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Robert Nadeau on the Problem with Economics Today
According to Robert Nadeu (Scientific American Magazine » April 2008, The Economist Has no Clothes) the physical theory that the creators of neoclassical economics used a template conceived in response to Newtonian physics‘s inability to account for the phenomena of heat, light and electricity. In 1847 German physicist Hermann von Helmholtz formulated the conservation of energy principle and postulated existence of a field of conserved energy that fills all space and unifies these phenomena. Later in the century James Maxwell, Ludwig Boltzmann and other physicists devised better explanations for electromagnetism and thermodynamics, but in the meantime, the economists had borrowed and altered Helmholtz’s equations.
The strategy the economists used was as simple as it was absurd—they substituted economic variables for physical ones. Utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. A number of well-known mathematicians and physicists told the economists that there was absolutely no basis for making these substitutions. But the economists ignored such criticisms and proceeded to claim that they had transformed their field of study into a rigorously mathematical scientific discipline.
Strangely enough, the origins of neoclassical economics in mid-Nineteenth Century physics were forgotten. Subsequent generations of mainstream economists accepted the claim that this theory is scientific.
In Previous posts, I set out a list of some of the problems that I saw with classical and neoclassical economic theory. Robert Nadeau suggested a few more. He believes the mathematical theories relied upon by mainstream economists are predicated on the following unscientific assumptions:
The market system is a closed circular flow between production and consumption, with no inlets or outlets.
Natural resources exist in a domain that is separate and distinct from a closed market system, and the economic value of these resources can be determined only by the dynamics that operate within this system.
The costs of damage to the external natural environment by economic activities must be treated as costs that lie outside the closed market system or as costs that cannot be included in the pricing mechanisms that operate within the system.
The external resources of nature are largely inexhaustible, and those that are not can be replaced by other resources or by technologies that minimize the use of the exhaustible resources or that rely on other resources.
There are no biophysical limits to the growth of market systems.
- Apparently Environmentalists Have Different Definitions of “Credible” and “Authoritative” (coordinationproblem.org)
- A tale of two classics: biology vs economics (newscientist.com)
- Was Scientism The Cause of The Economic Crisis? (socyberty.com)
- What Should Economists Study? (delong.typepad.com)
- An interview with Amartya Sen: “There is a democratic failure in Europe” (economicsintelligence.com)
- WSJ’s Weird Embrace Of Pseudo Science And The War On Real Science – Business Insider (businessinsider.com)