Pluralist Economics – The Verein Strikes Back

August 28th, 2013
in Op Ed, syndication

by Dirk Ehnts, Econoblog101

The German economist’s association, "Verein für Socialpolitik" (VfS), has replied to an open letter from the pluralist economics network, "Netzwerk Pluralistische Ökonomie".  The letters – both in German – can be found on their website. Michael Burda of "Humboldt-Universität zu Berlin" (The Humboldt University of Berlin) and president of the "VfS" has taken his time. The original open letter was dated Sep. 11, 2012. The reply is dated from Aug. 9, 2013. So, eleven month to answer to an open letter. The "VfS" has taken this issue seriously, it seems. Here is Burda’s summary of the crucial issues of the original letter:

Follow up:

  1. Dogmatization of economics (“Monokultur”)
  2. “Mathematization”
  3. Intolerance with respect to new methods

Burda disagrees with the first issue - dogmatization of economics - mentioning economists like Marx, Sraffa, Leontief, Lerner, Robinson, Kantorovich, Koopmans and Samuelson who would support his point of view that markets are only one solution among many.  I have studied in Germany myself, from 1997-2002 at "Universität Göttingen" (The University of Göttingen).  From that list I think that only Samuelson was taught in the form of “his” economics.  Leontief was mentioned in a seminar on development economics, which was optional.  The professor was heterodox and might have mentioned Marx briefly, but I doubt it. He was under pressure in the faculty and development economics was renamed into development economics and multinational enterprises.  So, Sraffa, Lerner, Robinson, Kantorovich and Koopmans completely escaped my attention.  Since I also taught at Oldenburg university I know that you would not have come across these names there either.  If they are so important in backing up Burda’s view, why haven’t university students heard of these economists?

Second issue is a classical case of not answering a question by misinterpreting it. He treats the question as if what was asked was: “why do we use mathematics in economics (at all)?”.

The third issue makes Burda go into discourse mode, claiming that "neue Erkenntnisse" (new insights) lead to a selection process.  This is ridiculous.  He mentions Karl Popper in the following paragraph, and fails to understand that social sciences do not lend themselves to the concept of falsification.  Popper’s big idea was that a theory can never be proven right, but it can be proven wrong.  He called that “falsification”.  The problem with economics is that “models are by definition wrong” (quote by Burda in the paragraph above).  Hence falsification does not work in economics and Burda’s nice talk of “competition of ideas” – which he mentions twice – fails if one side stops doing science and instead rallies along dogmatic lines.

Burda has invited the authors of the open letter to the next meeting of the "VfS". One can only hope that in the resulting “competition of ideas” Burda will recognize his intellectual failures of using falsification in a social science to determine which ideas are good and which are bad.  Social ideas constitute reality, hence it is impossible to falsify them.  Keynes, among others, has known this all along.  Animal spirits on financial markets, investment as a beauty contest in a newspaper, and many more issues of non-rational behavior have been known for a long time.  Also, the idea that the loanable funds theory can explain the interest rate is so obviously wrong (central banks set the interest rate and then the spreads build on it for different risk/maturity/… classes) that I perceive it as a scandal that no alternative is taught at German universities.  This includes Burda’s very own "Humboldt Universität".

It is very necessary that economics in Germany becomes a discipline where critical inquiry is rewarded, where different theories are taught along side each other and where economists enter into serious discourse.  Just because you cannot falsify a theory does not mean that there is no value in discussing economic issues.


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