The Dismal Science

These are Thomas Carlyle's words: "the dismal science." But it's the practioners of economists, the professors and the Wall Street gurus, who are dismal, not the subject matter itself. "Its dismalness," wrote H. L. Mencken, refering to economics, "is largely a delusion, due to the fact that its chief ornaments, at least in our own day, are universty professors." While this is part of the truth, it's not the whole truth. Professors do remain the chief expositors, and therefore the principle dismallizers (to coin an ugly word for an even uglier thing) of the study of economics. But the mere pedantry of professors is not the only problem. Perhaps even more serious is the desire on the part of these professors to make of economics a "science" on the model of chemsitry or physics. In other words, to give to the conclusions of economic research the same level of objectivity and certainty achieved by the so-called "hard" sciences. And so they have come up with a number of very cleve theories which seek to justify the introduction of mathematics into economics. The most important of theserevolves around the concept of "equilibrium." The Swiss economist Leon Walras argued that the economy can be viewed as always in the process of achieving equilibrium. With this concept well in hand, Walras introduced a very complicated mathematical model of the economy as a system of simultaneous equations in which all prices and quantities are uniquely determined, and, furthermore, that given a sufficent number of market commodities,  there will in general be a unique solution to these simultaneous equations.

Sounds pretty dismal, does it not? And of course it is precisely that: the very acme of dismalness — as dismal as anything concocted by the laborious little minds of those idiot savants who dominate the economics profession. Even worse, it has nothing to do with economic reality. The real economy that exists in the world of substance and fact (rather than the imaginary economy that exists in the heads of economics professors and other such frauds) is not made up of simultaneous equations or demand schedules or any such nonsense. Nor does it exist in a state of general equilibrium. Nor is it even attempting to approach such a state. The notion of general equilibrium is a metaphor — and a not very apt one at that. It is, once again, an attempt to make economics appear as if it were a "real" science like physics or chemsitry. The very term equilibrium is taken from physics. Walras was a mining engineer, not an economist, by training.

There can be little doubt that modern equilibrium economists — in other words, what passes for mainstream economics within academia — is in great need of being overhauled and reformed. It cannot remain much longer what it is without becoming more and more of an intellectual disgrace and embarrassment. Since no one within the economics fold is likely to make an effort to reform the discipline, I have made an initial effort in the essay "Machiavellian Economics," which lays down ten common sense orientated conjectures for a more reality-orientated, non-mathematical study of economics.

Critical to our time is the problem of credit excess and its relation to the business cycle. This issue is explored in "Notes Toward a Theory of the Business Cycle," which, as the title indicates, is not so much a new and original theory but simply some suggestions of how such a theory might be formed and tested. I must emphasize the provisional character of this essay. All the conjectures introduced in the article need to be empirically tested before they can even begin to be taken seriously as an accurate description of economic reality.

There is one more article in the pipeline which covers the subject hinted at in these remarks (i.e., the shocking state of modern economics) entitled "The Economics Profession: an autopsy. A "beta" version of the essays has just been posted (as of March, 2005). Eventually, these articles will make up the economics section of my next book, Machiavellian Economics and Other Essays. For those interested in my first book, Ayn Rand Contra Human Nature, it can be found here.

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Economic Quotes

"There is no more engrossing book in the English language than Adam Smith's The Wealth of Nations; surely the eighteenth century produced nothing that can be read with greater ease today. Nor is there any inherent reason why even the most technical divisions of its subject should have gathered cobwebs with the passing of the years. Taxation, for example, is eternally lively; it concerns nine-tenths of us more directly than either smallpox or golf, and has just as much drama in it; moreover, it has been mellowed and made gay by as many gaudy, preposterous theories. As for the foreign exchange, it is almost as romantic as young love, and quite as resistant to formulae."

— H. L. Mencken

"The mathematical method must be rejected not only on account of its barrenness. It is an entirely vicious method, starting from false assumptions and leading to fallacious inferences. Its syllogisms are not only sterile; they divert the minds from the study of the real problems and distort the relations between the various phenomena."

— Ludwig von Mises