Economists vs Mathematicians: The Great Dispute Over Economic Models and Reality
Economics and mathematics have a long-standing relationship, yet they often find themselves in a dispute over the interpretation and application of economic models. This article delves into the common disagreements between economists and mathematicians, with a particular focus on the invasion of economic models by mathematical fantasies starting around the 1870s.
The Invasion of Economic Science by Mathematical Fantasies
Seventy years ago, economists William S. Jevons, Alfred Marshall, Leon Walras, and Vilfredo Pareto introduced mathematical models that have since plagued economic science. These models, which involve the concept of utility maximization, are based on imaginary rather than real-world conditions. As a result, economists are now faced with the monumental task of reconciling these mathematical theories with authentic economic reality.
Disagreements Over Utility Maximization
The idea that a rational buyer purchases goods to maximize utility is a cornerstone of modern economic theory. However, this concept fundamentally misrepresents the reality of consumer behavior. As the article argues, a rational consumer may produce goods themselves without purchasing them, or they might purchase goods without consuming them, instead deciding to sell them. These choices are based on the economic incentives and the presence of intermediary transactions, not on simple utility maximization.
The Importance of Falsification and Causal Determination
Economic science must be grounded in falsifiable hypotheses that reflect real-world conditions. The concept of falsification, while crucial in scientific methods, is often neglected in economic models. For example, the act of purchasing goods does not necessarily mean the consumer will consume them. Instead, it could lead to further transactions, such as a sale. Understanding the causal determinants in economic behavior is essential for true scientific analysis.
Transaction Costs and Intermediaries
The presence of transaction costs and intermediaries plays a significant role in economic behavior that is often overlooked in mathematical models. Ordinary consumers frequently buy goods from merchants rather than the original producers, primarily due to the high transaction costs. Additionally, the benefit of minimizing procurement costs often drives consumer behavior, which is not accurately captured by the utility maximization models.
Mathematics in Economics: A Tool of Rhetoric
While mathematics has a useful rhetorical function in presenting unambiguous arguments, it should always be applied to tell the truth. The article stresses that understanding economics is not solely dependent on mathematical skills, but it is essential to use mathematics correctly to illustrate real-world scenarios. Misapplying mathematics to incorrect issues, as seen in neoclassical economics, can lead to fundamental misunderstandings and flawed theories.
Conclusion
The battle between economists and mathematicians over economic reality and mathematical fantasies has been ongoing. For economic science to improve and accurately reflect real-world behavior, economists must focus on presenting a complete analysis of reality, hiding nothing and falsifying all incorrect hypotheses. Mathematics, while a powerful tool, should serve as a means to elucidate and not as an end in itself.
By reevaluating the role of mathematics in economic models and emphasizing the significance of real-world causal determinants and transaction costs, economic science can move closer to a more accurate and comprehensive understanding of consumer behavior and market dynamics.