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his page was last updated on 06/23/11.A PDF version of this page is archived at: http://jayhanson.us/index.pdf A Word version of this page is archived at: http://jayhanson.us/index.docA "no Flash" version of this page is archived at: http://jayhanson.us/indexNF.htm

CALCULATIONS AND ASSUMPTIONS

Why didnt they look around, realize what they were doing, and stop before it was too late? What were theythinking when they cut down the last palm tree

Jared Diamond, EASTERS E

The challenge of Darwinism [then] is to find out what our genes have been up to, and to make that knowledgewidely available as a part of the environment in which each of us develops and lives so that we can decide for

ourselves, quite deliberately, to what extent we wish to go along Richard D. Alexander, 1979

alculations show that conventional oil production peaked in 2005, so it is now physically impossiblehermodynamics) to increase net energy as we have in the past.

Why i s t he g loba l economy ne t ene rgy cons t r a ined NOW? ( c li c k t o o p e n)

See the Problem

See the Mitigation

Net Energy is theCritical Variable

The Market Systemas A Means of Control

Economic TheoryFor Scientists andEngineers

The Market SystemIs Not Efficient

Will Decades of

Falling Net EnergyForce Decades Of Wars?

New EnergyEfficiency

Your Tactics

Old Dieoff Index

Search This Web Site

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A LOOK THROUGH THE NET ENERGY WINDOW

One seldom thinks about the energy that is consumed in systems that supply energy such as oil-fired power plants.Energy is consumed when exploring for fuel, building the machinery to mine the fuel, mining the fuel, building andoperating the power plants, building power lines to transmit the energy, decommissioning the plants, and so on. Thedifference between the total energy recovered from the mining process, minus all of the energy consumed, equals thenet energy (in other words, the net amount of energy actually available to society to do useful work). For more onnet energy analysis, see my 1999 paper ENERGETIC LIMITS TO GROWTH .

THE NET ENERGY FRACTION HAS BEEN FALLING FOR DECADES

As low-energy-cost conventional oil has been replaced by high-energy-cost non-conventional oil (offshore oil, heavoil, etc.), a greater fraction of the energy produced is consumed by the energy production process itself a lessondriven home with the Deepwater Horizon tragedy. Indeed, the net energy fraction of the global energy mix has bealling since before the 60s! (See graph below.)

NET ENERGY IS NOW GEOLOGICALLY AND THERMODYNAMICALLY CONSTRAINED

Prior to peak oil, producers could compensate for the falling net energy fraction by simply pumping moreconventional oil. However, conventional oil production peaked in 2005, so it is now physically impossible

thermodynamic laws) to increase net energy as we have in the past. In other words, oil producers are nowgeologically constrained and can no longer compensate by pumping more conventional oil. This means that theenergy available for economic development the net energy will decline for decades as low-energy-cost,conventional oil is replaced by high-energy-cost, un-conventional oil!

THE GLOBAL ECONOMY IS NET ENERGY CONSTRAINED NOW!

1. Business-as-usual depends upon jobs and markets to distribute goods and services.

2. Economic growth and increasing job availability require increasing net energy.

3. Global net energy correlates with the 2005 peak in conventional oil and both are expected to decrease fordecades.

4. Decades of decreasing net energy will cause job opportunities to decrease for decades because less and lesenergy will be available for economic development.

5. Globally, millions of new workers enter the job market each year, but job availability is expected to declineby millions of positions each year. Eventually, the projected high unemployment among young men will causecatastrophic political failures similar to those that led to Hitlers takeover of German democracy. Therefore,business-as-usual is no longer a viable method of distributing goods and services and a new method must befound and soon!

alculations show that the market is not efficient! When economists claim the market is efficient, they actuallymean the efficient distribution of benefits NOT the efficient use of materials. In fact, Americans could bewasting something like two billion tonnes (metric tons) of oil equivalent energy per year!

alculations show that the planet is grossly overpopulated and can only support a billion (or less) when fossil fuelsre depleted (in approximately 80 years).

assume that capitalism has now become illogical. We are destroying the natural world and consuming the remainingesources in exchange for fiat money which will be worthless when the resources are gone. Moreover, the ongoinglanetary destruction is making most Americans less healthy and less happy.

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assume that humans are intelligent enough (but politically unlikely) to avoid global nuclear war while humanelyeducing the human population to less than a billion.

assume that we should make every peaceful effort to prevent our countries from disintegrating into anarchy orngaging in new global wars over resources.

assume that it is technically possible (but politically unlikely) to make minor changes in the structures of ourovernments thereby avoiding anarchy and civil war. The key paradigm change here is to realize that goods andervices do not need to be mediated by money. In other words, all-powerful government can deliver goods and

ervices directly to citizens (as its done to civilians in wartime, and to military personnel during peacetime), therebymaking our social system much more energy and materials efficient . All-powerful government can apply science andngineering directly to social problems without economic concerns. The only reason we live as we do now is becauseanking interests establish the ground rules. As far as I know, my proposal is the ONLY one that has the potential tovoid a new series of world wars over resources.

n order to understand the nature of our crisis, one must evaluate two systems simultaneously : our energy productystem and our political system. More specifically, one must simultaneously evaluate the inexorable decline (literalmpossible to stop) of global net energy and the present use of the market system as a means of political control.he information required to gain a basic understanding of these two systems is available on the web page you areurrently reading.

Ultimately, one must answer Jared Diamonds question at the top of this page: What were the Easter Islandershinking when they cut down the last tree? Although I can answer that question, I will not do so on this page.

dedicate this web site to the handful of individuals who desire to understand how the inexorable decline of netnergy, combined with the use of the market system as a political system, will lead to global nuclear wars over theemaining natural resources unless minor changes are made to the structure of our government to prevent them. Asou shall see, we must move from a capitalistic form of government, which requires endless resource depletion, to aemocratic form, which does not.

As you shall see,we must move from a corporate form of government, which requires endless resource depletion, to auman form, which does not.

NET ENERGY IS THE CRITICAL VARIABLE

Energy has always been the basis of cultural complexity and it always will be the past clarifies potentialpaths to the future. One often-discussed path is cultural and economic simplicity and lower energy costs. This

could come about through the crash that many fear a genuine collapse over a period of one or twogenerations, with much violence, starvation, and loss of population. The alternative is the soft landing that

many people hope for a voluntary change to solar energy and green fuels, energy-conserving technologies,and less overall consumption. This is a utopian alternative that, as suggested above, will come about only if

severe, prolonged hardship in industrial nations makes it attractive, and if economic growth and consumerismcan be removed from the realm of ideolog

Joseph A. Tainte

One seldom thinks about the energy that is consumed in systems that supply energy such as oil-fired power plants.nergy is consumed when exploring for fuel, building the machinery to mine the fuel, mining the fuel, building andperating the power plants, building power lines to transmit the energy, decommissioning the plants, and so on. Theifference between the total energy recovered minus all of the energy consumed equals the net energy (in other

words, the net amount of energy actually available to society to do useful work). For more on net energy analysis, seemy 1999 paper ENERGETIC LIMITS TO GROWTH .

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As low-energy-cost conventional oil has been replaced by high-energy-cost non-conventional oil (offshore oil, heavyil, etc.), a greater fraction of the energy produced is consumed by the energy production process itself. Indeed, thenergy fraction of the global energy mix has been falling since before the 60s (see the graph below).

ttp://seekingalpha.com/article/238746-oil-beyond-the-barrel-and-over-the-cliff

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rior to peak oil, producers could compensate for the falling net energy fraction by simply pumping more conventioil. However, conventional oil production peaked in 2005, so it is now physically impossible (thermodynamic lawo increase net energy as we have in the past. In other words, producers are now geologically constrained and can nonger compensate by pumping more conventional oil. This means that the energy available for economic development

the net energy will decline for decades as low-energy-cost, conventional oil is replaced by high-energy-cost,onventional oil!

he above observation is so important that I am going to repeat it:

Conventional oil production peaked in 2005, so it is now physically impossible (thermodynamic laws) to increaset energy as we have in the past. In other words, producers are now geologically constrained and can no longerompensate by pumping more conventional oil. This means that the energy available for economic development theet energy will decline for decades as low-energy-cost, conventional oil is replaced by high-energy-cost, un-onventional oil!

would be as if we had enough energy to produce a hundred automobiles last year. This year, we only have enoughnergy to produce fifty automobiles. Next year, we will only have enough energy to produce twenty-five automobiles.

he relationship between total liquids and net energy is neatly illustrated in the upper half of the graph below.

Even though the total liquid fuel available to society rises, net energy falls faster because a greater-and-greateraction of available energy is consumed by the energy industry itself.

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verything we dig out of the ground requires more-and-more energy!

Although we have discussed the inexorable increase in energy required to produce energy itself, we havent discussedhe fact that the same energy laws apply to everything we dig out of the ground. A detailed discussion is beyond thecope of this piece; however, here is a nice graph which illustrates the process: MoreCurves.html

THE MARKET SYSTEM AS A MEANS OF CONTROL

OLITICS:1: social relations involving authority or power

Money to gain power; power to protect mone

de Medici Family Motto (apocrypA feeling arose by the seventeenth century that moralizing and preaching religious doctrine could no longer be trustedo restrain the destructive and irrational passions of men. A new means of control had to be found:

Peasant rebellions were not exceptional events. They erupted so frequently in the course of these fourcenturies that they may be said to have been as common in this agrarian society as factory strikes would bein the industrial world. In southwestern France alone, some 450 rebellions occurred between 1590 and1715. No region of Western Europe was exempted from this pattern of chronic violence. The fear of sedition was always present in the minds of those who ruled. It was a corrective, a salutary fear sinceonly the threat of insurrection could act as a check against unlimited exactions. AFTER THE BLACKDEATH, George Huppert

Libertarianism is a political philosophy that advocates the maximization of liberty for every individual. BernardMandeville (1670?-1733) laid the political foundation for Libertarianism when he suggested that a society based onrational interests (like a bee hive) would suppress irrational passions. Mandevilles ideal society was one where thenwitting cooperation of individuals, each working for his or her own interest, would result in the greatest benefit toociety at large.

he French writer Baron de Montesquieu (1689-1755), further developed Libertarian politics with a division of olitical powers in government. The division of power would, in effect, neutralize government and prevent citizensrom gaining power over each other; conversely, citizens could easily make power powerless by changing parties. This what Montesquieu called liberty. Today, we call Montesquieus philosophy Social Darwinism a term which

most closely associated with the writings of Herbert Spencer. Spencer coined the phrase survival of the fittest aerm that describes Montesquieus state of liberty perfectly.

he French physician Franois Quesnay (1694-1774) was the leader of a sect of Enlightenment thinkers known as thehysiocrats (or conomistes) who founded Libertarian economics. The term Physiocracy means rule of nature and

was coined in 1767 by Pierre Samuel du Pont de Nemours to describe the doctrine of the first modern school of conomics. Quesnay transformed economics into its modern role as the science of wealth. In so doing he disengagedconomic process from its role as servant of the sociopolitical order, and established its claim to be the direct

manifestation of the natural order. In other words, he argued that the economic process itself embodied natural law andhould thus dictate the sociopolitical order.

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Quesnay had arrived at his theories of a free market and economic individualism by studying the emergence of aational market in England. But he always understood that in eighteenth century France the unfettered pursuit of ndividual interest might not result in the natural order he sought to establish. Quesnay knew that men could fail toehave economically.

Quesnay believed that his introduction of arithmetic precision into economics provided a scientific rule that shouldictate appropriate political arrangements and even the obedience of sovereigns. He was never willing, however, toust the spontaneous development of the proper sociopolitical order. Nature required the assistance of an absoluteuthority capable of forcing natural order upon recalcitrant humans.

Montesquieus philosophy of Social Darwinism (survival of the economically fittest), Libertarian politics, andibertarian economics were imported to America by Pierre Samuel DuPont, Thomas Jefferson, Benjamin Franklin, andames Madison thereby establishing America as the first Libertarian state.

he principal functions of Americas new Libertarian government were two:

#1. To protect private property.

#2. To force men to act economically.

All day-to-day political decisions became economic decisions.

The market system was a new politics to replace feudalism (click to open)

There is madness in their method [Chapter 7 of Steve Keen (2001). Debunking Economics , Pluto Press & ZedBooks, Sydney.]

Why assumptions do matter, and why economics is so different to the true sciences

Economics as a discipline arose at a time when English society was in the final stages of removing the controls of he feudal system from its mercantile/capitalist economy. In this climate, economic theory had a definite (and

beneficial) political role: it provided a counter to the religious ideology that once supported the feudal order, andwhich still influenced how people thought about society. In the feudal system the pre-ordained hierarchy of king, lord,ervant and serf was justified on the basis of the divine right of Kings. The King was Gods representative on earth,

and the social structure which flowed down from him was a reflection of Gods wishes.

This structure was nothing if not ordered, but this order imposed severe restrictions on the now dominant classes of merchants and industrialists. At virtually every step, merchants were met with government controls and tariffs. Whenhey railed against these imposts, the reply came back that they were needed to ensure social order.

Economic theory then rightly called political economy provided the merchants with a crucial ideologicalejoinder. A system of government was not needed to ensure order: instead, social order would arise naturally in a

market system in which each individual followed his own self-interest. Smiths phrase the invisible hand camealong rather late in the process, but the notion played a key role in the political and social transformations of the late

18th and early 19th centuries.

An essential aspect of this market social order was equilibrium.

From the outset, economists presumed that the market system would achieve equilibrium. Indeed, the achievement of equilibrium was often touted as an advantage of the free market over any system where prices were set by fiat.Equilibrium was therefore an essential notion of the economic defence of capitalism: the equilibrium of the capitalistmarket would replace the legislative order of the now defunct feudal hierarchy.

More importantly, whereas the feudal order endowed only the well-born with welfare, the equilibrium of the marketwould guarantee the best possible welfare for all members of society. The level of individual welfare would reflect the

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ndividuals contribution to society: people would enjoy the lifestyle they deserved, rather than the lifestyle into whichhey had been born.

If, instead of equilibrium, economists had promised that capitalism would deliver chaos; if, instead of meritocracy,economists had said that the market could concentrate inequality, then economists could have hindered rather thanhelped the transition to capitalism (though they more likely would have been ignored).

By the middle of the 19th century, the transition to capitalism was complete: what was left of feudalism was a merevestige. But rather than the promised equilibrium, 19th century capitalism was wracked by cycles and enormous

disparities of wealth. A major depression occurred roughly every 20 years, workers conditions would improve andhen rapidly deteriorate, prices rise and then fall, banks expand and then collapse. New `robber barons replaced thebarons of old. It appeared that, while promising a meritocratic equilibrium, capitalism had instead deliveredunbalanced chaos. A new political challenge arose: that of socialism.

Once again, economics rose to the challenge, and once again equilibrium was a central tenet. This time the defencewas mounted by what we today call neoclassical economics, since classical economics had been turned into a weaponagainst capitalism by the last great classical economist, Karl Marx.

In contrast to the hand-waving of Smith, the neoclassical economists of the late 19th century provided a substantivemathematical analysis of how equilibrium could be achieved by an idealised market economy, and how thisequilibrium could be fair to all. However, unlike the earlier classical championing of capitalism, this technical edificeprovided very little in the way of libertarian slogans for the battle against the ideology of socialism. Instead of armingcapitalisms defenders with rhetoric to deploy against socialists, it gave birth to the academic discipline of economics.

Capitalism eventually transcended the challenge of socialism, with little real assistance from economic theory. Butwhile the economics had little impact upon capitalism, the need to defend capitalism had a profound impact upon thenature of economic theory. The defensive imperative, and the role of equilibrium in that defence, cementedequilibriums role as a core belief of economic theory.

At the beginning of the 3rd millennium, there is no competing social system against which capitalism must prove itsuperiority. Feudalism is long dead, and those socialist societies which remain are either socialist in name only, or bit

players on the world stage.

Today, most economists imperiously dismiss the notion that ideology plays any part in their thinking. The professionhas in fact devised the term `positive economics to signify economic theory without any value judgments, whiledescribing economics with value judgments as `normative economics and the positive is exalted far above thenormative.

Yet ideology innately lurks within positive economics in the form of the core belief in equilibrium.[3] As previouschapters have shown, economic theory has contorted itself to ensure that it reaches the conclusion that a marketeconomy will achieve equilibrium.[4] The defence of this core belief is what has made economics so resistant tochange, since virtually every challenge to economic theory has called upon it to abandon the concept of equilibrium.t has refused to do so, and thus each challenge Sraffas critique, the calamity of the Great Depression, Keyness

challenge, the modern science of complexity has been repulsed, ignored, or belittled.

This core belief explains why economists tend to be extreme conservatives on major policy debates, whileimultaneously believing that they are non-ideological, and are in fact motivated by knowledge rather than bias.

If you believe that a free market system will naturally tend towards equilibrium and also that equilibriumembodies the highest possible welfare for the highest number then ipso facto, any system other than a completeree market will produce disequilibrium and reduce welfare. You will therefore oppose minimum wage legislation andocial security payments because they will lead to disequilibrium in the labour market. You will oppose price

controls because they will cause disequilibrium in product markets. You will argue for private provision of services such as education, health, welfare, perhaps even police because governments, untrammeled by the discipline of upply and demand, will either under or oversupply the market (and charge too much or too little for the service).

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In fact, the only policies you will support are ones that makes the real world conform more closely to your economicmodel. Thus you may support anti-monopoly laws because your theory tells you that monopolies are bad. You mayupport anti-union laws, because your theory asserts that collective bargaining will distort labour market outcomes.

And you will do all this without being ideological.

Really?

Yes, really in that most economists genuinely believe that their policy positions are informed by scientificknowledge, rather than by personal bias or religious-style dogma. Economists are truly sincere in their belief that theirpolicy recommendations will make the world a better place for everyone in it so sincere, in fact, that they often actagainst their own self-interest.

For example, there is little doubt that an effective academic union could increase the wages paid to academiceconomists. If economists were truly self-motivated if they behaved like the entirely self-interested rationaleconomic man of their models they would do well to support academic unions, since the negative impacts theypredict unions to have would fall on other individuals (fee-paying students and unemployed academics). But instead,one often finds that economists are the least unionised of academics, and they frequently argue against actions that,according to their theories, could conceivably benefit the minority of academics at the expense of the greatercommunity. However ideological economists may appear to their critics, in their hearts they are sincerely non-partisan and, ironically, altruistic.

But non-partisan in self-belief does not mean non-partisan in reality. With equilibrium both encapsulating andobscuring so many ideological issues in economics, the slavish devotion to the concept forces economists intopolitically reactionary and intellectually contradictory positions.

Of course, if economists were right that equilibrium embodies the best possible outcome for the greatest number,hen their apparently ideological policy positions would be justified if the economy always headed back to

equilibrium when disturbed from its Nirvana. In the next chapter, well put aside the critiques which establish that thebuilding blocks of equilibrium are invalid, and instead ask whether economic equilibrium, as defined by economicheory, is in fact stable.

Everything you ever wanted to know about economics can be found at: http://www.debunking-economics.com/Sample/method.htm http://www.jayhanson.us/_Economics/TheDeathOfEconomics.pdf http://www.jayhanson.us/_Economics/Nitzan and Bichler - Capital As Power.pdf

American History Videos (click to open)

A award-winning BBC series by Adam Curtis !

THE CENTURY OF SELF FULL LENGTH Watch episode 1 - Happiness Machines Watch episode 2 - The Engineering of ConsentWatch episode 3 - There is a Policeman Inside All Our Heads: He Must Be DestroyedWatch episode 4 - Eight People Sipping Wine in Kettering

THE TRAPWatch episode 1 - F**k You BuddyWatch episode 2 - The Lonely RobotWatch episode 3 - We Will Force You To Be Free

THE POWER OF NIGHTMARESWatch episode 1 - Baby It s Cold Outside

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Watch episode 2 - The Phantom VictoryWatch episode 3 - The Shadows in the Cave

ECONOMIC THEORY FOR SCIENTISTS AND ENGINEERS

OLITICS:1: social relations involving authority or power

Rome under the Republic had a civic religion, consisting of the reading of entrails and other sensibleprecautions. The civic religion of the modern world is social engineering, which depends on similar techniques

of divinatio

The members of the American economics profession, as [Thurman] Arnold contended, performed a vitalpractical role in maintaining this unique system of corporate socialism American style. It was their role to

prevent the American public from achieving a correct understanding of the actual workings of the Americaneconomic system. Economists instead were assigned the task to dispense priestly blessings that would allowbusiness to operate independent of damaging political manipulation. They accomplished this task by means of

their message of laissez faire religion, based on a conception of a society composed of competingindividuals. However false as a description of the actual U.S. economy, this vision in the mind of the

American public was in practice transferred automatically to industrial organizations with nation-wide powerand dictatorial forms of government. Even though the arguments of economists were misleading and largely

fictional, the practical and beneficial result of their deception was to throw a mantle of protection over corporate government from various forms of outside interference. Admittedly, as the economic

symbolism got farther and farther from reality, it required more and more ceremony to keep it up. But aslong as this arrangement worked and there could be maintained the little pictures in the back of the head of

the ordinary man, the effect was salutary the great [corporate] organization was secure in its freedom andindependence. It was this very freedom and independence of business professionals to pursue the correct

scientific answer the efficient answer on which the economic progress of the United States depended. Robert H. Nelson, REACHING FOR HEAVEN ON EART

Robert Nelson tells us that the goal of the economics profession is to prevent the American public from achieving aorrect understanding the American economic system, thereby throwing a mantel of protection over corporateovernment!

WHAT DID HE SAY? WHOAAAA LOOK WHAT I FOUND!

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Robert Nelson tells us that the goal of the economics profession is to prevent the American public from achievingorrect understanding the American economic system, thereby throwing a mantel of protection over corporateovernment!

have cut through the jargon, math, and can explain economics in just one sentence: economics is the publishingf political propaganda with agendas hidden by known-false assumptions. I attribute the absolutely brilliant tacticf furthering political agendas with known-false assumptions to one man: Milton Friedman.

n 1948, economist Milton Friedman and psychologist Leonard Savage proposed the application of mathematical

ationality to all economic choice situations that involve uncertainty. In the Friedmans proposed mathematical moonsumers decide by instantly solving probability equations without even knowing it!

n 1952, Maurice Allais tested the Friedman/Savage mathematical model and found that it failed to correctly predictonsumer behavior:

A test of the theorys validity was presented to Savage by Maurice Allais over lunch, during a conferencein Paris in 1952. Allais made Savage fill out a list of questions with which he could show that Savageviolated his own theory. The history of Allais paradox (as it became known) is in itself intriguing. It seemsthat several other researchers, amongst whom Friedman, when presented with the same questions somemonths later passed the test.

Furthermore, the Allais paradox remained practically unknown until some twenty years later. But whatwas decisive for subsequent developments in economics and psychology, was that Savage took the critiqueof Allais seriously whereas Friedman, as far as I can tell, put the whole subject aside. Friedman left EUT asa basis for decision and game theory without further comments as a positive (as-if) theory; Savage retreatedinto a normative account of the theory. Floris Heukelom, Kahneman and Tversky and the Origin of Behavioral Economics , 2007

ndeed, modern biologists have found that consumers are not like the mathematical model, instead of mathematicalhey are logical they respond logically to environmental cues:

People surely do use some sort of logic. All languages have logical terms like not, and, same, equivalent,

and opposite. Children use and, not, or, and if appropriately before they turn three, not only in English butin half a dozen other languages that have been studied. Logical inferences are ubiquitous in human thought,particularly when we understand language. Logic is indispensable in inferring true things about theworld from piecemeal facts acquired from other people via language or from ones own generalizations. Steven Pinker, HOW THE MIND WORKS, 1997

ven after he knew his model failed, Friedman continued to deceive his students by claiming that it hadnt failed, andhen used his failed model the assumption of mathematical rationality to further his personal political agenda:

Adam Smiths key insight was that both parties to an exchange can benefit and that, so long ascooperation is strictly voluntary, no exchange will take place unless both parties do benefit. Milton &Rose Friedman, 1980

riedmans claim could only be true if consumers were able to make mathematically-rational decisions in themarketplace they cant. When Friedmans students challenged his unbelievable model, he tried to explain it awaywith more deception:

To be important, therefore, a hypothesis must be descriptively false in its assumptions MiltonFriedman, 1953

WELL, IS FRIEDMAN TELLING THE TRUTH? MUST ASSUMPTIONS BE FALSE? DO ASSSUMPTIONS MATTER? ( c li c k t o o p e n

n REFLECTION WITHOUT RULES, D. Wade Hands explains why assumptions do matter . What follows here is

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a direct quote:

Hausman begins by summarizing Friedmans assumptions do not matter argument in the following way:

1. A good hypothesis provides valid and meaningful predictions concerning the class of phenomena it isintended to explain (premise).

2. The only test of whether an hypothesis is a good hypothesis is whether it provides valid andmeaningful predictions concerning the class of phenomena it is intended to explain (invalidly from 1).

3. Any other facts about an hypothesis, including whether its assumptions are realistic, are irrelevant toits scientific assessment (trivially from 2). (Hausman 1992, p. 166)

The main problem with the argument is that is it not a valid argument at all: Statement 2 is not true and it does notollow from statement 1. Hausman uses the following analogous argument to make his point:

1 A good used car drives reliably (over-simplified premise).

2 The only test of whether a used car is a good used car is whether it drives reliably (invalidly from 1).

3 Anything one discovers by opening the hood and checking the separate components of a used car is

irrelevant to its assessment (trivially from 2). (Hausman 1992, p. 166)

The problem is of course that with a used car or an economic model the relevant issue is how well it will perform inhe future and in other circumstances. Theory should be a guide even if we focus on empirical prediction to new

circumstances and new situations, and for those forward-looking applications examining the parts (the assumptions)matter. In fact, though Hausman does not make this point, Friedmans emphasis on novel facts gives away hiscommitment to successful future performance, but Friedman never closes the circle. Friedman seems to be making themplicit assumption that success in one novel situation improves the probability of success in additional and/or future

novel situations that we might have an interest in, but there is no obvious reason for this to be the case. Such issuesactually carry the discussion beyond Friedmans essay and into debates about realism and instrumentalism in thephilosophy of science: a discussion that must wait until the next chapter. At this point I just want to note thatHausmans criticism of Friedman seems to be correct even if one is only interested in prediction, the assumptionstill matter.

or over 50 years, mainstream economics has been based on the known-false assumption of mathematicalationality!

riedmans deceptions were published as The Methodology of Positive Economics (1953) which is clearly the best-nown work in twentieth-century economic methodology. It was a marketing masterpiece (Caldwell 1982, p. 173)hat is cited in almost every economics textbook and it remains, almost a half-century after its publication, the onlyssay on methodology that a large number, perhaps majority, of economists have ever read (Hausman 1992, p. 162).

D. Wade Hands, 2001

riedmans disproved mathematical model ultimately became the so-called Standard Social Science Model (SSSMhat has dominated the behavioral sciences, colored popular thought, and, by its pervasiveness, directly and indirectlynfluenced public policy for over 50 years!

conomics is the intellectual Trojan Horse of our time with political propaganda hidden by known-falsessumptions. The conclusions follow logically from the deception, so if you accept the known-false assumptionshen you accept the deception:

Economists enamored of pure markets begin with the theory, and hang models on assumptions that cannotthemselves be challenged. The characteristic grammatical usage is an unusual subjunctive the verb form

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must be. For example, if wages for manual workers are declining, it must be that their economic value isdeclining. If a corporate raider walks away from a deal with half a billion dollars, it must be that he addedthat much value to the economy. If Japan can produce better autos than Detroit, there must be someinherent locational logic, else the market would not dictate that result. If commercial advertising leadsconsumers to buy shoddy or harmful products, they must be maximizing their utility because we knowby assumption that consumers always maximize their utility. How do we know that? Because to doanything else would be irrational. And how do we know that individuals always behave rationally? Becausethat is the premise from which we begin. The truly interesting institutional questions the disjuncturesbetween what free-market assumptions would predict and the actual outcomes are dismissed by thetautological and deductive form of reasoning. The fact that the real world is already far from a perfectmarket is ignored for the sake of theoretic convenience. The dissenter cannot challenge the theory; he canonly describe the real world. Robert Kuttner, EVERYTHING FOR SALE

SEVEN UNSCIENTIFIC ASPECTS OF ECONOMICS

OLITICS:1: social relations involving authority or power

Leaving aside the question of whether economics has ever accurately predicted anything, the argument that themore significant the theory, the more unrealistic are the assumptions is simply bad philosophy. Steve Ke

2

economics is the publishing of political propaganda with agendas hidden by known-false assumptions.Jay Hans

Advertising is legalized lying. H.G. We

Unsc ien t i f i c Aspec t #1 : Economis t s a s sume t h a t t h e w o r l d e c o n om y i s p o w e r e d b y m o n e y r a t h e r t h a n b y e n e rgy ( c l ic k t open)

Unscientific Aspect #1: Economists assume that the world economy is powered by money rather than by energy:Minerals are inexhaustible and will never be depleted. A stream of investment creates additions to provedreserves, a very large in-ground inventory, constantly renewed as it is extracted How much was in theground at the start and how much will be left at the end are unknown and irrelevant There are plenty of fossil fuels and no limit to potential electrical capacity. It is all a matter of money. M. A. Adelman, 1993

Even Nobel-prize winning economists believe that money creates resources:

the world can, in effect, get along without natural resources at some finite cost, production can befreed of dependence on exhaustible resources altogether.

Nobel winner Robert Solow, 1974

But physical scientists know that all resources are natural and that economists have lost touch with reality:

One must have a very erroneous view of the economic process as a whole not to see that there are nomaterial factors other than natural resources. To maintain further that the world can, in effect, get alongwithout natural resources is to ignore the difference between the actual world and the Garden of Eden. Georgescu-Roegen, 1975

Neoclassical economists hoped they could gain social status by mimicking old-fashioned physics:

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[ With the development of modern physics ] it became possible to see orthodox economic theory for whatit really was: a bowdlerized imitation of nineteenth-century physics [ with money replacing energy ]. Philip Mirowski, 1988

Almost 150 years ago, physical scientists attempted to convince economists that the economy was powered by energynstead of money:

It is, in fact, the fate of all kinds of energy of position to be ultimately converted into energy of motion.

The former may be compared to money in a bank, or capital, the latter to money which we are in the act of spending If we pursue the analogy a step further, we shall see that the great capitalist is respectedbecause he has the disposal of a great quantity of energy; and that whether he be nobleman or sovereign,or a general in command, he is powerful only from having something which enables him to make use of the services of others. When a man of wealth pays a labouring man to work for him, he is in truthconverting so much of his energy of position into actual energy The world of mechanism is not amanufactory, in which energy is created, but rather a mart, into which we may bring energy of one kindand change or barter it for an equivalent of another kind, that suits us better but if we come withnothing in hand, with nothing we will most assuredly return. Balfour Stewart, 1883

Unsc ien t i f i c Aspec t #2 : Economis t s s e l ec t know n- to -be -f a l se -hypo the t i c a l a s sumpt ions (c l i c k t o o p e n)

Unscientific Aspect #2: Economists select known-to-be-false-hypothetical assumptions so they can mislead thepublic into supporting their political agendas (e.g., market efficiency, Homo economicus, advertising, money):

Neoclassical economics is based on the premise that models that characterize rational, optimizingbehavior also characterize actual human behavior. R. Thaler, 1987

The rational, optimizing behavior model at the center of modern economics fails consistently in repeatableexperiments. This is well documented in the work of Daniel Kahneman who won the 2002 Nobel in economics:

Kahneman and Tversky proved in numerous experiments that the day-to-day reality of decision makersvaries from the assumptions held by economists. Goldberg and von Nitzsch, 2001

Economists prefer lies to truth and dont care if their theories are known-to-be-wrong:

Contrary behavioral evidence has had little impact on economics because having a theory of how theworld ought to act, economists can reject all manner of evidence showing that individuals are not rationalutility maximizers. Lester Thurow, 1983

You may call it what you wish. I call it lying so does Herman Daly:

We must stop crying to the growing economy, Deliver me, for thou are my god! Instead, we must havethe courage to ask with Isaiah, Is there not a lie in my right hand? Herman Daly

Unsc ien t i f i c Aspec t #3 : Economis t s a s sume t h a t m o n e y i s o n ly a m e d i u m o f e x c h a n g e ( c l ic k t o o p e n )

Unscientific Aspect #3: Economists assume that money is only a medium of exchange:

MONEY : Anything which is widely acceptable in exchange for goods, or in settling debts, not for itself but because it can be similarly passed on, has the character of money since it serves the primary functionof money, i.e. a means of payment. As a means of payment money is an entity which is transferred when apayment is made; as such it acts as a medium of exchange, a function essential to any economy other thanthe most primitive. [p. 285, THE MIT DICTIONARY OF ECONOMICS ]

But even the casual observer can see that money is social power because it empowers people to buy and do the

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hings they want including buying and doing other people: politics.

f employers have the freedom to pay workers less political power, then they will retain more political power forhemselves. Money is, in a word, political, and economic efficiency is correctly seen as a political concept

designed to conserve political power for those who have it to make the politically powerful, even more powerful,and the politically weak, even weaker.

Our national currency provided the means for moneyed interests to capture our formal political system.

U n sc i e n t i f ic A s p ec t # 4 : T h e e c o n o m ic u n i t o f m e a s ur e i s a t r a n s it o r y e f f e c t n o t a c a u s e . (c l i c k t o o p e n)

Unscientific Aspect #4: The economic unit of measure is price which is a transitory effect not a cause.For example, a dollars worth of oil today will not be a dollars worth of oil tomorrow. Thus, todays economicassumptions used to create a Nobel-Prize-winning economic model which is a correlation of transitory effects may be worthless tomorrow:

The Nobel-Prize-winning Black-Scholes-Merton model failed spectacularly in 1998 after losing $4.6billion in less than four months. To save the U.S. banking system, then-Federal Reserve Chairman AlanGreenspan personally convinced 14 banks to remain invested in Long Term Capital Management, therebyaverting disaster. Wikipedia

U n sc i e n t i f ic A s p ec t # 5 : T h e e c o n o m ic m e t h o d i s c o r r e la t i o n o f t r a n s it o r y e f f e c t s ( c li c k t o o p e n)

Unscientific Aspect #5: The economic method is correlation ( this happened before that happened, and thusassume , that it must have caused it) of transitory effects. Correlation is also called magical thinking for the obviouseasons:

Note as well that the isoquant hits the vertical axis at point A, indicating that we can produce futureoutput level Q* with no oil and gas. How is this possible? Paul Samuelson and William Nordhaus

Economists can make any lie seem like the truth by carefully selecting assumptions and cherry-picking the data:

There are three kinds of lies: lies, damned lies, and statistics. Mark Twain

Unsc ien t i f i c Aspec t #6 : The ce t e r i s pa r ibus as sumpt ion (c l i c k t o o p e n)

Unscientific Aspect #6: The ceteris paribus assumption further reinforces the unrealistic and unscientific nature of economic correlation:

We show there the amounts of the two kinds of capital that would be required to attain a certain level of output in the future (Q*), holding other inputs constant. Paul Samuelson and William Nordhaus

Real scientists do not hold other inputs constant:

The unscientific nature of ordinal utility theory was further shown to be reinforced by the insulating roleplayed by the ceteris paribus proviso. L.D. Keita

Unsc ien t i f i c Aspec t #7 : Economics i s always p o l i t i c a l ( c l i c k t o o p e n)

Unscientific Aspect #7: Economics is always political (it always implies how we should behave ). Every economheory assumes to know what is best for us. Economists always publish to support specific political agendas:

Should we be taking steps to limit the use of these most precious stocks of societys capital so that they

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will still be available for our grandchildren? in the long run, oil and gas are not essential. PaulSamuelson and William Nordhaus

Real science is not inherently normative:

It is impossible to define good, service, or even utility without making ethical judgments. Everyobject has mass, but not every object has utility. George Brockway, 1995

No discipline [ except economics ] attempts to make the world act as it thinks the world should act. Lester Thurow, 1983

f the so-called scientific aspects of economics are childish nonsense or deliberate lies then what are we leftwith? Thats easy isnt it? Politics! Thus, we can cut through the jargon, math, and explain economics in just oneentence: economics is the publishing of political propaganda with agendas hidden by known-falsessumptions; our universities teach politics in disguise:

The vocabulary of physics is amoral not antimoral, but amoral. Mass, force, and velocity have no moralimplications because the laws describing them have no alternatives. The vocabulary of economics, incontrast, abounds in ethical terms. It is impossible to define good, service, or even utility withoutmaking ethical judgments. Every object has mass, but not every object has utility. Moreover, some peoplemay consider a certain object a good while others do not, but there can be no disagreement about theequivalence and direction of action and reaction. There is no other or better way for a body to fall in avacuum than v(t)=-gt+vo y(t)=-1/2gt^2+vot+yo; this is not because physicists dont happen to be interestedin making this a better world. There is no unchanging price for a bushel of wheat; and this is not becauseeconomists dont happen to be interested in a stable universe. The price of wheat depends upon what peopledo, but bodies fall as they do regardless of what people do or think... Economics is not value free, and noamount of abstraction can make it value free. The econometricians search for equations that will explainthe economy is forever doomed to frustration. It is often said that their models dont work, because, on theone hand, the variables are too many and, on the other, the statistical data are too sparse. But the physicaluniverse is as various as the economic universe (they are, to repeat, both infinite), and Newton had fewerdata and less powerful means of calculation than are at the disposal of Jan Tinbergen and hiseconometrician followers. The difference is fundamental, and the failure to understand it reduces much of modern economics to a game that unfortunately has serious consequences. George Brockway, 1995

The problem is, of course, that not only is economics bankrupt but it has always been nothing more thanpolitics in disguise economics is a form of brain damage. Hazel Henderson

More on the Unscientific Aspects of Economics including Game Theory (click to open)Besides being the centerpiece of modern economics, Friedmans known-false assumption of mathematical rationality is also used in Game Theory!

The following study by Paul Glimcher illustrates the deliberate mis-characterization of facts by economists. D. G. Harper (the biologist who actually did the experiment) claimed that the ducks decided where to swim by respondingto environmental cues. Glimcher is claiming that ducks decide where to swim by mathematically solvingprobability equations:

Harpers experiment was critical because it tested the idea that the ducks could reach this kind of stableNash equilibrium. Paul W. Glimcher, 2002

Nash Equilibrium is a Game Theory model that is based on the known-false assumption of mathematicalrationality. Biologists tell us that mathematical rationality could not have evolved. No animal decides what to do

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by dynamically solving math problems subconsciously:

neither human engineers nor evolution can build a computational device that exhibits these forms of unbounded rationality, because such architectures are impossible, even in principle. John Toby and Leda Cosmides

What about Bounded versus Unbounded Rationality?

Another school of thought, whose theory of rationality is called optimization under constraints, has

offered a possible escape from these interminable calculations. They recognize that computationalresources are limited and that stopping rules are needed to determine when enough possible outcomes havebeen evaluated. To accomplish this, they suggest that we should evaluate whether considering eachsuccessive outcome justifies the additional computational costs of doing so. Now, this is not a solution! Itcompounds the problem by adding an additional layer of computation: Not only do the outcomes have tobe evaluated, but also the benefits of performing each evaluation have to be weighed. Optimization tinderconstraints requires even more cognitive resources than the approach it claims to simplify, and thus itrepresents just another version of unbounded rationality.

Gigerenzer and Todds alternative to these computational nightmares is what they call boundedrationality. It explicitly recognizes that computational resources are limited and that speed is often criticalin real-world decision situations. Thus evolution should build what Gigerenzer calls fast and frugalheuristics that solve real-world problems quickly with a minimum of information. A heuristic could be asimple rule of thumb (for example, if its bigger than a bluejay, its probably a hawk), or it may involve afew more steps. But the computationally bulky approaches of unbounded rationality and optimizationunder constraints are far too complex to qualify as heuristics. EVOLUTIONARY PSYCHOLOGY

Maurice Allais falsified in Game Theory in 1952! In fact, people consistently fail to act according to Game Theorymodels in repeated experiments (e.g. the Ultimatum Game ). However, that fact that the model fails consistently,has not changed the assumption of mainstream economists:

In a classic experiment, Harper (1982) tested the ability of a flock of ducks to achieve a stable Nashequilibrium when fed balls of bread. J. M. Gowdy, 2007 ( Nash was insane. Game theory ispropaganda at its finest! )

Mathematical rationality and Game Theory were falsified in 1952! Yet eight game theorists have won Nobelprizes in economics. John Maynard Smith was awarded the Crafoord Prize for his application of game theoryo biology. Yet, Game Theory does not describe how any animal makes decisions:

A test of the theorys validity was presented to Savage by Maurice Allais over lunch, during a conferencein Paris in 1952. Allais made Savage fill out a list of questions with which he could show that Savageviolated his own theory. The history of Allais paradox (as it became known) is in itself intriguing. Itseems that several other researchers, amongst whom Friedman, when presented with the same questionssome months later passed the test.

Furthermore, the Allais paradox remained practically unknown until some twenty years later. But whatwas decisive for subsequent developments in economics and psychology, was that Savage took the critiqueof Allais seriously whereas Friedman, as far as I can tell, put the whole subject aside. Friedman left EUTas a basis for decision and game theory without further comments as a positive (as-if) theory; Savageretreated into a normative account of the theory.

Download the entire paper at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=956887

More on Friedmans world-destroying lie, which ultimately became know as the F Twist, can be foundhere: http://www.debunkingeconomics.com/Sample/method.htm#F-twist

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Humans cannot maximize. Therefore, the market is not efficient. Therefore, the world does not needeconomists!

Everything you ever wanted to know about economics can be found at: http://www.debunking-economics.com/Sample/method.htm http://www.jayhanson.us/_Economics/TheDeathOfEconomics.pdf http://www.jayhanson.us/_Economics/Nitzan and Bichler - Capital As Power.pdf

AGAINST MECHANISM : Protecting Economics From Science, Philip Mirowski, 1988;

[p. 6 ] Chapters 2 and 3 demonstrate that is was not so much the methods of science that were appropriated by theearly neoclassicals as it was the appearances of science, for the early neoclassicals possessed a singularity ineptunderstanding of the physics that they so admired. Chapters 1 and 2 also introduce the crucial concept of economicconservation principles, perhaps the most neglected and yet most significant clue to the scientific pretensions of neoclassical economic theory.

Another antidote to the widespread ailment of scientism in economics is an examination of the various philosophicalpreconceptions that are freighted in as part of an unthinking acquiescence to mathematical rigor. In Part 2 therelationship of the first institutionalist program in economics to mathematical models is examined from various

angles and aspects. First, the assertion that there is a New Institutional Economics of an orthodox cast is evaluatedin Chapters 4 and 5. Basically, the argument there is that neoclassical economists have tried to preempt the questionsof the institutionalist school by attempting to reduce all social institutions such as money, property rights, and themarket itself to epiphenomena of individual constrained optimization calculations. All these attempts have failed,despite their supposed dependence upon mathematical rigor, because they always inadvertently assume what they aimto deduce.

[pp. 45-48]

JEVONS SUNSPOTS

Macroeconomic Instability and the Natural Process in Early Neoclassical Economics

It may seem odd to disinter an economic theory in this instance, William Stanley Jevonss claim that sunspotscaused macroeconomic fluctuations which no one now believes or much cares about. In fact, my purpose is not toscoff at a dead theory, but to use it as a pretext to discuss the following issues: economic historians often havesuggested a dichotomy between a premodern and industrial macroeconomy, with the premodern economy largely atthe mercy of weather and other natural phenomena; this dichotomy is rooted in early neoclassical economic theory(here restricting ourselves to Jevons); there is little historical evidence that premodern macro fluctuations were causedby natural disturbances, such as the weather (here restricting ourselves to the case of England); and the above threetheses have some interesting implications for the way economic policy is conceived, both then and now.

William Stanley Jevons, in his 1870 Presidential Address before the British Association for the Advancement of

Science, Section F, lamented that, There is no one who occupies a less enviable position than the political economist.Cultivating the frontier regions between certain knowledge and conjecture, his efforts and advice are scorned andrejected on all hands. Although this may prompt nods of assent in the 1980s, it is important to understand thehistorical context of such complaints. As he said later in the same address, The growth of the arts and manufacturesand the establishment of free trade have opened the widest means of employment and brought an accession of wealthpreviously unknown Nevertheless within the past few years we have seen pauperism almost as prevalent as ever,and the slightest relapse of trade throws whole towns and classes of people into a state of destitution little short of famine.

The problem of English political economy in the 1870s was its firm association with the doctrine of free trade,which in turn was a direct corollary of the fundamental theoretical principle that unfettered market structures were a

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superior means of organizing production and distribution. In periods of buoyancy such a stance was easy to defend;but by the 1870s doubts became more insistent in England: doubts about the stability of market organization, whichresulted in sharp aggregate fluctuations, and doubts about the long-term efficacy of free trade due to the successes of Britains foreign economic rivals. Jevons personally had felt these chill winds when his fathers iron firm wasbankrupted in 1848, and his family bore the stigma of being the poor relations. This experience did not sour Jevonson free trade and the efficacy of market organization, however, because he felt that by hard work from an early agehe had managed, in the face of adversity, to improve his station in life, and further that such an avenue was open toall who would but avail themselves of it. In practice, the early Jevons responded to the mistrust of political economyby blaming the victims. But, as he soon came to understand, that was not a winning strategy.

All of Jevonss innovations in economics his pioneering efforts in marginalist price theory, his work on the CoalQuestion, and his sunspot theory may be understood as a unified rational response to the increasing skepticismabout political economy in Britain. Economists in the late twentieth century tend to view the innovations in pricetheory as Jevonss crowning achievement and the sunspot theory as some unfortunate lapse, or even anembarrassment. Indeed, for some the sunspot theory has attained the status of joke, whereas for others it is acautionary parable concerning the pitfalls of inductive argument. All of these interpretations are much too facile,because they ignore the unified thrust of Jevonss theoretical project. In short, his project was to portray the market asa natural process, so that doubts about its efficacy would be assuaged, or at the very least, countered by scientificdiscourse. The ultimate object was to reconstruct the foundations of the case for free trade.

In the case of neoclassical price theory the evidence for this thesis is extensive, but would be superfluous in thepresent context; in any event it is summarized above. Briefly, Jevonss price theory laid claim to scientific statusbecause it was identical in mathematical form and analytical content to the physics of the mid-nineteenth century,which is sometimes referred to as energetics by historians of science. For our present purposes, it is only necessaryto survey the broadest implications of this stratagem. First, it drew a direct analogy between economic transactionsand transfers of energy, which subtly endowed the transactions with the natural ontological status of the transfers.Second, it encouraged specialization within economics and the cultivation of an internal language (mathematics),which served to buffer the discipline from the intrusions of lay critics. Third, it demonstrated that market processesmaximized utility in a regime of free competition, thus implying that no improvement was possible through consciousintervention in production and exchange. These were a much more formidable set of defenses of the doctrine of freetrade than those provided by the demoralized and disheveled remnants of classical political economy.

However, effective these new foundations, they did not address the most significant objection to British politicaleconomy: If free trade was such an able method of economic coordination, why did it result in such devastatingcontractions punctuating economic expansion? In this respect, Jevonss sunspot theory was the necessary adjunct tohis newly formulated price theory. If the market always functioned in an effective manner tended toward aconfiguration insuring maximum happiness, then there was only one obvious way to explain the incongruity of themisery and suffering of depressions. The natural operation of the market could only be deflected or stymied (althoughnever fully neutralized) by another opposing natural force here Jevons proposed that macroeconomic fluctuationsand credit crises were caused by meteorological disturbances, ultimately caused in turn by variations in sunspotactivity. The advantage of this sort of explanation was that no one was to blame, or as Jevons put it, We must not layto the charge of trades-unions, or free trade, or any other pretext, a fluctuation of commerce which affects countriesalike which have trades-unions and no trades-unions, free trade and protection; as to intemperance and various other

moral causes, no doubt they may have powerful influence on our prosperity but they afford no special explanation of a temporary wave of calamity. The issue of macroeconomic instability, then, could not be used as an argument forprotection, for instance, since the cause fell on all countries indifferently as a natural state of affairs. To myknowledge, no one has adequately explored the hypothesis that the English retained their allegiance to free trade longafter the Continent did because they, unlike the French or Germans, persisted in seeing economic relations groundedin a physical (and not physiological) analogy.

Throughout his life, Jevons subscribed to the principle that macroeconomic fluctuations were of natural origins, buthe encountered great difficulty in fleshing out the theory. His first article on the subject in 1875 tried to establish thatEnglish grain prices from 1254 to 1400 cycled with a period of 11 years. Because astronomers at that time believedthat sunspot activity also rose and fell in cycles of 11.1 years, he asserted that the coincidence of periodicities implied

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that observed price fluctuations were caused by exogenous shocks. Of course, this was a very flimsy argument, asJevons was well aware: he could not cite sunspot data contemporaneous with his fourteenth-century price data.Objections that would daunt the less resolute were not sufficient to restrain him: I am aware that speculations of thiskind may seem somewhat far-fetched and finely wrought; but financial collapses have occurred with such approach toregularity in the last fifty years, that either this or some other explanation is needed.

What was needed was some connection between the existing sunspot data-the Wolf Zurich relative sunspot numbers,beginning in 1749 and some contemporaneous indicator of economic activity. Jevons openly admitted that he hadattempted to find a regular periodicity in the prices of European grains in the eighteenth and nineteenth centuries, but

the search had failed. His next tactic was to assert the existence of a very stable 11-year period between Englishcredit crises, and to suggest that the equality of periodicity with that of the sunspots was sufficient evidence to infercausality. This argument hinged crucially upon the claim that there was a clockwork regularity in the appearance of crises in England; and it was to this thesis that Jevons committed much intellectual effort. He produced one list of thedates of credit crises in 1877-1878, but then received the unpleasant surprise that astronomers had repudiated theirearlier estimate of the periodicity of the sunspot cycle, revising the estimate to read 10.45 years. Again Jevons wasnot to be frustrated in his quest. He simply redefined a few of the dates of his crises so that the average intervalbecame equal to 10.5 years. His final list of crisis dates (with those Jevons indicated as doubtful in italics) were:1701, 1711, 1731-1732, 1742, 1752, 1763, 1772-1773, 1783, 1793, 1804-1805, 1815, 1825, 1836-1839, 1847, 1857,1866, and 1878.

At this point, Jevons became the butt of some ridicule: one example was a satirical statistical study showing that theperiodicity of winning Oxbridge teams in collegiate boat races was the same as that of sunspots. Other more seriouschallengers pointed out that Jevonss conception of crises, as revealed in his choice of dates, was so vague as to admitof any and all interpretations. He responded by maintaining that he was simply proposing the following workinghypothesis: A wave of increased solar radiations favorably affects the meteorology of the tropical regions, so as toproduce a succession of good crops in India, China, and other tropical and semi-tropical countries. After several yearsof prosperity the 6 or 800 millions of inhabitants buy our manufactures in unusual quantities; good trade inLancashire and Yorkshire leads the manufacturers to push their existing means of production to the utmost and thento begin building new mills and factories. While a mania of active industry is thus set going in Western Europe, thesolar radiation is slowly waning, so that just about the time when our manufacturers are prepared to turn out a greatlyincreased supply of goods, famines in India and China suddenly cut off the demand.

In his published work, Jevons also stressed that it was the long credits given in the Eastern trade that provided atransmission mechanism for the financial credit crises. The explanation was actually much more popular than wetoday might think, because it resonated with an ethos of the "white mans burden" prevalent in the popular Englishculture of the 1880s and 1890s. Jevons capped this narrative in 1879 by publishing a series of wheat prices fromDelhi, 1763-1834, which he claimed displayed the sought-after periodicity and corresponded to his chronology of crisis dates. From 1879 to his death in 1882 he published nothing further on the subject, but his correspondencereveals that he persisted in his defense and employment of his sunspot theory in discussions of macroeconomicfluctuations.

pp. 150-151, SCIENCE, RATIONALITY, AND NEOCLASSICAL ECONOMICS , L.D. Keita; Delaware,

1992.]The bulk of this text was taken up with examining the claims of neoclassical economic theory to scientific status.Given contemporary views on the nature of scientific theory, I examined neoclassical economic theory in terms of both its historical and contemporary phases. I demonstrated that the cardinal theory of utility that formed thefoundation for early neoclassical theory foundered on account of its inability to measure utility in any acceptablescientific way. Its substitute, the ordinal theory of utility, was shown to be equally unacceptable. The scientificpretensions of ordinal utility theory and its correlate, revealed preference theory, were shown compromised by thenormative structure of the foundational postulate of rationality. The unscientific nature of ordinal utility theory wasfurther shown to be reinforced by the insulating role played by the ceteris paribus proviso.

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This general critique was extended not only to the neoclassical theory of individual agent choice but also to generalequilibrium theory and positive neoclassical welfare economic theory. Given the general dissatisfaction withneoclassical theory, a number of alternative theories have been proposed, but the problem with the latter is that, withfew exceptions, they are founded on the premise that an objective science of economics is still possible despite itspresent failings. I pointed out the shortcomings of those theories and argued that on account of the nature of humandecision making, no analysis of it could be scientific in the way in which the natural sciences are scientific. Mentalstates that must be invoked to explain behavior are just not subject to empirical analysis. The attempts by theorists toestablish explanatory theories by appeal to heuristic concepts such as rationality were shown to be unsuccessful. Thepoint is that rationality plays a normative role similar to that of goodness in ethical theory.

The sociologist can indeed record the behavior of individuals in terms of cultural norms of goodness, badness,deviancy, and so on, but he or she must recognize that theories of behavior founded on such concepts arenecessarily normative. Similarly, the neoclassical theorist who embraces a particular notion of rationality and groundshis or her theories on such a notion is certainly formulating a normative theory. My analysis showed that theneoclassical theorist of economic behavior is confronted with the dilemma of restricting his or her analysis to a case-by-case taxonomy of individual agent choice, given the inaccessibility to mental states, or grounding his or herexplanatory theories on the normative heuristic of rational choice. Neither alternative yields scientific results.

Here Nobel Prize-winning economist Milton Friedman demonstrates his duplicity in an interview:

Ravaioli: But there are many other environmental problems

Nobel Laureate Friedman: Of course. Take oil, for example. Everyone says its a limited resource: physically it maybe, but economically we dont know. Economically there is more oil today than there was a hundred years ago. Whent was still under the ground and no one knew it was there, it wasnt economically available. When resources areeally limited prices go up, but the price of oil has gone down and down. Suppose oil became scarce: the price would

go up, and people would start using other energy sources. In a proper price system the market can take care of theproblem.

Ravaioli: But we know that it takes millions of years to create an oil well, and we cant reproduce it. Relying on oilmeans living on our capital and not on the interest, which would be the sensible course. Dont you agree?

Nobel Laureate Friedman: If we were living on the capital, the market price would go up. The price of truly limitedesources will rise over time. The price of oil has not been rising, so were not living on the capital. When that is noonger true, the price system will give a signal and the price of oil will go up. As always happens with a truly limitedesource.

Ravaioli: Of course the discovery of new oil wells has given the illusion of unlimited oil

Nobel Laureate Friedman: Why an illusion?

Ravaioli: Because we know its a limited resource.

Nobel Laureate Friedman: Excuse me, its not limited from an economic point of view. You have to separate theeconomic from the physical point of view. Many of the mistakes people make come from this. Like the stupidprojections of the Club of Rome: they used a purely physical approach, without taking prices into account. There aremany different sources of energy, some of which are too expensive to be exploited now. But if oil becomes scarcehey will be exploited. But the market, which is fortunately capable of registering and using widely scattered

knowledge and information from people all over the world, will take account of those changes. [ p. 33,ECONOMISTS AND THE ENVIRONMENT , Carla Ravaioli; Zed, 1995]

In fact, none of the Club of Romes predictions has failed. Economists like Friedman routinely lie to further their global political agenda.)

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THE MARKET SYSTEM IS NOT EFFICIENT

There is an assumption in economics that the market system handles resource allocation in an efficient mannerunless proven otherwi

Thomas H. Tietenberg

Economic efficiency has been the greatest source of social legitimacy in the United States for the past century,and economists have been the priesthood defending this core social value of our era.

Robert H. Nelson, ECONOMICS AS RELIGION

The infrastructure of suburbia can be described as the greatest misallocation of resources in the history of thewo

J.H. Kunstl

When I use the term market system, it is not just the price mechanism but the entire system of regulation,ualification, credentials, reputations and clearing that surrounds that mechanism and makes it operate in a socialontext.

When economists assume the market is efficient, they actually mean the efficient distribution of benefits NOthe efficient use of materials:

The sole moral judgment an economist is supposed to be able to make is a wholly uncontroversial one: if every person is made better off by some change, the change (which is then called Pareto optimal) shouldtake place. Even philosophers like John Rawls have adopted the notion of Pareto optimality DonaldN. McCloskey

Economic efficiency is one of the assumptions that lie at the center of economic politics and is completely differenthan materials efficiency:

The potential Pareto improvement criterion and other measures of economic efficiency do not pass the testof consistency and coherence within economic theory, nor do such measures accord with what public

decision makers seek in policy advice from economists. Such efficiency measures are, nonetheless, durablecomponents of the ideology of economics. Daniel W. Bromley

All economic models assume that human brains contain an unspecified and undiscovered mathematical device whicmaximizes utility (i.e., solve Bayes equations):

Those who believe society can best be understood as a series of markets begin by positing a rational,calculating individual whose goal is to maximize utility. This premise says everything and nothing, sinceit is true by definition in all cases. But it is a key aspect of the market model, since it is the behavioral partof the logical argument that whatever the market decides must be optimal. Robert Kuttner,EVERYTHING FOR SALE

his assumption of innate maximizing ability provides the only moral argument (Pareto optimum, Nash equilibrium)hat supports the market system. However, biologists tell us that people are not utility maximizers!

[Social science] approaches assume that unbounded rationality is possible and that the mind is a general-purpose computer that can figure out, in any situation, what will maximize a given quantity over the longterm (whether utility or children). Indeed, the concept of learning within the Standard Social ScienceModel itself tacitly invokes unbounded rationality, in that learning is the tendency of the general-purpose,equipotential mind to grow by an unspecified and undiscovered computational means whateverfunctional information-processing abilities it needs to serve its purposes, given time and experience in thetask environment. [However,] neither human engineers nor evolution can build a computational device thatexhibits these forms of unbounded rationality, because such architectures are impossible, even in principle.

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Although organisms sometimes appear to be pursuing fitness on behalf of their genes, in reality they areexecuting the evolved circuit logic built into their neural programs, whether this corresponds to currentfitness maximization or not. Organisms are adaptation executers, not fitness pursuers. Mapping thecomputational architecture of the mechanisms will give a precise theory of behavior, while relying onpredictions derived from fitness maximization will give a very impoverished and unreliable set of predictions about behavioral dynamics. John Toby and Leda Cosmides

ven economists tell us that people are not utility maximizers!

Subjective expected