Real World Economics Review
http://rwer.wordpress.com/2013/04/16/economics-textbooks-decades-of-scientific-fraud-and-incoherence/
Economics
textbooks – decades of scientific fraud and incoherence
From: Lars Syll
Consulta: abril 16-13
As
is well-known, Keynes used to criticize the more traditional economics for
making the fallacy of composition, which basically consists of the
false belief that the whole is nothing but the sum of its parts. Keynes argued
that in the society and in the economy this was not the case, and that a
fortiori an adequate analysis of society and economy couldn’t proceed by
just adding up the acts and decisions of individuals. The whole is more than a
sum of parts. This fact shows up already when orthodox – neoclassical –
economics tries to argue for the existence of The Law of Demand
– when the price of a commodity falls, the demand for it will increase – on the
aggregate. Although it may be said that one succeeds in establishing The Law
for single individuals it soon turned out – in the Sonnenschein-Mantel-Debreu
theorem firmly established already in 1976 – that it wasn’t possible
to extend The Law of Demand to apply on the market level,
unless one made ridiculously unrealistic assumptions such as individuals all
having homothetic preferences – which actually implies that all
individuals have identical preferences.
This
could only be conceivable if there was in essence only one actor – the
(in)famous representative actor. So, yes, it was possible to
generalize The Law of Demand – as long as we assumed that on the aggregate
level there was only one commodity and one actor. What generalization! Does
this sound reasonable? Of course not. This is pure nonsense!
How
has neoclassical economics reacted to this devastating findig? Basically by
looking the other way, ignoring it and hoping that no one sees that the emperor
is naked.
Having
gone through a handful of the most frequently used textbooks of economics at
the undergraduate level today, I can only conclude that the models that are
presented in these modern neoclassical textbooks try to describe and analyze
complex and heterogeneous real economies with a single
rational-expectations-robot-imitation-representative-agent.
That
is, with something that has absolutely nothing to do with reality. And – worse
still -something that is not even amenable to the kind of general equilibrium
analysis that they are thought to give a foundation for, since Hugo
Sonnenschein (1972) , Rolf Mantel (1976) and Gerard Debreu (1974) unequivocally
showed that there did not exist any condition by which assumptions on
individuals would guarantee neither stability nor uniqueness of the equlibrium
solution.
So
what modern economics textbooks present to students are really models built on
the assumption that an entire economy can be modeled as a representative actor
and that this is a valid procedure. But it isn’t, as the
Sonnenschein-Mantel-Debreu theorem irrevocably has shown.
Of
course one could say that it is too difficult on undergraduate levels to show
why the procedure is right and to defer it to masters and doctoral courses. It
could justifiably be reasoned that way – if what you teach your students is
true, if The Law of Demand is generalizable to the market level and the
representative actor is a valid modeling abstraction! But in this case it’s
demonstrably known to be false, and therefore this is nothing but a case of
scandalous intellectual dishonesty. It’s like telling your students that 2 + 2
= 5 and hope that they will never run into Peano’s axioms of arithmetics.
For almost forty years neoclassical economics itself has lived with a
theorem that shows the impossibility of extending the microanalysis of consumer
behaviour to the macro level (unless making patently and admittedly insane
assumptions). Still after all these years pretending in their textbooks that
this theorem does not exist – none of the textbooks I investigated even mention
the existence of the Sonnenschein-Mantel-Debreu theorem – is outrageous.
