether it will shutdown, or even how much profit it will make by just looking at the stock and the price. How do you determine operating costs? How does a firm decide to shutdown production? Seems to me all you could calculate with that information is revenue.
 
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People don't decide how much to buy or produce based on time, they do based on price.
You still don't get it.

One calculates a different price depending on whether one speaks of weekly or monthly supply and demand. This is an inconsistency since there can only be one price and it is not dependent on the caprice of an economist when he decides how often to conduct his surveys.
 

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On page 211 of my book I list the five major mistakes of mainstream economics:

1) Addressing supply and demand instead of price and stock;

2) Assuming that all short term credit instruments function as money;

3) Believing that the average price level is a meaningful statistic and, hence, that prices are “sticky;”

4) Believing in a “natural” rate of interest; and

5) Assuming “perfect” competition, that is, lots of tiny firms selling a homogenous product.
The first of these. belief in supply and demand, is their most serious mistake.

Having arrived at a position so fundamentally opposed to mainstream economics, it is important to realize exactly where we parted company. The difference is that my theory is concerned with the price and stock of phenomena while mainstream economics is concerned with the price and supply of phenomena. I assert that the stock of phenomena is more important than the supply because all of the decisions made regarding a phenomenon are based on its stock (how much of it is in existence), and not on how much of it happened to be produced in some arbitrary time period. Phenomena are the same whether they are produced in one time period or another. Most people do not know and none care what the supply of phenomena is, they are concerned with the stock; this week's or month's supply is only a small part of the available stock. Even if a factory is temporarily closed for a week or a month, the price of its product is hardly affected because the total amount of phenomena in existence is hardly affected. Yet during that week or month the supply is zero. Mainstream economics, which relates price to supply, is unable to explain why the price does not increase dramatically as inspection of the supply and demand curves predicts that it should.
 

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On page 211 of my book I list the five major mistakes of mainstream economics:



The first of these. belief in supply and demand, is their most serious mistake.
I honestly do not know what you are talking about. In macro economics we count inventories as investments, specifically if there is a change in invenotories we have a change in unplanned investment. This does factor into the analysis, take a basic keynsian cross for example.

However, your stock and supply thing does not evem matter. Mainstream econ already has distinguished between stock and flow. Obviously at an instantaneos point in time we have a stock.

A person is not mainly concerned with stock when making economic transactions, but rather their future expectations of their disposable income. Income, is not a stock.
 

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A person is not mainly concerned with stock when making economic transactions, but rather their future expectations of their disposable income. Income, is not a stock.
All of my decisions are made based on my wealth. My income varies dramatically from day to day and from week to week. There are days when I make thousands and there are days when I make nothing or lose money. The same variance (scaled up) can be seen from one week to the next or from one month to the next. That's because I'm a businessman. Your point of view is very much that of the salaryman.

And it's not just me. I once did the books for a company whose owner insisted on monthly profit reports. That was stupid. I spent a lot of time compiling that information and he learned nothing from it. It cost him 15K a month to pay his employees and the lease on that building. But his monthly income varied from 10K to 50K for no apparent reason. This was especially surprising since half his income was from one big ongoing order.

Companies that work directly for the consumer experience even more variance. Ever tried to manage a restaurant? Half the time your waitresses are standing around gossiping and the other half of the time you've got customers banging on the counter for service. That's why tipping was invented, rather than just including the payment for service in the price of the meal. The institution of tipping is not to encourage better service (quality of service is the same regardless), it is to make the waitresses absorb some of the fluctuations in income. The boss is not rich enough to absorb all of that variance himself; one bad month in which he failed to pay his lease and they'd all be out of work.

Income is a completely useless concept. My boss at that company where I did the monthly profit reports would have been better guided if he'd consulted an astrologer. Neoclassical economics has little impact on the behavior of real-life businessmen, but the impact it does have is to mislead them.

Wealth is the only thing that matters. (Zero wealth means you're dead; zero income just means you had a bad day.) I've owned my current company for 14 years and, over time, I've noticed that my wealth has increased (Yay me!) but my income has always fluctuated unpredictably. I make decisions based on logic, not statistics.
 

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All of my decisions are made based on my wealth. My income varies dramatically from day to day and from week to week. There are days when I make thousands and there are days when I make nothing or lose money. The same variance (scaled up) can be seen from one week to the next or from one month to the next. That's because I'm a businessman. Your point of view is very much that of the salaryman.

And it's not just me. I once did the books for a company whose owner insisted on monthly profit reports. That was stupid. I spent a lot of time compiling that information and he learned nothing from it. It cost him 15K a month to pay his employees and the lease on that building. But his monthly income varied from 10K to 50K for no apparent reason. This was especially surprising since half his income was from one big ongoing order.

Companies that work directly for the consumer experience even more variance. Ever tried to manage a restaurant? Half the time your waitresses are standing around gossiping and the other half of the time you've got customers banging on the counter for service. That's why tipping was invented, rather than just including the payment for service in the price of the meal. The institution of tipping is not to encourage better service (quality of service is the same regardless), it is to make the waitresses absorb some of the fluctuations in income. The boss is not rich enough to absorb all of that variance himself; one bad month in which he failed to pay his lease and they'd all be out of work.

Income is a completely useless concept. My boss at that company where I did the monthly profit reports would have been better guided if he'd consulted an astrologer. Neoclassical economics has little impact on the behavior of real-life businessmen, but the impact it does have is to mislead them.

Wealth is the only thing that matters. (Zero wealth means you're dead; zero income just means you had a bad day.) I've owned my current company for 14 years and, over time, I've noticed that my wealth has increased (Yay me!) but my income has always fluctuated unpredictably. I make decisions based on logic, not statistics.
So you completely discount expectations about ones futute disposable income? All people live in the here and now, they do not plan for the future. Even if all I got to my name is $1000 in wealth, you don't think I will decide to start spending more if I just learned I got a job as a engineer and I start in 2 weeks.

Anyways, I think mainstream econ accounts for this.

Here is a extremely basic aggregate consumption function:

C = A + MPC x (yd)

A is aggregate autonomous consumption, however much the economy will spend regardless of its disposable income. But getting back to the previous point, don't you think this would shift if expectations about the future changed?
 
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Even if all I got to my name is $1000 in wealth, you don't think I will decide to start spending more if I just learned I got a job as a engineer and I start in 2 weeks.
Salaryman.

You are like a dog who thinks he can explain the behavior of wolves because he was related to them 200K years ago.

Ever sold drugs? Here is an example that at least some of the people on this forum can relate to:

Both the people traditionally labeled "consumers" and those labeled "producers" appear in the demand distribution. The conceptual separation of consumers and producers is a great mistake of mainstream economics. They are all just people, each with a bit of the stock, and they are all prepared to sell if the price is above a certain point and buy if the price is below that point. The only thing that distinguishes people from one another is their point of indifference. This has little to do with who produced different bits of the stock, the event of production having occurred in the forgotten past. When economists draw one curve called "supply" and another called "demand", they are implying that the two are independent, for one cannot solve two simultaneous equations for two variables if the two equations are just versions of the same relation. Their dependence is well known at the macro level, but I assert that supply and demand are not independent at the micro level either.

By what criterion does mainstream economics distinguish people represented on a supply curve from those represented on the associated demand curve? This is a particularly pressing question for people dealing in narcotics because the penalties are so much greater for being on one curve than the other. But, if one visits a neighborhood where such trade takes place, any of the people one encounters would sell if the price were right and would buy if offered a bargain. There is really only one relation and it is called the demand distribution. Since there are two variables, price and stock, this (single) relation can provide a mapping from one variable to the other but cannot fix them. However, later in this pamphlet, existence and uniqueness proofs are given for a point toward which price and stock tend. Thereafter, it will be assumed that they are fixed at that point, called saturation.
 

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Dude, nobody cares because you have yet to wow any relevant journals. Until such a time, consider it nothing more than a work in progress. No offense; it's just nothing groundbreaking at the moment.
 

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Dude, nobody cares.
Obviously you care or you wouldn't drop a turd on every thread I start.

Goldenboy219 said:
Wow, nobody cares.

Looks like we have a troll on our hands...
That was two years ago: www.debatepolitics.com/archives/36561-mccain-glass-steagall-crash.html

You denounced me as a troll and tried to get me banned. But that didn't work, did it?

Mises Institute said:
You might have luck getting people to raid [Aguilar] on /b/ or 711chan.org/i/ . They could really mess him up if you convinced them.
Why don't you go back to the Mises Institute and help them with this project? That actually has a better chance of success than getting me banned from Debate Politics. After two years of trying, it should be obvious that the moderators here aren't going to do that for you.
 

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I honestly do not know what you are talking about.
That's probably true, though at least you're not trying to ban me, which is refreshing.

I read your profile. You're an engineering student. That's good. I majored in math and all my friends in college were engineers.

In the preface of my book I write:

The mathematical maturity assumed exceeds that of most professional economists (three semesters of calculus, a semester of probability and, for a detailed reading, a semester of real analysis), though it should be well within the background of upper-division engineering students. It is for this latter group that my book is written. As a mathematician, most of my friends at the university are engineers and physicists, virtually all of whom took micro- and macroeconomics as part of their school's core curriculum. They did not like it. It did not make sense and the mathematics was not being used to deduce theorems from axioms but only to illustrate conclusions that had already been agreed upon. Also, functions were never given explicitly so that mathematicians could deal with them. f(x)'s floated through economics texts without ever being specified and, one suspected, the variables and the relations between them were actually undefinable.

While recognizing many of the faults in mainstream economics, my colleagues in the hard sciences were more concerned with studies in their majors and did not take time to develop a complete theory of economics. Without a theory of their own, it was frustrating for them to criticize a science which made no attempt at axiomatization or which only paid lip-service to some “axiom” which was never subsequently used to prove anything. One cannot find fault with a science's logic when no logic exists. For them, economics proved to be a very slippery target and few of its critics persisted. Nevertheless, it is a mistake to dismiss their criticism offhand. When beginners unanimously dislike a subject, experts should take note, for it is more likely that the subject is anti-intuitive than that every beginner lacks insight. Many beginners are leaders in their own field, perhaps even in a hard science.
I don't think you've purchased my book but, in the meantime, why don't you read my paper, Socrates and Hume at Billiards? It is a simulated conversation between the philosophers Socrates and David Hume as they play billiards in heaven. It is specifically written for engineers - a physicist helps the two philosophers determine the path of their billiard ball. His methodology is then compared to the methodology of economists.
 
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Kushinator

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Obviously you care or you wouldn't drop a turd on every thread I start.


That was two years ago: www.debatepolitics.com/archives/36561-mccain-glass-steagall-crash.html

You denounced me as a troll and tried to get me banned. But that didn't work, did it?


Why don't you go back to the Mises Institute and help them with this project? That actually has a better chance of success than getting me banned from Debate Politics. After two years of trying, it should be obvious that the moderators here aren't going to do that for you.
I am just annoyed at your constant spamming of discussion forums with an econ section. Again, if it was truly groundbreaking, why have you only sold (how many exactly ???????) copies and not been published?

Instead of regurgitating the same thing over and over and over, why not show us your rejection letters from the top journals? :lamo
 

phattonez

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I don't think you've purchased my book but, in the meantime, why don't you read my paper, Socrates and Hume at Billiards? It is a simulated conversation between the philosophers Socrates and David Hume as they play billiards in heaven. It is specifically written for engineers - a physicist helps the two philosophers determine the path of their billiard ball. His methodology is then compared to the methodology of economists.
There's just one problem with your dialogue. "All theories worth their salt make predictions about phenomena that will eventually be observable. It’s pointless to make predictions about things that cannot be observed." Here's your problem though, you can never run experiments to deduce human behavior. Since that is what economics is all about, well then you can't exactly prove any theories in economics. Sure, you can look at data and try to explain why things are that way, but you can't go in the opposite direction because you don't know what causes what just from the data. You can't prove causation from correlation. Furthermore, your whole dialogue seems to completely misunderstand to philosophy of Socrates/Plato. What they theorized about could not possibly ever be proven. I doubt that Socrates would ever state that quote that you wrote. So to hold up Socrates as some kind of hero in your dialogue is just kind of absurd. You'd be better off using Aristotle, but he was the guy who thought that trade was a point of equality and not mutual advantage, and I don't think your economic theories agree with that statement.
 

Onion Eater

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Here's your problem though, you can never run experiments to deduce human behavior. Since that is what economics is all about, well then you can't exactly prove any theories in economics.
You are using the word "deduce" wrong.

deduce - definition of deduce by the Free Online Dictionary, Thesaurus and Encyclopedia.

1. To reach (a conclusion) by reasoning.

2. To infer from a general principle; reason deductively: deduced from the laws of physics that the new airplane would fly.

Example #1.

Pythagoras deduced that the square of the hypotenuse equals the sum of the squares of the sides of a right triangle from Euclid's five axioms:

1. To draw a straight line from any point to any point.

2. To produce [extend] a finite straight line continuously in a straight line.

3. To describe a circle with any center and distance [radius].

4.
That all right angles are equal to one another.

5. The parallel postulate: That, if a straight line falling on two straight lines make the interior angles on the same side less than two right angles, the two straight lines, if produced indefinitely, meet on that side on which are the angles less than the two right angles.

Example #2.

Aguilar deduced the Law of Price Adjustment from these three axioms:

1) One's value scale is totally (linearly) ordered:

i) Transitive; p ≤ q and q ≤ r imply p ≤ r

ii) Reflexive; p ≤ p

iii) Anti-Symmetric; p ≤ q and q ≤ p imply p = q

iv) Total; p ≤ q or q ≤ p

2) Marginal (diminishing) utility, u(s), is such that:

i) It is independent of first-unit demand.

ii) It is negative monotonic; that is, u'(s) < 0.

iii) The integral of u(s) from zero to infinity is finite.

3) First-unit demand conforms to proportionate effect:

i) Value changes each day by a proportion (called 1+εj, with j denoting the day), of the previous day's value.

ii) In the long run, the εj's may be considered random as they are not directly related to each other nor are they uniquely a function of value.

iii) The εj's are taken from an unspecified distribution with a finite mean and a non-zero, finite variance.
 
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phattonez

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How does that rebut the fact that you can't prove anything in economics?
 

Onion Eater

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How does that rebut the fact that you can't prove anything in economics?
You mean besides the fact that I provided an example?

Example #2.

Aguilar deduced the Law of Price Adjustment from these three axioms:

1) One's value scale is totally (linearly) ordered:

i) Transitive; p ≤ q and q ≤ r imply p ≤ r

ii) Reflexive; p ≤ p

iii) Anti-Symmetric; p ≤ q and q ≤ p imply p = q

iv) Total; p ≤ q or q ≤ p

2) Marginal (diminishing) utility, u(s), is such that:

i) It is independent of first-unit demand.

ii) It is negative monotonic; that is, u'(s) < 0.

iii) The integral of u(s) from zero to infinity is finite.

3) First-unit demand conforms to proportionate effect:

i) Value changes each day by a proportion (called 1+εj, with j denoting the day), of the previous day's value.

ii) In the long run, the εj's may be considered random as they are not directly related to each other nor are they uniquely a function of value.

iii) The εj's are taken from an unspecified distribution with a finite mean and a non-zero, finite variance.
 
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