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In his autobiography Bertrand Russell tells us he dropped his interest in economics after half a year’s study because he thought it was too simple. Max Planck dropped his involvement with economics because he thought it was too difficult. I went into economics because I’d been trained in mathematics and I thought, as Russell did, that economics looked easy. It took me several years to get from Russell’s position to Planck’s. Economics is inherently difficult. W. Brian Arthur The…term 'dismal science,' which has long been associated with economics…originated in the writings of the Scottish essayist and historian Thomas Carlyle. He coined the term while referring to Thomas Malthus and his belief that exponential population growth and linear food supply growth would result in worldwide famine. Since then, economics has also been referred to as the dismal science because of the general notion of diminishing marginal returns. http://www.economy.com/ …Economics is a study of mankind in the ordinary business of life;… Alfred Marshall Economics is the “study of how societies use scarce resources to produce valuable commodities and distribute them among different people.” Paul Samuelson Economics is a social science which has as its purpose the study and explanation of how a capitalist economy works. But what is meant by an economy? Some people, including many economists, define economy as "a mechanism that allocates scarce resources among competing uses;" and then there is the dictionary definition -- the administration of the wealth and resources of the community. As stated, both definitions are so abstract and vague so as to be useless. Fred Lee To me, it seems that what we know as economics is the study of those phenomena that can be understood as emerging from the interactions among intelligent, self-interested individuals. Notice that there are really four parts to this definition. Let's read from right to left. 1. Economics is about what individuals do: not classes, not "correlations of forces", but individual actors. This is not to deny the relevance of higher levels of analysis, but they must be grounded in individual behavior. Methodological individualism is of the essence. 2. The individuals are self-interested. There is nothing in economics that inherently prevents us from allowing people to derive satisfaction from others' consumption, but the predictive power of economic theory comes from the presumption that normally people care about themselves. 3. The individuals are intelligent: obvious opportunities for gain are not neglected. Hundred-dollar bills do not lie unattended in the street for very long. 4. We are concerned with the interaction of such individuals: Most interesting economic theory, from supply and demand on, is about "invisible hand" processes in which the collective outcome is not what individuals intended. Paul Krugman "Mainstream economics is the science of scarcity, the study of the optimal allocation of scarce means...By contrast, post-Keynesian economics is concerned, as the classical authors were, with production and distribution. The major issue is not how to allocate resources but rather how to get rid of unemployed resources and how to increase production and living standards.“ Marc Lavoie Economics…is largely an outgrowth of the eighteenth-century mechanistic view of the universe…over the last several decades, however, quite a different philosophical framework has emerged…This is the systems…approach. The advantage which it offers…is that it can incorporate within its analytical structure (a) purposeful activity, (b) cumulative processes, and (c) the interaction of subsystems, both as part of a larger systems dynamic and in response to feedback from the environment…Under the systems approach, economics is no longer the study of how scarce resources are allocated…It is instead the study of how an economic system…is able to expand its output over time…Although the final state cannot be deduced – because the analysis is concerned with historical time – the process of expansion, that is, the dynamics of the system, can be intelligently analyzed. From a post-Keynesian perspective, it is the behavior of the system as a whole…which economic theory must be capable of explaining… Alfred Eichner “…the purpose of economics [is] to explain the macrodynamic behavior of the economic system [and] is best served by constructing a model that can meet certain empirical tests, including the ability to simulate the economy’s actual historical experience.” Alfred Eichner "Economics is extremely useful as a form of employment for economists." John Kenneth Galbraith "A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents die and a new generation grows up that is familiar with it." Max Planck "Great thinkers have always encountered violent opposition from mediocre minds" Albert Einstein "Heterodoxy is important for scientific advance because new ideas and discoveries have to emerge initially as heterodox views, at variance with established understanding. One need reflect only on the history of the scientific contributions of say, Galileo or Newton or Darwin, to see the role of heterodoxy in the process. The history of science is integrally linked with heterodoxy." Amartya Sen [Michal] Kalecki considered the problem of the relation of trend to cycle to be the remaining “central pièce de résistance of economics.” Jan Kregel I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules -- (1) Use mathematics as a shorthand language, rather than an engine of inquiry. (2) Keep to them until you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can't succeed in 4, burn 3. This last I did often. Alfred Marshall Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist. Kenneth Boulding [I]f I were to cast about for reasons to explain Boulding's failure to create a "school," one cause would be the lack of a cutting edge to his ideas. This may be the case because these path-breaking explorations in general systems theory, ecological interactions, stock-flow integrations, and the like, are simply ahead of their time. It is possible that with the improvement of knowledge and technique, ideas that are now "only" imaginative percepts will take on a new importance as the unifying frameworks for the...models of the future. For the moment, however, no such models exist, and we will have to wait to discover whether Boulding is an unheeded prophet because he is a figure born prematurely - a Quesnay working out his zigzags before the computer made possible input-output tables. Robert L. Heilbronner The computer people took seriously the evidence that people are not maximizing-rational and decided to find out by empirical study how decisions are actually made. Thus they became, in a way, heirs of the institutionalist program. Paul Diesing ...it is justified to regard the principle of interlocking circular interdependencies within a process of cumulative causation as the "disciplinary matrix" which provides institutional economists with a new tool for the identification and ordering of the relevant elements in the study of socioeconomic processes in their immensely diversified and changing complexity. More than this, the principle enables institutionalists (and other social scientists) to transform problematical situations and unsolved open problems...into "puzzles" which can be solved even when a complete theory and the precise knowledge as to the "coefficients of interactions" are not available. K. William Kapp ...the analytical instrument, the variety of mathematics, that institutional-evolutionary economics always needed, and always lacked, now exists. It is the computer simulation model....This new resource is essential to causal economics; it is already widely used in related fields such as ecology. The complex, dynamic, highly interactive and circumstantial processes of economics cannot be accurately modeled by analytical mathematics. But there is a need for a relevant and powerful analytical tool. The unaided mind cannot get far in interpreting such complex processes. The analytical tool that can handle complex interactions, occurring in time, including cybernetic structures and causal factors importantly dependent on circumstantial side conditions - this is the computer simulation model. J. M. Culbertson The institutionalist paradigm focuses upon...an holistic and evolutionary view of the structure-behavior-performance of the economy...in a system of general interdependence or cumulative causation. Warren Samuels Time is a device that prevents everything from happening at once. Henri Bergson Time is a device to stop everything from happening at once ... space is a device to stop everything from happening in Cambridge. Attributed to Dharma Kumar [System dynamics is a] toy [and] an illustration of the type of senile maundering and immature egocentricity...[that] infests the social sciences like maggots on an organically-grown peach. John Casti Page after page of professional economic journals are filled with mathematical formulas leading the reader from sets of more or less plausible but entirely arbitrary assumptions to precisely stated but irrelevant theoretical conclusions. Wassily Leontief In economics, as in physics, changes are generally continuous. Alfred Marshall There is a history of mathematical models of oligopolistic competition dating from Cournot (1838) to the theory of games. There is also a literature generated by institutional economists, lawyers, and administrators interested in formulating and implementing public policy. It has been the tendency of these groups to work almost as though the other did not exist. Martin Shubik ...it is distressing how often one can guess the answer given to an economic question merely by knowing who asks it. George J. Stigler I think there is a world market for about five computers. Thomas J. Watson I have found what economics is; it is the science of confusing stocks with flows. A verbal statement by Michal Kalecki, circa 1936, as cited by Joan Robinson in "Shedding Darkness," Cambridge Journal of Economics 6(3), September 1982, pp. 295-296. To me, the expression post-Keynesian has a definite meaning; it applies to an economic theory or method of analysis which takes account of the difference between the future and the past. Joan Robinson. 1978. "Keynes and Ricardo." Journal of Post Keynesian Economics 1: 12-18. The government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the government and the buying power of consumers. By adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity. Abraham Lincoln, 16th US President Thanks to Munaf Amir for directing me to this quote. The error is well illustrated by what I call the parable of the thermostat. The following has probably happened to you; it has certainly happened to me. You arrive at night in an unfamiliar hotel and find the room too cold. So you turn up the heat and take a shower. Emerging 10 minutes later, you still find the room too cold. So you turn the heat up another notch and go to sleep. At about 2 a.m. you wake up in a pool of sweat in a room that is oppressively hot. By analogy, a central bank following the "looking out the window" strategy proceeds as follows. For concreteness, suppose it is in the process of tightening. At each decision-making juncture, the bank takes the economy's temperature and, if it is still too hot, tightens monetary conditions another notch. Given the long lags in monetary policy, you can easily see how such a strategy can keep the central bank tightening for too long. Alan Blinder Everyone who has studied money and banking has been introduced to the concept of the money multiplier. The multiplier is a factor which links a change in the monetary base (reserves + currency) to a change in the money supply. The multiplier tells us what multiple of the monetary base is transformed into the money supply (M = m x MB). Since George Washington's portrait first graced the one dollar bill students have listened to the same explanation of the process. No matter what the legally required reserve ratio was, the standard example always assumed 10 percent so the the math was simple enough for college professors. What joy must have spread through the entire financial community when, on April 12, 1992, the Fed, for the first time, set the required reserve ratio at the magical 10 percent. Given the simplicity and widespread understanding of the money multiplier it is a shame that the myth must be laid to rest. Warren Mosler The efficient market hypothesis is the most remarkable error in the history of economic theory. Lawrence Summers Theoretical physicists are accustomed to the success of mathematics in formulating laws of the universe and elaborating their consequences. The universe does indeed seem to run like some splendid Swiss clockwork: We can predict the orbits of the planets and the frequency of light emitted by atoms to eight or ten decimal places. But when a physicist first pages through a graduate economics or finance textbook, he or she begins to feel aghast. The mathematics of economics is so much more formal than the mathematics of physics textbooks - much of it reads like Euclid or set theory, replete with axioms, theorems, and lemmas. You would think that all this formality would produce precision. And yet, compared with physics, economics has so little explanatory or predictive power. Everything looks suspect; questions abound. Emanual Derman There is a misconception aired by some investment advisers, though, that if your goal is to achieve maximum long-term capital growth, then the best strategy is a buy-and-hold one. This notion has been shown to be mathematically false. Ernest P. Chan
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