In Kirzner’s view, the divergence between Mises and Hayek on the one hand and the neoclassical mainstream on the other was that Mises and Hayek went further in developing the subjectivist paradigm underlying the marginal-utility theory of value introduced by Jevons, Menger, and Walras in opposition to the physicalist, real-cost, theory of value inherited from Smith, Ricardo, Mill, and other economists of the classical school.
…as the neoclassical research program evolved, the subjective character of the underlying theory was increasingly de-emphasized, a de-emphasis that was probably driven by two factors: 1) the profoundly paradoxical nature of the idea that value determines cost, not the reverse, and b) the mathematicization of economics …The false impression was created that economics was an objective science like physics, and that economics should aim to create objective and deterministic scientific representations (models) of complex economic systems that could then yield quantitatively precise predictions, in the same way that physics produced models of planetary motion yielding quantitatively precise predictions.
neoclassical economists who developed this deterministic version of economic theory, a version wonderfully expounded in Samuelson Foundations of Economic Analysis…
Pointer from Mark Thoma (!).Read the whole post, which refers to this lecture by Israel Kirzner. (Kirzner starts about 17 minutes in)
The Samuelson tradition keeps wanting to treat production technology as known and costs as objective. It is long on math and short on philosophy. For an exploration of subjective cost, see James Buchanan’s Cost and Choice. For an analysis of the ideological implications of subjective cost, see my essay.
I am getting a PhD in Plasma Physics, and every time I read about this “mathification” of economics I’m reminded of my own experience learning the math and physics of my field. It seems to me that in order to treat millions of people as you would treat millions of particles (in a gas or a plasma or quantum mechanically) you have to make some assumptions, just as we do in physics.
What gets me is that physicists only get so far with these assumptions and generalizations… typically no further than homework problems and undergraduate laboratories. The real physics — the real scientific discoveries — are made when the assumptions break down. In plasma this occurs when particles aren’t “collisionless” or “thermalized” causing important “negligibles” or “non-linearities” in the math to become relevant. IE: You can’t use a Gaussian and all the related math because the plasma does not have a temperature, per se. Or maybe it has three temperatures. Not only does the math suddenly become stupendously difficult, but often you can’t use conventional math at all (thus my specialty: computerized simulation of individual plasma particles).
I just don’t understand why any economist that wants to act like a physicist and mathify their field hasn’t figured out that physicists are far beyond using math, often times. The physics is where the math doesn’t work anymore, so we often have to simulate each particle as an individual to see what is going on. Sound familiar?
When I read Mises and Hayek I keep thinking of quantum mechanics and my own field in simulation, and wondering how anyone could imagine things being any other way.
But don’t you also have people in physics who only do math and work with taking the math to its limits? It seems to me the problem with economists, at least to the outside observer of their academic black box, is, unlike physicists (or biologists), they don’t seem to know they are being unrealistic when they are modeling- or they don’t make it extremely clear to those observing from outside their black box.