Wednesday, November 14, 2007

One of those numberless unfortunates ... (amv)

The assiduous reader of the knows that I am indignant when it comes to those, who make policy suggestions without having a clue what they are actually talking about (in a recent post I call it 'mercantilistic mumbo jumbo'). Now, I am not the only one who cannot bear this kind of 'hobby economics,' as the following lines written by the great Vilfredo Pareto (The Mind and the Society, 1963) suggest:

"Straightway one of those numberless unfortunates who are cursed with the mania of talking about things they do not understand comes forward with the discovery - lo the wonders of genius! - that pure economics is not applied economics, and concludes ... that pure economics must be replaced by his gabble. Alas, good soul, mathematical economics helps at least to a rough understanding of the effects of the interdependence of economic phenomena while your gabble shows absolutely nothing!"
Now, when Pareto speaks of "mathematical economics," he means general equilibrium theory a la Walras ... today represented by the Arrow-Debreu approach. And Pareto is damn right! Outside general equilibrium theory you are blind to the depth of economic interdependence, to the permanent (re-)shuffling of resources to satisfy the most highly valued ends, to the nature of money cost as representatives of the ends which you have to give up in order to produce an incremement of any good, etc. --- Alas, good soul!