At the heart of the problems we face in the world today is a disastrously wrong theory of knowledge. The vast number of errors within this theory of knowledge have been deeply imbibed by the populace, and have become part of the background assumptions under which we operate. These assumptions are not even open to examination and challenge, because they are buried under the ground as foundations for our thought structures. I would like to examine some of these misconceptions and explain why these create insurmountable obstacles in the path to our quest for the truth.
Enlightenment Myth Number One: Facts and Logic are sufficient to lead us to the truth.
As a corollary, our opinions do not matter. Human beings, their thoughts, anxieties, concerns, as well as personalities, are all irrelevant in the quest for truth. Subjective elements cannot and should not be part of scientific theories. Also, as per the heroic model of science, scientific knowledge is all there is – knowledge is impossible outside the realm of what is objective.
In opposition to this idea, I would like to put forth the following:
The facts by themselves are NEVER enough to lead to the truth.  Read More

After having examined a lot of relevant, useful and insightful material on the failure of orthodoxy, some of which that came up in the responses to my post, I have come to a conclusion that there is a viable project we could undertake together, which has the chance of creating a revolution. There are several points that need to be taken in consideration to shape the project.

Insight Number 1:

The first point comes from Edward Fullbrook’s remark that:

If Samuelson had any claim to genius it was that he understood better than anyone else that nothing in economics is nearly as important as Economics 101. Marshall, Samuelson’s target, understood it also.

Samuelson’s was the textbook which defined economics in the twentieth century. I propose that we work together on writing the textbook which will define economics in the twenty first century.

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On the RWER Blog, Paul David would like heterodox economists to see reason — read and understand the original Keynes. Justaluckyfool would like us to read, understand and implement Soddy’s financial engineering. On the WEA Pedagogy Blog, Paul Grignon ridicules economists’ understanding of money, and offers an alternative. Egmont Kakarot-Handtke , Xavi Mir, and Jeff offer alternative axiomatizations, and principles which would fix the problems with neoclassical theories. Others who have not spoken up on these threads have their own solutions to the problems of the world.

I am trying to offer a meta-analysis here, as noted by davetaylor1. All heterodox economists agree on one thing, by definition of heterodoxy: orthodox economics contains (huge) errors. INSTEAD of explaining what these errors are and trying to fix them, I would like to stand back from the fray and try to examine what is going on from a distance. WHAT makes certain theories popular? WHY do most people come to believe in theories? WHAT causes changes in these beliefs? By studying the Methodology of Polanyi’s Great Transformation, I came to the understanding that theories can only be understood within their historical context. This understanding is violently in conflict with the conception of knowledge, based on positivist ideas, that I learned in the universities. Contrary to positivist ideas, to understand the process of emergence of theories, and how these theories change over time, one has to do analysis at three levels simultaneously:

LEVEL 1: The Historical Facts, the Context, The Various Groups engaged in the struggle for power, and their interests and ideological positions.

LEVEL 2: The THEORIES which are in use by different groups to analyze the historical experience. It is crucial to understand theories as the lens and framework used by different groups to understand history. Theories prescribe actions to be taken, and groups act to shape history in light of understanding furnished by (often false) theories.

LEVEL 3: Rise and fall of theories as a consequence of the shifting sands of political fortunes of different groups, as well as twists and turns of emergent historical events.

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My recent post on RWER Blog asks if there is a “CORE of heterodox economics” which we can all believe in? From the responses to my previous post on whether or not there was a core set of heterodox beliefs, it became clear to me that I have started in the wrong place. Before starting the task of constructing an alternative paradigm, we must clear away the debris of the ruins of the conventional paradigm. Frederic Lee & Steve Keen remarked in the introduction to their article on the “The incoherent emperor: a heterodox critique of neoclassical microeconomic theory” that heterodox economists often come to the defense of conventional economics, because they are ignorant of the vast range of devastating critiques against these theories. To create a revolution, we must change from lukewarm heterodoxy (a partial rejection combined with a partial acceptance of the errors of conventional theories) to a genuinely radical approach requiring a complete rejection. When the errors of the conventional approach become as obvious as the error in “2+2=5”. we will not waste time coming up with new proofs that this is a fallacious calculation.

I would like to put forth a few propositions which provide a clear demonstration of the errors of conventional economic theory. I am hoping that disagreements about these central propositions can be cleared away by discussion, so that we can create consensus about complete rejection of conventional economic theories. After this step is completed, we could move forward to thinking about how to construct alternative foundations.

Propositions: Methodological Mistakes

  1. Logical Positivism is a theory of knowledge. It describes scientific knowledge as being based on observations (facts) and logic. It also excludes huge chunks of human experiential knowledge (such as morality) from the domain of knowledge. As one its early and enthusiastic proponents A J Ayer put it, moral statements are as meaningless as a cry of pain.
  2. In the early twentieth century, foundations of economic theory were revised to put them in line with the ideas of logical positivists about science, in an effort to make economics a “science”. Cooter and Rappoport showed how Lionel Robbins’ definition of scarcity, in line with positivist ideas, drove out earlier definitions of economics based on “material welfare”.
  3. Logical Positivism had a spectacular crash. Even its most enthusiastic exponents admitted to having been wrong. HOWEVER, the foundations of economics (and econometrics) were never revisited. Thus the foundations continue to be based on ideas which have been proven wrong. In my paper Methodological Mistakes and Econometric Consequences, I have shown how positivist foundations for econometrics have led to a seriously defective methodology currently in use.
  4. In my paper on The Normative Foundations of Scarcity, I have explicitly shown that apparently objective concept of “scarcity” conceals within it at least three normative principles. Thus, contrary to a central claim of conventional economic theory, it is a normative theory, and not a positive one.

The above critique is deep and philosophical. There are more obvious and direct approaches to a complete rejection.

Proposition: Empirical Failures of Conventional Economics

  1. Economic theory of consumer behavior is completely wrong as a descriptive theory. The massive amount of evidence is gathered in my paper: Empirical Evidence Against Utility Theory: A Survey of the Literature.
  2. Economic theory of the firm is completely wrong as a description of firm behavior. A massive amount of evidence is gathered in “Debunking the Theory of the Firm” by Steve Keen and Russell Standish
  3. The economic theory of price determination via equilibrium between supply and demand is completely wrong. I have provided a simple example and explanation of its failure in my paper on “Conflict Between General Equilibrium and the Marshallian Cross”. This shows that partial equilibrium supply and demand analysis in one market is in conflict with general equilibrium results, so both cannot be right. Steve Keen and Russell Standish, and perhaps others as well, have gone much further, and provided an alternative theory of price determination.
  4. Once we see that consumer theory, producer theory, and equilibrium theory of price determination are all clearly and obviously wrong, does there remain any further issue to discuss about errors of conventional economic theory? Why should we waste time discussing theories which take all three of these basic building blocks for granted and then construct more complex arguments?

In practice, I have found that to create the courage of conviction required to launch a revolution, it is not enough to just provide a logical argument, or an empirical demonstration, of the fallacies of conventional economic theories. It is so hard to believe that highly intelligent people, capable of mastering the complexities of technical mathematics required for general equilibrium, could go so seriously astray. Thus, in order to make plausible the idea that massive amounts of effort are being poured into completely fallacious theories, one must study the story of the rise and fall of logical positivism. This is the key to understanding why current economic theories are so seriously defective, and also how we can avoid making the same errors which led to this disaster. Instead of answers, I pose the following questions which we must learn the answers to, in order to understand HOW an intellectual tradition became corrupted by logical positivism.

  1. What is the theory of logical positivism? More importantly, why did it become so wildly popular? How is it that some of the most intelligent people in the twentieth century came to believe in its central propositions? It must be the case that the defect in logical positivism is a subtle one, to take in so many innocents into its trap.
  2. Interestingly, a recent survey by Hands, cited in my paper on Normative Foundations of Scarcity, shows that most economists continue to believe in some the key propositions of logical positivism, even though it has been thoroughly refuted by philosophers. Here is the key to the failure of heterodoxy: most heterodox economists also continue to believe in some key propositions of logical positivism. As a consequence, it is impossible for them to construct a sound alternative to conventional economic theories.
  3. FOR STARTERS: we must learn WHY the argument for revealed preference, which deceived Samuelson, is wrong. As per standard positivist ideas, preferences are internal to the heart and unobservable; hence they cannot be used in scientific theories. So Samuelson came up with the idea of using the observable Choices – unobservable preferences are revealed by observable choices. Instead of unscientific arguments about unobservable preferences, we can make scientific arguments about observable choices. Samuelson’s Nobel Prize cites his contributions in making economics a scientific subject. Yet the basic argument is wrong; one cannot eliminate the unobservable preference from economic theories. Understanding this error, which Samuelson failed to do, is the first knot to unravel, in order to clear our minds and hearts of the logical positivist illusions.




Despite the sluggishness in the global economy, officially recorded remittances to developing countries have been growing and the number of international migrants was expected to surpass 250 million in 2015. Among the migration corridors, Mexico-United States accounted for 13 million migrants in 2013. Russia-Ukraine was the second largest, followed by Bangladesh-India, and Ukraine-Russia.

Remittance flows to developing countries are currently higher than three times the amount of flows related to official development assistance. Accordingly the World Bank’s Migration and Development Unit report, officially recorded remittances to developing countries reached almost $534 billion in 2012 and $601 billion in 2015. As remittance flows include unrecorded flows through formal and informal channels, the actual amount of money that is transferred cross-border to family members might be significantly higher.

In 2014, diaspora members living in the United States sent more money in remittances than diaspora members based in any other country, with an estimated $56 billion in outward flows. The United States was followed by Saudi Arabia ($37 billion), and Russia ($33 billion). In 2015, India was the largest remittance receiving country. Accordingly the World Bank, diaspora members sent almost $72 billion in remittances to India and $64 billion to China in 2015. The Philippines and Mexico received almost $50 billion in officially recorded remittances, in 2015.

High unemployment rates in Europe have impacted outward remittance flows. An analysis of the labour markets shows that migrant unemployment rates are higher than those native-born in France, Greece, Italy, Spain and the UK. This trend has dampened the level of remittance outflows from major remittance senders in Europe, such as the UK, Spain, and Italy. As a result, Eastern Europe and Central Asian countries have received weak remittance inflows. For example, Poland, Romania, Bosnia and Herzegovina – major recipients of remittances from Western European countries – have also received shrinking remittances. Besides, countries of MENA (Middle East and North Africa region) have also been affected by weak remittance outflows from Europe.

A striking contrast to weak remittance outflows from Western Europe has been the outflows from Russia, a country that benefited from elevated oil prices until the last few years. In 2012, the main beneficiaries of growing remittance outflows from Russia have been migrants from Armenia, Georgia, Kyrgyz Republic, Moldova, and Tajikistan, for example.

Remittances that migrants send home to their families have certainly a major impact on households. Remittances increase disposable income and are generally spent on consumption—of food, clothing, medicine, shelter, and durable goods. Consequently, remittances contribute to lift people out of extreme and moderate poverty by enabling them to maintain a higher level of consumption, also during economic adversity.

Although many factors could affect migration around the world, the concern in relation to the economics curriculum is about the need to deeply study the underlying mechanisms of inequality and current patterns of social exclusion where the flow of remittances supports survival strategies  to those people who lack employment opportunities.

The answer to this apparently simple question is surprisingly complex. This article can only provide a brief sketch. Early in the 20th century, about 90 per cent of Muslim lands were colonised. The two world wars substantially weakened the European powers, and enabled liberation movements to succeed all over the globe. At the time, there were two competing models for organising economies: capitalism and communism. Revolutions are driven by ideologies, and leading Islamic thinkers like Maududi and Baqir Al-Sadr offered a third alternative as the natural option for newly-liberated Muslim countries. They argued that Islam had its own distinct economic system, and this system was superior to both capitalism and communism. For reasons to be discussed, this idea of constructing a radical alternative to dominant economic systems was not realised in the post-colonial period.

Colonial educational systems had explicit goals to create a buffer between the rulers and the colonised, as described by Lord Macaulay in his famous Minute on Education: “We must at present do our best to form a class who may be interpreters between us and the millions whom we govern; a class of persons, Indian in blood and colour, but English in taste, in opinions, in morals, and in intellect.” These intermediaries were called ‘compradores’ in Latin America, Black Skins with White Masks(Frantz Fanon) in Africa, and Brown Skins with White Masks (Hamid Dabashi) in Asia. They ran the vast administrative and bureaucratic structures on behalf of the colonisers, and naturally came into power following independence. These compradores were trained to believe in the superiority of the colonisers, and to treat their heritage, ancestors and indigenous society with contempt. Plans for an Islamic economic system were put on the back burner as Islamic groups engaged in the struggle to wrest control from secularised and Westernised compradores. For complex sets of reasons, these struggles were unsuccessful and the compradore class succeeded in retaining power throughout the colonised lands.

Second generation pragmatists saw that the required revolution did not appear to be forthcoming. They abandoned the grand vision of the founders for a just and images (4)equitable alternative to both capitalism and communism. More limited goals were targeted. Instead of rejecting capitalist institutional structures, the new Islamic economics (nIE) attempted to tinker with capitalism in order to make it conform to Islamic principles. A popular formula for defining the subject became: nIE = Capitalism – Interest + Zakat.

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Huge social, economic and political transformations characterize the so called globalization process. After the 2008 global financial crisis, much of the academic debate in economics focused on its causes and the governance issues related to risk management, monetary policy and weak regulation. Nevertheless, changes in the capital accumulation and production trends on behalf of the reality of automation and of technological innovation have received little attention.

Throughout the last decades, a variety of growth models have overwhelmed the global scenario: while some countries have presented a consumption-driven growth model fuelled by credit, generally followed by current account deficits, other countries have developed an export-driven growth model, mainly characterized by modest consumption growth and large current account surpluses. In spite of the specific growth pattern, the finance-led accumulation regime has presented some distinctive features in labour markets.

Indeed, there has been a redefinition of labour and working conditions that affected livelihoods. The evolution of the capitalist relations of production has revealed changing labour organizing principles to cope with the dictates of increasing capital mobility: redefinition of tasks in the context of transformations in management practices towards new kinds of control in the workplace, job rotation, outsourcing, crowdsourcing and labour saving strategies. Attacks on labour unions and the diminishing organizational strength of collective demands need to be underlined. In this scenario, the deterioration of income distribution puts a downward pressure on consumption. However, on behalf of financial liberalization, households could expand the levels of consumption because they have access to credit, not only to mortgages but also to consumer loans, such as credit cards and overdraft bank accounts.

In historical perspective, the very real facts of capital accumulation, as well as of production and employment trends, have turned out to show their economic, social and political limits and contradictions. Nation states have created opportunities to capital mobility and increasing global profits. As a result, there has been a trend to the corporatization of national policies in a context where the implementation of industrial policies has turned out to reinforce corporate power. Thus, the impacts of globalization need to be thought within the boundaries of a global accumulation dynamics where the interactions between the nation states’ policy targets and the workers’ needs are overwhelmed by tensions.

For instance, global competition and investment trends are currently driven by technological innovations that are labor-saving. Germany has recently launched the project Industrie 4.0 which is considered of significant importance to the continued competitiveness of German industry. Besides, the recent President Obama’s program A Strategy for American Innovation addresses that “… the United States cannot afford to be complacent. Our economic competitors are dramatically increasing their research and development (R&D) investments”.

Accordingly the ITIF’s 2015 report, the list of “innovation mercantilist” policies includes:

  • Canada: Continued to misuse international intellectual property law to undermine pharmaceutical patents.
  • China: Introduced expanded requirements for forced local data storage. China also used its semiconductor industrial policy to support domestic firms.
  • India: Introduced local content requirements as part of its National Telecom Machine-to-Machine Roadmap and introduced local content requirements in solar power projects.
  • Indonesia: Introduced local content requirements for smart phones and forced local data storage.
  • Nigeria: Implemented local content requirements for information, communications, and technology products and forced local data storage.
  • Russia: Implemented forced local data storage requirements and forced the local production of pharmaceuticals and medical devices.
  • Turkey: Adopted safeguard protection measures in order to protect a nascent smart phone manufacturer.

Taking into account this scenario, we can notice a relationship between investment, innovations and the “competition among countries for business” that has been called “innovation mercantilism” (ITIF update, 2016). Indeed, in the race for global advantage in innovation, many countries embrace protectionist policies to expand domestic production and exports of high-tech goods and services. Therefore, households’ consumption will continue increasingly dependent on central banks’ and banks’ strategies since policies focus the stabilization of profits instead of employment and income goals.

As a matter of fact, as Hyman Minsky warned, the decisive question related to the policy making of this “innovation mercantilism” is “Who will benefit?”.


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